*investor expectations. 2.An alternative term for *retained earnings. 3.In
*not-for-profit organizations, an alternative term for *net income or profit.
suspense account A *general ledger account used to temporarily record
*transactions. By nature, a suspense account should be regularly cleared of its contents, as it is merely a resting place for items awaiting analysis or investi- gation. See also *transit account.
sustainability The pursuit of economic growth without excessive degradation of the physical and social environment. Sustainability aims to protect resources so that they can extend as far as possible into the future. For example, restrained fishing practices can be undertaken to avoid dangerous depletion of fish stocks. See also *corporate social responsibility, *AccountAbility, and the
*World Business Council for Sustainable Development.
sweatshop A factory characterized by poor working conditions, low wages, and the exploitation and intimidation of employees.
SWOT (strengths, weaknesses, opportunities, and threats) analysis An approach to *risk assessment and organizational planning that aims to identify the strong and weak aspects (actual and potential) of an activity or organization.
syndicate A group of individuals or organizations working in combination for a common purpose. For example, investment bankers create temporary syndi- cates to promote the sale of *securities.
systematic risk The part of an asset’s risk that cannot be eliminated through
*diversification. This type of risk can be measured by a *beta coefficient.
253
T
T-account In *double entry bookkeeping, a diagrammatic depiction of an *account in the form of the letter “T.” The T-shape is created by attaching to a horizon- tal line a vertical line that extends down the page. The left side of the account records *debit entries, and the right side records *credit entries.
takeover An alternative term for *acquisition (definition 2).
tangible asset A *long-term *asset that possesses physical substance. Examples include *property, plant, and equipment.
tariff A *customs *duty levied on the *exportation or *importation of goods or services. A tariff may be imposed by a government purely for revenue-generating
*taxation purposes, or it can serve more political ends. Examples of the latter include (i) trade *protectionism, (ii) *barriers to entry to a *market, (iii) anti-
*dumping measures, (iv) a form of retaliation against the tariffs of another country, and (v) protection of a nation’s cultural heritage (by discouraging the export of works of art and items of national treasure).
tax 1.An abbreviated term for *taxation. 2.An individual category of *taxa- tion. Examples include *sales tax and *value added tax.
taxation A compulsory contribution to government finances. Taxation falls on both individuals and organizations, and its revenues are used by a government (i) to fund *public sector expenditure and (ii) to pursue political policies (like the redistribution of wealth). See also *ad valoremtax, *consumption tax, *direct taxation, *indirect taxation, *progressive tax, *regressive tax, *sales tax,
*value added tax, and *windfall tax.
tax avoidance An arrangement, within the law, of the affairs of an individual or organization to minimize *taxation liabilities. Contrast *tax evasion.
tax break A *taxation concession or exemption given by a government to an individual or organization.
tax effect The *taxation consequences of an event or course of action. The term is often used to differentiate between the treatment of an accounting *transaction
254• tax evasion
under *Generally Accepted Accounting Principles and its comparative treatment in the preparation of taxation calculations.
tax evasion The criminal practice of avoiding or underpaying *taxation liabilities.
Contrast *tax avoidance.
tax haven A country or territory that offers low *tax rates or *tax avoidance ben- efits to individuals or organizations. The economic impact of tax havens tends to be wildly disproportionate to their size. Tax havens are often small island nations or tiny territories at the geographical fringes of major economies, but it is estimated that as much as one-third of the world’s Gross Domestic Product passes through them at some point (Mitchell et al., 2002). The *Organization for Economic Co-operation and Development (OECD) has brought pressure on territories it suspects of facilitating *tax evasion or *money laundering. In 2000, for example, the OECD drafted a list of thirty-five “unco-operative” countries and territories it criticized for allegedly poor standards of financial *trans- parency, tax *regulation, and exchange of information. Most of the territories subsequently committed to improvements in regulation and transparency, but by the end of 2003 the OECD still identified five jurisdictions on its list.
Further reading: Mitchell et al. (2002) Web site: www.oecd.org
tax holiday A period in which, by agreement with the relevant government authorities, no *taxation is paid.
tax rate The rate of *taxation applied to the income or other taxable resources of an individual or organization.
tax return A document used to declare information to *taxation authorities.
tax shelter An *investment mechanism that offers low *taxation liabilities.
Teachers Insurance and Annuity Association College Retirement Equities Fund (TIAA-CREF) A major *institutional investor. Based in New York, TIAA-CREF was founded in the early twentieth century. It offers a range of financial products, including retirement plans and life and health
*insurance. Like *CalPERS, another major US institutional investor, TIAA- CREF has contributed to debates on *corporate governance, and its Policy Statement on Corporate Governance was first published in 1997. Available online and periodically updated, matters covered by the Policy Statement include the responsibilities of *boards of directors to *executive remuneration.
Further reading: TIAA-CREF (2002) Web site: www.tiaa-cref.org
Three E’s • 255
teeming and lading A British term for *lapping.
telegraphic transfer An alternative term for *wire transfer.
template 1.A shaped or patterned item used as an aid in drawing, designing, cutting, and similar activities. Templates are often used in the manual prepara- tion of *flowcharts. 2.An item that serves as a *standard (definition 2) or model.
