dbsd
&a
Doli, Bambang, Sulistiyanto, Dadang & Ali
Registered Public Accountants
Inhouse Training
Audit Approach Theory
5 September 2016
THE PROCESS OF AUDITING
PENDEKATAN TEORI
Oleh : TRIYANTO
dbsd & a BKRIndependent Member of
International
Generally Accepted Auditing
Standards
1. COMPETENT :The auditor must have
adequate technical training and proficiency to perform the audit.
2. INDEPENDENT :The auditor must maintain
independence in mental attitude in all matters relating to the audit.
General Standards
3. PROFESSIONAL :The auditor must exercise due
professional care in the performance of the audit and the preparation of the report.
1. PLANNING & SUPERVISE : The auditor must adequately plan the work and must properly supervise any assistants.
2. UNDERSTANDING THE ENTITY : The auditor must obtain a sufficient understanding of the entity and
its environment, including its internal control, to assess the risk of material misstatement and to design further audit procedures.
Standards of Field Work
3. SUFFICIENT & APPROPRIATE EVIDENCE :
The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion
1. The report shall state whether the financial statements are presented in accordance with GAAP.
2. The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
Standards of Reporting
3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.
4. The report shall contain an expression of opinion regarding
Audit Responsibilities
and Objectives
Objective of Conducting an Audit of Financial Statements
The objective of the ordinary audit of financial statements is the expression of an opinion of the fairness with which they present fairly, in all respects, financial position, result of
operations, and its cash flows in conformity with GAAP.
Auditor ’ s Responsibilities
Material versus immaterial misstatements
Reasonable assurance
Errors versus fraud
Professional skepticism
Fraud resulting from fraudulent financial
reporting versus misappropriation of assets
Auditor ’ s Responsibilities for Discovering Illegal Acts
Direct-effect illegal acts
Indirect-effect illegal acts
Evidence accumulation when there is no reason to believe indirect-effect illegal act exists
Evidence accumulation and other actions when there is reason to believe direct- or indirect-effect illegal acts may exist
Actions when the auditor knows of an illegal act
Management Assertions
1. Assertions about classes of transactions and events for the period under audit
2. Assertions about account balances at period end 3. Assertions about presentation and disclosure
Management Assertions for Each Category of Assertions
Assertions About Classes of Transactions and Events
Assertions About Account Balances
Assertions About
Presentation and Disclosure
Occurrence Existence Occurrence and rights and obligations
Completeness Completeness Completeness
Accuracy Valuation and
allocation
Accuracy and valuation
Classification Classification and
understandability Cutof
Rights and
How Audit Objectives Are Met
The auditor must obtain sufficient appropriate audit evidence to support all management
assertions in the financial statements.
An audit process has four specific phases
Audit Evidence
Audit Evidence Decisions
1. Which audit procedures to use
2. What sample size to select for a given procedure 3. Which items to select from the population
4. When to perform the procedures (timing)
Audit Program
It includes a list of the audit procedures the auditor considers necessary.
Most auditors use computers to facilitate the preparation of audit programs.
Sample sizes
Items to select
Timing of the tests
Persuasiveness of Evidence
Appropriateness
Sufficiency
Two determinants:
Six Characteristics of Reliable Evidence
1. Independence of provider
2. Effectiveness of client’s internal controls 3. Auditor’s direct knowledge
4. Qualification of individuals providing the information 5. Degree of objectivity
6. Timeliness
Persuasiveness and Cost
In making decisions about evidence
for a given audit, both persuasiveness and cost must be considered.
The auditor’s goal is to obtain a sufficient amount of appropriate evidence at the lowest total cost.
