The Audit Function

Chapter 1

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Learning Objective 1

Describe auditing.

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Broad Definition of Auditing

Auditing is a systematic process of
objectively obtaining and evaluating
evidence regarding assertions about
economic actions and events to
ascertain the degree of correspondence
between these assertions and
established criteria and communicating
the results to interested users.

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Broad Definition of Auditing

Assertions are representations by
management that are embodied in financial
statement components, records, or systems
Example:
The financial statements represent fair
measurements of the economic events and
business transactions that affected the
organization during a certain period of time.
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Accumulating and
Evaluating Evidence

Evidence is any information used by the auditor

to determine whether the information being
audited is stated in accordance with the
established criteria.

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Reporting

The final stage in the auditing process

is preparing the Audit Report, which
is the communication of the
auditors findings to users.

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Competent, Independent
Person
The auditor must be qualified to understand the
criteria used and must be competent to know
the types and amount of evidence to accumulate
to reach the proper conclusion after the
evidence has been examined.
The competence of the individual performing the
audit is of little value if he or she is biased in the
accumulation and evaluation of evidence.
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Learning Objective 2
Distinguish between
auditing and accounting.

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Distinction Between
Auditing and Accounting
Accounting is a process that generates
information in the form of financial
statements and other financial data.
Auditing is a process that evaluates
this information and produce
conclusions with respect to this
information according to the criterion
used to make the evaluation.
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Accounting and Auditing

Contrast
Accounting
Recording of
transactions and
preparation of
financial statements

GAAP
(the link)

Evaluation of
financial
statements

Auditing
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Learning Objective 3
Differentiate the three
main types of audits.

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Types of Audits
Financial Statement Audit
Operational Audit
Efficiency

Effectiveness

Compliance Audit

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Financial Statement Audit

Example

Annual audit of PT Telkoms

financial statements

Information

PT Telkom's financial
statements

Established
Criteria

Generally accepted accounting

Principles (SAK)

Available
Evidence

Documents, records, and outside

sources of evidence
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Operational Audit
Example

Evaluate computerized payroll system

for efficiency and effectiveness

Number of records processed, cost of

Information the department, and number of errors
Established Company standards for efficiency and
effectiveness in payroll department
Criteria

Available
Evidence

Error reports, payroll records, and

payroll processing costs
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Compliance Audit
Example

Determine whether bank requirements

for loan continuation have been met

Information

Company records

Established
Criteria

Loan agreement provisions

Available
Evidence

Financial statements and

calculations by the auditor
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Learning Objective 4
Identify the primary
types of auditors.

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Types of Auditors
External Auditors
Internal Auditors
Government Auditors

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Learning Objective 5
Basic principles.

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Why Financial Statements are

Audited?
There is a potential conflict between management
and the users
Information can have substantial economic
consequences for a decision maker
Expertise is often required for preparing and verifying
information
Users of information frequently are prevented from
directly assessing the quality of information
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Limitations of an Audit
Many audit conclusions are made by examining a
sample of evidence
Some evidence supporting the financial statements
must be obtained by oral or written representations
of management
Human weaknesses such as fatigue and
carelessness

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Integrity of Auditors
To do the audit, auditors must
have a keen sense of integrity

Integrity is an independence of
attitude in conducting professional
affairs.

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Theoretical Framework
The data to be audited can be verified
Short-term conflicts may exist between
managers who prepare data and auditors
who examine the data

Auditors must have independence and

freedom from managerial constraint
An audit benefits the public
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Learning Objective 6
Explain the major steps in
the systematic process
of financial auditing.

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Summary of the
Audit Process
Plan and design
Phase I
an audit approach.

Perform analytical
procedures and
Phase III
tests of details
of balances.

Perform tests of
controls and
Phase II
substantive tests
of transactions.

Complete the
Phase IV audit and issue
an audit report.
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Summary of the Audit Process

Phase I

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Summary of the Audit Process

Phase II & Phase III

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Summary of the Audit Process

Phase IV

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Learning Objective 7
Describe the nature of CPA firms,
what they do, and their structure.

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Certified Public
Accounting Firms
The legal right to perform audits is granted
to CPA firms by regulation.

CPA firms also provide many other services to

their clients, such as tax and consulting services.

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Certified Public
Accounting Firms
The four largest CPA firms in the world
are called the Big Four
international CPA firms.

There are approximately 400

CPA firms operates in Indonesia.
Most of all CPA firms have fewer
than 25 professionals in a single-office firm.

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Activities of CPA Firms

Accounting
and
Bookkeeping
Services

Tax
Services

Management
Consulting
Services
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Hierarchy of a Typical
CPA Firm
Staff Level Experience Typical Responsibilities

Staff
Assistant
Senior
Auditor

0-2 years

Performs most of the

detailed audit work

2-5 years

Responsible for the audit

field work, including
supervising staff work

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Hierarchy of a Typical
CPA Firm
Staff Level Experience Typical Responsibilities
Manager

Partner

Helps the plan, manages

5-10 years the audit, reviews work,
and works with the client

10+ years

Reviews audit work and

makes significant audit
decision
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Tugas

Buatlah tulisan tentang perkembangan

profesi akuntan publik di Indonesia
termasuk undang-undang pemakaian
gelar akuntan.

Peraturan perundangan
Organisasi profesi
Standar profesi dan kode etik

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Selesai

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