3.A pre-prepared document or computer program used for the periodic recording of
*data of a recurring nature. For example, *spreadsheets can be prepared as tem- plates for the periodic analysis of budgetary accounting information.
temporary difference A transitory difference between *income (definition 2) calculated under *Generally Accepted Accounting Principles and income cal- culated according to *taxation rules. Temporary differences originate in one
*fiscal year and reverse in another. Contrast *permanent difference.
tender 1.A formal offer, communication, or presentation. For example, “He ten- dered his resignation last week.” 2.A competitive process of bidding for a *con- tract to perform work or to supply goods or services at a defined *price. For example, “The corporation invited tenders for its annual external audit.”
test See *audit test.
test data 1.A *sample of *data used in an *audit test. 2.Simulated *data and
*transactions used in the *compliance testing of computer *application con- trols. See also *computer assisted auditing techniques.
third party An individual or organization not directly involved in a transaction or contract. In auditing, *audit evidence gathered from third parties (e.g., through the *circularization of an organization’s customers) is generally con- sidered to provide strong *audit evidence.
Third World An alternative, slightly archaic term for a *developing country. The term was coined during the Cold War as part of the classification of the world’s nations into three groups: (i) communist countries, (ii) economically advanced capitalist countries, and (iii) economically underdeveloped nations that did not fall into either of the preceding categories. The term entered English by transla- tion from the French phrase tiers monde, but following the collapse of the Soviet bloc in the late twentieth century the notion of the threefold division of nations lost much of its significance. The term has a somewhat old-fashioned ring today.
Three E’s The term used in *operational or *value-for-money auditing to denote the *economy, *efficiency, and *effectiveness of operations under audit.
Operational audits frequently use these three criteria, which have been
256• threshold
summarized succinctly as follows (Sawyer and Vinten, 1996, 66-67):
• Economy is doing things cheap
• Efficiency is doing them right
• Effectiveness is doing the right things.
In recent years some commentators have expanded the list of criteria from three to six, to create the *Six E’s.
threshold 1.A quantifiable limit beyond which the nature of an item changes.
For example, a taxation threshold is a point at which a *tax rate changes.
2.A quantifiable limit used in the establishment of *internal controls over
*authorization procedures. For example, the authorization of disbursements in an organization may require the written approval of a number of individuals.
Disbursement value thresholds can define individual employees’ authorization powers in line with their organizational responsibilities and status.
Thurston, John B. (1908–1951) A U.S. internal auditing pioneer. Thurston was one of three “founding fathers” of the *Institute of Internal Auditors (IIA), along with *Victor Z. Brink and *Robert B. Milne. He was the first president of the IIA on its founding in 1941. It has been suggested that “[w]ithout ques- tion, John B. Thurston deserves to be called the ‘father of the Institute of Internal Auditors’. It was clearly through his efforts that the creation and development of the Institute was accelerated by many years” (Brink, 1977, 9).
Following his death, the IIA established the Thurston Award in his honor. The award is given for outstanding articles in the IIA magazine *Internal Auditor.
Further reading: Brink (1977); Flesher (1991)
TIAA-CREF See *Teachers Insurance and Annuity Association College Retirement Equities Fund.
ticking The making of a small mark on a document to indicate the performance of an *audit test. Tick marks are common in manual audit *work papers, where different marks can represent different aspects of testing. The interpre- tation of tick marks is usually facilitated by a glossary or key to the audit work performed. See also *box-ticking approach.
time and motion study A formal *evaluation of the *efficiency and *effec- tiveness of operational activity in an organization. Time and motion studies typically look at the physical procedures and time taken to perform defined activities, with a view to simplifying and speeding up the activities reviewed.
time value of money The notion that a unit of *money is worth more at present than in the future, owing to the erosion of its value by *inflation. The concept is central to *discounted cash flow analysis.
Tone at the Top • 257
timing difference 1.An inconsistency between the timing of the accounting of an item and the timing of its underlying circumstances. 2.A difference between *income (definition 2) calculated under *Generally Accepted Accounting Principles and income calculated according to *taxation rules. See
*permanent difference and *temporary difference.
token 1.[adjective] Small, insignificant. For example, “They were offered just a token payment as compensation.” 2.[adjective] Symbolic or representative.
For example, “Please except this award as a token of our esteem.” 3.[noun] A
*coupon or *voucher that can be exchanged for a good or service. For example,
“He gave her a book token as a birthday gift.”
tolerable rate 1.In external auditing, the extent to which the *misstatement of an accounting balance does not *materially misstate *financial statements.
Assessments of tolerable rates are a fundamental aspect of *audit risk assess- ment for external auditors. 2.In *budgeting, an acceptable divergence of actu- al results from budgeted amounts.
tone at the top A phrase denoting the attitudes of an organization’s *board of directors and senior managers toward *corporate governance, *ethics, *risk management, and *internal controls. The tone at the top is often considered to establish the atmosphere of the entire organization. Acceptance by a board of directors of good ethical and governance standards is therefore deemed to be a prerequisite for good corporate governance in the organization as a whole. It has been suggested that boards of directors “have the dual role of framing codes of conduct and of living by them” (Cadbury, 2002, 38).