Types of Audit Evidence
1. Physical examination 2. Confirmation
3. Documentation
4. Analytical procedures 5. Inquiries of the client 6. Recalculation
7. Reperformance 8. Observation
Audit Documentation
Purposes of audit documentation
Ownership of audit files
Confidentiality of audit files
THE PROCESS OF AUDITING
Plan to reduce assessed level of control risk
Summary of the Audit Process
Phase I
Plan and Design an Audit approach
Accept client’s and perform initial planning
Understanding the clinet’s business and industry
Assess client business risk
Perform preliminary analytical procedur
Set materiality and assess acceptable audit risk and
inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks
Phase II Perform TC and substantives test
Phase III
Perform analytical procedures and tests of details balances
Phase IV
Complete audit and issue audit report
Assess likelihood of misstatements in financial
statement
Perform substantive tests of trasactions
Perform tests of control *
Yes
No Low Medium High or unknown
Perform analytical procedures
Perform additional tests of details of
balance
Perform tests of key procedures
Communicate with audit committee and Mgt
Issue audit report Evaluate results Accumulate final
evidence
Perform additional tests for presentation and disclosure
Accept client’s and perform initial planning Understanding the clinet’s
business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
and audit program
Penerimaan Klien & Perencanaan Awal
Three Main Reasons for Planning
1. To obtain sufficient appropriate evidence for the circumstances
2. To help keep audit costs reasonable
3. To avoid misunderstanding with the client
Penerimaan Klien & Perencanaan Awal
Penerimaan klien baru dan keberlanjutan Identifikasi alasan audit
Mendapatkan pemahaman tentang klien Menentukan staff audit
Penerimaan Klien & Perencanaan Awal
Penerimaan klien baru dan keberlanjutan:
Apakah semua klien harus diterima
sebagai auditee?
Penerimaan Klien & Perencanaan Awal
Penerimaan klien baru dan keberlanjutan:
Alasan menolak klien:
• Beberapa KAP tidak mengaudit Perusahaan Publik
• Terdapat risiko litigasi
• Risiko audit melebihi AAR KAP
• Fee dibawah minimum
Penerimaan Klien & Perencanaan Awal
Identifikasi alasan audit
Dua hal utama yang mempengaruhi AAR :
• Pengguna Laporan Keuangan
(Perusahaan Publik, terdapat hutang, kemungkinan dijual)
• Maksud penggunaan LK
Penerimaan Klien & Perencanaan Awal
Mendapatkan pemahaman tentang klien
Membuat perikatan audit yang jelas:
• Tujuan perikatan
• Tanggung jawab auditor dan manajemen,
• Identifikasi kerangka LK yang digunakan manajemen
• Bentuk dan isi laporan audir
• Batasan perikatan
Penerimaan Klien & Perencanaan Awal
Menentukan staff audit
• Auditor harus menugaskan staff yang tepat agar dapat memenuhi standar audit dan membuat audit yang efisien.
• Salah satu prinsip dasae dalam SA adalah :Auditor harus bertanggung jawab untuk mempunyai kompentensi yang tepat dan kemampuan untuk
melaksanan audit
Accept client’s and perform initial planning Understanding the clinet’s
business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
and audit program
Penerimaan Klien & Perencanaan Awal
Factors that have increased the importance of understanding the client’s business and industry:
Global operations
Information technology
Human capital
The World economic Conditions
Pemahaman Bisnis Klien dan Industrinya
Industry and external environment Business operations and processes Management and governance
Objectives and strategies
Measurement and performance
Pemahaman Bisnis Klien dan Industrinya
Industry and external environment
Reasons for obtaining an understanding of the client’s industry and external environment:
1. Risks associated with specific industries (Bank, Insurance)
2. Inherent risks common to all clients in certain industries
3. Unique accounting requirements
Pemahaman Bisnis Klien dan Industrinya
Business operations and processes
Factors the auditor should understand:
Major sources of revenue
Key customers and suppliers
Sources of financing
Information about related parties
Tour the Plant:
By viewing the physical facilities, the auditor can asses physical safeguards over assets and interpret accounting data
related to assets.
Pemahaman Bisnis Klien dan Industrinya
Management and governance
Management establishes the strategies and processes followed by the client’s business.
Governance includes the client’s organizational structure, as well as the activities of the board of directors and the audit committee.