Major corporate scandals and misconduct have often derived from a weak governance culture at an organization’s highest echelons, For example, the attitudes of senior officials at *Enron, *WorldCom, and *Arthur Andersen are widely considered to have been major contributory factors to the demise of those organizations. “A fish rots from its head,” as an old proverb says.
Tone at the Top A U.S. internal auditing and *corporate governance news- letter. Published quarterly by the *Institute of Internal Auditors, the newsletter is available in print and online formats. Its Web page states its aim to be as follows: To “provide executive management, boards of directors, and audit committees with concise, leading-edge information on such issues as risk, internal control, governance, ethics, and the changing role of internal auditing;
and guidance relative to their roles in, and responsibilities for the internal audit process.”
Web link: www.theiia.org/ecm/newsletters.cfm?doc_id=739
258• top table
top table An alternative, informal term for a corporation’s main *board of direc- tors or an organization’s similar governing body.
total quality management (TQM) A *management philosophy that stresses the responsibilities of all employees in an organization in contributing to the achievement of the organization’s objectives. Total quality management exhibits some or all of the following characteristics: (i) a commitment to *continuous improvement, (ii) the minimization or elimination of *waste, (iii) the minimiza- tion or elimination of defects in *products or services, and (iv) a commitment to satisfying (and preferably exceeding) customer expectations.
Further reading: Hawkes and Adams (1994)
trace, to 1.To find something, or the origin of something, through investigation.
For example, “He traced the source of the *fraud to a warehouse employee.” 2.
To describe something in outline form. For example, “He traced an outline to the
*audit committee of how the fraud was perpetrated.”
traceable cost A *cost that can be related directly to a particular activity or item. For example, the costs of a manufactured product can be traced to *cost centers or purchases of specific *raw materials, and the costs of a business trip can be traced to supporting invoices and receipts.
trade 1.The activity of buying and selling goods and services. 2.Individuals and organizations operating in a defined sector of economic activity. For example, “She was well known in the furniture trade.” 3. Work or related activity that requires skills and training, but which does not enjoy the high social status of a *profession.
trade barrier An impediment to a *free market in the *trade of goods or serv- ices. See also *protectionism and *tariff.
trade credit See *credit.
trade creditors A British term for *accounts payable.
trade debtors A British term for *accounts receivable.
trade discount See *discount.
trademark 1.The registering of a name or design to obtain legal protection over its exclusive use. See also *patent. 2.A characteristic or distinctive aspect of an individual, item, or activity. For example, “He won the argument through his trademark charm and eloquence.”
trade receivables A British term for *accounts receivable.
Transparency International • 259
trafficking Trading and dealing in an *underground economy.
trail See *audit trail.
tranche An installment or portion of *money. For example, “The first trancheof the loan is payable next month.” The word is taken from the French word for slice.
transaction An event or interaction between individuals or organizations that has economic consequences. A common example of a transaction is the buying or selling of a good or service.
transfer price The *price of a good or service used in *transactions between parts of a decentralized organization. The transfer pricing arrangements of
*multinational corporations can be used to shift taxable *income to low tax countries, but regulatory authorities in recent years have started to closely mon- itor the international transfer pricing practices of *multinational corporations.
transit account An alternative term for *suspense account. However, the terms transit account and suspense account are sometimes differentiated as follows: (i) a suspense account is used for items awaiting analysis or investi- gation and (ii) a transit account is used for items whose proper general ledger classification is subject to an underlying time restriction (such as the receipt of a customer *statement of account).
translation 1.The process of converting financial data from one *currency to another. 2. The process of converting written text from one language to another.
transnational corporation (TNC) An alternative term for *multinational corporation.
transparency Openness to public scrutiny. Transparency is widely considered to be central to best practice in *corporate governance and *corporate social responsibility.
Transparency International (TI) An international anti*corruption organi- zation. Transparency International is headquartered in Berlin, Germany, and its mission (as stated on its Web site) is to bring “civil society, business, and governments together in a powerful global [anti-corruption] coalition.” The organization’s activities include policy statements, compliance monitoring, and research. It also produces well-publicized “league tables” of countries ranked by measures of corruption.
Web site: www.transparency.org
260• traveling auditor
traveling auditor An alternative term for *field auditor.
Treadway Commission Report An abbreviated name for the 1987 report of the United States’ National Commission on Fraudulent Financial Reporting.
Named for its chairperson, James C. Treadway (a former commissioner of the
*Securities and Exchange Commission), the establishment of the National Commission in 1985 was a reaction against the corporate accounting scandals of the early 1980s. The report stressed the important role of *audit committees and internal auditors in reducing *financial reporting fraud, and it emphasized the importance of *ethical organizational policies. The sponsors of the Treadway Commission are known as the *Committee of Sponsoring Organizations (COSO), and they have followed up the 1987 report with further *corporate gov- ernance initiatives, including Internal Control–Integrated Framework(1992).
The Treadway Commission Reportis available online on the COSO Web site.
Further reading: Phillips et al. (1987); Treadway Commission (1987) Web site: www.coso.org