Corporate charter and bylaws
Code of ethics
Pemahaman Bisnis Klien dan Industrinya
Objectives and strategies
Strategies are approaches followed by the entity to achieve organizational objectives.
Auditors should understand client objectives.
Effectiveness and efficiency of operations
Financial reporting reliability
Pemahaman Bisnis Klien dan Industrinya
Measurement and performance
The client’s performance measurement system includes key performance indicators. Examples:
market share
sales per employee
unit sales growth
Web site visitors
same-store sales
sales/square foot
Performance measurement includes ratio analysis and benchmarking against key competitors.
Accept client’s and perform initial planning Understanding the clinet’s
business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
Penilaian Risiko Bisnis
Client business risk is the risk that the client will fail to achieve its objectives.
What is the auditor’s primary concern?
Material misstatements in the financial statements due to client business risk
siginificant declines, cash flows, new technology, failing to execute its strategies.
Understand client’s business and industry
Industry and external environment Business operations and processes Management and governance
Objectives and strategies
Measurement and performance Assess client business
risk
Assess risk of material misstatements
Risiko Bisnis dan Risiko Salah
Saji Material
Accept client’s and perform initial planning
Understanding the clinet’s business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
Prosedur Analitis Awal
Comparison of client ratios to industry or competitor benchmarks provides an
indication of the company’s performance.
Preliminary tests can reveal unusual changes in ratios.
Prosedur Analitis Awal
1. Required in the planning phase
2. Often done during the testing phase 3. Required during the completion phase
ISA emphasizes the expectations developed by the auditor.
Timing and Purposes of Analytical Procedures
(Required) Planning
Phase Purpose
Understand client’s industry and business Assess going concern Indicate possible
misstatements
(attention directing) Reduce detailed tests
Testing Phase
(Required) Completion
Phase Primary
purpose Secondary purpose Primary purpose Secondary purpose
Primary purpose
Primary purpose Secondary purpose Secondary
purpose
Five Types of Analytical Procedures
Compare client data with:
1. Industry data
2. Similar prior-period data
3. Client-determined expected results 4. Auditor-determined expected results
5. Expected results using nonfinancial data.
Short-term Debt-paying Ability
Current ratio Current assets Current liabilities
=
Cash ratio (Cash + Marketable securities) Current liabilities
=
Quick ratio
(Cash + Marketable securities + Net accounts receivable)
Current liabilities
=
Liquidity Activity Ratios
Accounts receivable turnover
Net sales
Average gross receivables
= Days to collect
receivable
365 days
Accounts receivable turnover
= Inventory
turnover
Cost of goods sold Average inventory
= Days to sell
inventory
365 days
Inventory turnover
=
Ability to Meet Long-term Debt Obligation
Debt to equity Total liabilities Total equity
= Times interest earned
Operating income Interest expense
=
Profitability Ratios
Earnings per share
Net income
Average common shares outstanding
=
Gross profit percent
(Net sales – Cost of goods sold) Net sales
=
Profit margin Operating income Net sales
=
Profitability Ratios
Return on common equity
(Income before taxes – Preferred dividends)
Average stockholders’ equity
= Return on assets
Income before taxes Average total assets
=
Short-term Debt-paying Ability
Current ratio Current assets Current liabilities
=
Cash ratio (Cash + Marketable securities) Current liabilities
=
Quick ratio
(Cash + Marketable securities + Net accounts receivable)
Current liabilities
=
Summary of Analytical Procedures
They involve the computation of ratios and other comparisons of recorded
amounts to auditor expectations.
They are used in planning to understand the client’s business and industry.
They are used throughout the audit to identify possible misstatements, reduce detailed tests,
Accept client’s and perform initial planning Understanding the clinet’s
business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
Materialitas
Besarnya informasi akuntansi, yang bergantung pada ukuran dan sifatnya serta apabila terjadi kelalaian
untuk mencantumkan atau kesalahan dalam mencatat pos-pos laporan keuangan, baik secara sendiri-sendiri maupun bersama-sama, dapat mempengaruhi
keputusan ekonomi pengguna laporan keuangan.
Sumber : Peraturan Bapepam-LK : VIII.G.7
Materialitas
The auditor’s responsibility is to determine whether financial statements are
materially misstated.
If there is a material misstatement, the auditor will bring it to the client’s
attention so that a correction can be made.
Materialitas - Guidelines
Accounting and auditing standards do not provide specific materiality guidelines to practitioners.
Professional judgment is to be used at all times in setting and applying materiality guidelines.
Factors Affecting Judgment
Materiality is a relative rather than an absolute concept.
Bases are needed for evaluating materiality.
Qualitative factors also affect materiality.
Audit Risk Model for Planning
PDR = AAR ÷ (IR × CR)
PDR = Planned detection risk AAR = Acceptable audit risk IR = Inherent risk
CR = Control risk where:
Computation of Planning
Materiality
Computation of Tolerable
Error
Accept client’s and perform initial planning
Understanding the clinet’s business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
Pemahaman Pengendalian
Internal dan Risiko Pengendalian
3. Compliance with laws and regulations
2. Efficiency and effectiveness of operations 1. Reliability of financial reporting
Internal Control Objectives
Auditor Responsibilities Related to Internal Control
Auditor responsibilities for
understanding internal control
Control over classes of transactions
Auditor responsibilities for testing
Controls over the reliability of financial reporting
Five Components of Internal Control
assessmentRisk Control
activities Information and
communicationMonitoring
Control Environment
The Control Environment
Integrity and ethical values
Commitment to competence
Board of directors or audit committee participation
Management’s philosophy and operating style
Organizational structure
Human resource policies and practices
Risk Assessment
Identify factors that may increase risk
Assess the likelihood of the risk occurring
Estimate the significance of the risk
Control Activities
1. Adequate separation of duties
2. Proper authorization of transactions and activities 3. Adequate documents and records
4. Physical control over assets and records 5. Independent checks on performance
Information and Communication
The purpose of an accounting information and communication system is to…
initiate, record, process, and report
the entity’s transactions and to maintain accountability for the related assets.
Monitoring
Monitoring activities deal with management’s ongoing and periodic assessment of the
quality of internal control performance…
to determine whether controls are operating as intended and modified when needed.
Evaluating Internal Control
Update and evaluate auditor’s previous experience with the entity
Make inquiries of client personnel
Examine documents and records
Observe entity activities and operations
Perform walk-throughs of the accounting system
Evaluating Significant Control Deficiencies
Material Weakness LIKELIHOOD
SIGNIFICANCE Material
Probable Remote
Identify Deficiencies and Weakness
Identify existing controls
Identify the absence of key controls
Consider the possibility of compensating controls
Decide whether there is a significant deficiency or material weakness
Determine potential misstatements that could result
Communications of IC
Management letters
Communications to those charged with governance (TCWG)
Tests of Controls
The procedures to test effectiveness of controls in support of a reduced assessed control
risk are called tests of controls.
Procedures for Tests of Controls
1. Make inquiries of client personnel
2. Examine documents, records, and reports 3. Observe control-related activities
4. Reperform client procedures
Accept client’s and perform initial planning Understanding the clinet’s
business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
Pertimbangan Risiko Fraud
Types of Fraud
Fraudulent financial reporting
Misappropriation of assets
Corruption
The Fraud Triangle
Pressures
Opportunities Rationalization
Fraudulent Reporting
Financial stability or
profitability is threatened by economic, industry, or entity operating conditions
Excessive pressure exists for management to meet debt requirements
Fraud Risk - Pressures
Misappropriation of Assets
Personal financial obligations create pressure to
misappropriate assets
Adverse relationships between management and employees motivate employees to
Fraudulent Reporting
Fraud Risk - Opportunitites
Misappropriation of Assets
There are significant
accounting estimates that are difficult to verify
There is ineffective oversight over financial reporting
High turnover or ineffective accounting, internal audit, or
There is a presence of large amounts of cash on hand or inventory items
There is an inadequate
internal control over assets
Fraudulent Reporting
Fraud Risk - Rationalization
Misappropriation of Assets
Inappropriate or inefficient communication and support of the entity’s values
is evident
A history of violations of laws is known
Management has a practice
Disregard for the need to monitor or reduce risk of
misappropriating assets exists
There is a disregard for internal controls
Assessing the Risk of Fraud
ISA provides guidance to auditors in assessing the risk of fraud.
ISA states that, in exercising professional
skepticism, an auditor “neither assumes that management is dishonest nor assumes
unquestioned honesty.”
Sources of Information Gathered to Assess Fraud Risks
Communication
among audit teamInquiries of
management Risk
factors Analytical
procedures Other
information
Corporate Governance Oversight to Reduce Fraud Risks
1. Culture of honesty and high ethics 2. Management's responsibility
to evaluate risks of fraud 3. Audit committee oversight
Specific Fraud Risk Areas
Inventory fraud risks
Revenue and accounts receivable fraud risks
Purchases and accounts payable fraud risks
Other areas of fraud risk
Responding to Misstatements That May Be the Result of Fraud
When fraud is suspected, the auditor gathers additional information to determine whether fraud actually exists.
Assessing Risks of
Information Technologies
Risks to hardware and data
Reduced audit trail
Need for IT experience and separation of IT duties
Risks to Hardware and Data
Reliance on the functioning capabilities of hardware and software
Systematic versus random errors
Unauthorized access
Loss of data
Reduced Audit Trail
Visibility of audit trail
Reduced human involvement
Lack of traditional authorization
Need for IT Experience and Separation of Duties
Reduced separation of duties
Need for IT experience
Internal Controls Specific to Information Technology
General controls
Application controls
General Controls
Administration of the IT function
Separation of IT duties
Systems development
Physical and online security
Backup and contingency planning
Hardware controls
Application Controls
Input controls
Processing controls
Output controls
Issues for Different IT Environments
Issues for network environments
Issues for database management systems
Issues for e-commerce systems
Issues when clients outsource IT
Accept client’s and perform initial planning Understanding the clinet’s
business and industry
Assess client business risk
Perform preliminary analytical procedur Set materiality and assess
acceptable audit risk and inherent risk
Understand IC and assess control risk
Gather information to assess fraud risks Develop overall audit plan
Role of All Audit Tests in the Sales and Collection Cycle
Sales Accounts
Receivable Cash in
Bank Sales
transactions Cash receipts transactions
Ending
balance Ending balance
TOC + STOT + AP + TDB
Audited by
TOC, STOT, and AP
Audited by AP and TDB
Audited by
TOC, STOT, and AP
Relationship Between Further Audit Procedures and Evidence
Physical examination Confirmation Documentation Observation
Type of Evidence
Inquiries of the Client Reperformance Analytical Procedures Recalculation
Further Audit Procedures
Tests of controls
Substantive tests of transactions Analytical procedures
Tests of details of balances
Audit Sampling for Tests of
Controls and Substantive Tests of
Transactions
Representative Samples
A representative sample is one in which the characteristics in the sample of audit interest are approximately the same as those of the population.
Nonsampling risk is the risk that audit tests do not uncover existing exceptions in the sample.
Representative Samples
Sampling risk is the risk that an auditor reaches an incorrect conclusion
because the sample is not
representative of the population.
Sampling risk is an inherent part of sampling that results from testing less than the entire population.
Minimizing Sampling Risk
1. Adjust sample size
2. Use an appropriate method of selecting sample items from the population
Nonprobabilistic Sample Selection Methods
Directed sample selection is the selection of each item based on auditor judgmental criteria.
Items most likely to contain misstatements
Items containing selected population characteristics
Large dollar coverage
Block sample selection is the selection of several items in sequence.
Haphazard sample selection is the selection of items
Probabilistic Sample Selection Methods
A simple random sample is one in which every possible combination of elements in the population has an equal Chance of constituting the sample.
Computer generation of random numbers
Random number tables
Systematic sample selection :The auditor calculates an interval and then selects the items for the sample
based on the size of the interval.
Stratified sample selection :The population is divided into
Completing the Audit
Test for Presentation and Disclosure
Occurrence and rights and obligations: Disclosed events and transactions have occurred and pertain to the entity.
Completeness: All disclosures that should have been included in the financial statements have been included.
Accuracy and valuation: Financial and other information Are disclosed fairly and at appropriate amounts.
Classification and understandability: Financial information is appropriately presented and described and disclosures
are clearly expressed.
Contingent Liabilities
A contingent liability is a potential future obligation to an outside party for an
unknown amount resulting from activities that have already taken place.
Likelihood of Occurrence and Financial Statement Treatment
Reasonably
possible Footnote disclosure is necessary
Probable
(likely to occur)
Adjust financial statements
or note disclosure Remote
(slight chance) No disclosure is necessary Likelihood of
Occurrence of Event Financial Statement Treatment
Auditor’s Concerns to Contingent Liabilities
Pending litigation for patent infringement, product liability, or other actions
Income tax disputes
Product warranties
Notes receivable discounted
Guarantees of obligations of others
Unused balances of outstanding letters of credit
Audit Procedures for Finding Contingencies
Inquire of management about the possibility of unrecorded contingencies.
Review current and previous years’ internal revenue reports for income tax settlements.
Review the minutes of directors’ and
stockholders’ meetings for indications of lawsuits or other contingencies.
Audit Procedures for Finding Contingencies
Analyze legal expenses and review invoices and statements from legal counsel.
Obtain a letter from each major attorney of the client as to the status of pending litigation.
Review audit documentation for any information that may indicate a potential contingency.
Inquiry of Client ’ s Attorneys
A list including:
(1)pending threatened litigation and
(2)asserted or unasserted claims or assessments with which the attorney has had involvement.
A request that the attorney furnish information
or comment about the progress of each item listed.
Subsequent Events Review
Client’s ending balance sheet
date
31-12-2015
Date client issues financial
statements
26-03-2016
Audit report
date
11-03-2016
Period to which review for
subsequent events applies Period for processing the financial
statements
Types of Subsequent Events
Those that have a direct effect on the financial statements
and require adjustment
Those that have do not have a direct effect on the financial statements
but for which disclosure is required
SE: Advisability of Disclosure
Decline in the market value of securities held for temporary investment or resale
Issuance of bonds or equity securities
Decline in the market value of inventory as a consequence of government action barring further sale of a product
Uninsured loss of inventories as a result of fire
A merger or an acquisition
SE : Requiring Adjustment
Declaration of bankruptcy by a customer with an accounts receivable balance
Settlement of a litigation at an amount different from the amount recorded
on the books
Disposal of equipment not being used in operations at a price below the current book value
Sale of investments at a price below
Inquire of management
Correspond with attorneys
Review internal statements prepared subsequent to the balance sheet date
Review records prepared subsequent to the balance sheet date
Examine minutes issued subsequent to the balance sheet date
Obtain a letter of representation
SE : Audit Tests
1. Perform final analytical procedures.
2. Evaluate the going-concern assumption.
3. Obtain a management representation letter.
4. Consider information accompanying the basic financial statements.
5. Read other information in the annual report.
Final Evidence
Accumulation
Substantial Doubt About Going Concern
1. Significant recurring operating losses or working capital deficiencies.
2. Inability of the company to pay its obligations as they come due.
3. Loss of major customers, the occurrence of uninsured catastrophes.
4. Legal proceedings, legislation that might jeopardize the entity’s ability to operate.
1. Financial statements
2. Completeness of information
3. Recognition, measurement, and disclosure 4. Subsequent events
Four Categories in
Management Representation
Letter
Communicate fraud and illegal acts
Communicate internal control deficiencies
Other communication with audit committee
Management letters
