Pengertian Auditing

Auditing is the accumulation and

evaluation of evidence about
information to determine and
report on the degree of
correspondence between the
information and established criteria.
Auditing should be done by a
competent, independent person.
 Distinction Between
Auditing and Accounting

Accounting is the recording, classifying,

and summarizing of economic events
for the purpose of providing financial
information used in decision making.
Auditing is determining whether
recorded information properly
reflects the economic events that
occurred during the accounting period.
 Types of Audits

1. Financial Statement Audit:

2. Operational Audit

Efficiency Effectiveness

3. Compliance Audit
 Objective of Conducting an
Audit of Financial Statements

The primary objective of the audit

is to express an opinion on the
financial statements.
(fairness presentation)
 Summary of
General Standards
Generally Accepted Auditing Standards

General Field Work Reporting

1. Adequate training 1. Proper planning 1. Statements prepared in

and proficiency and supervision accordance with GAAP
2. Independence in 2. Internal control 2. Circumstances when
mental attitude understanding GAAP not followed
3. Due professional 3. Sufficient 3. Adequacy of disclosures
care competent 4. Expression of opinion
evidence on financial statements
 Parts of the Standard
Unqualified Audit Report
1. Report title
2. Audit report address
3. Introductory paragraph
4. Scope paragraph
5. Opinion paragraph
6. Name of CPA firm
7. Audit report date
 Conditions for Standard
Unqualified Audit Report

1. All financial statements are included.

2. The three general standards have been
followed in all respects on the engagement.
3. Sufficient evidence has been accumulated
to conclude that the three standards of
field work have been met.
 Conditions for Standard
Unqualified Audit Report

4. The financial statements are presented in

accordance with generally accepted
accounting principles.
5. There are no circumstances requiring the
addition of an explanatory paragraph or
modification of the wording of the report.
 Four Categories
of Audit Reports

1a. Standard unqualified 2. Qualified

1b.Unqualified with
3.Adverse
explanatory paragraph
4. disclaimer
or modified wording
 Materiality

A misstatement in the financial statements

can be considered material if knowledge of
the misstatement would affect a decision
of a reasonable user of the statements.
Business Failure, Audit
Failure, and Audit Risk

Audit
Business
Failure
Failure

Audit
Risk
 Business Failure, Audit
Failure, and Audit Risk

Business failure
It occurs when a business is unable to
repay its lenders or meet the
expectations of its investors because
of economic or business conditions.
 Business Failure, Audit
Failure, and Audit Risk

Audit failure
It occurs when the auditor issues an
erroneous audit opinion as the result
of an underlying failure to comply
with the requirements of generally
accepted auditing standards (GAAS).
 Business Failure, Audit
Failure, and Audit Risk

Audit risk
It represents the risk that the auditor will
conclude that the financial statements
are fairly stated and an unqualified
opinion can be issued when, in fact,
they are materially misstated.
 Responsibilities

Management is responsible
for the financial statements,
and for internal control.
Auditors issue an
opinion on fairness
of the financial statements.
Management Assertions

1. Existence or occurrence
2. Completeness
3. Valuation or allocation
4. Rights and obligations
5. Presentation and disclosure
 Transaction-Related
Audit Objectives

Recorded
1.Existence
transactions exist.
Existing transactions
2.Completeness
are recorded.
Recorded transactions
3.Accuracy are stated at the
correct amount.
 Transaction-Related
Audit Objectives

Transactions are
4.Classification
properly classified.
Transactions are recorded
5.Timing
on the correct dates.
Transactions are included
6.Posting and
in the master files and
summarization
are correctly summarized.
 General Balance-Related
Audit Objectives

Amounts
1.Existence
included exist.
Existing amounts
2.Completeness
are included.
Amounts included
3.Accuracy are stated at the
correct amounts.
 General Balance-Related
Audit Objectives

Amounts are
4.Classification
properly classified.
Transactions are recorded
5.Cutoff
in the proper period.
Account balances agree
6.Detail tie-in with master file amounts,
and with the general ledger.
 General Balance-Related
Audit Objectives

7.Realizable Assets are included at

value estimated realizable value.
8.Rights and
Assets must be owned.
obligations
9.Presentation Account balances and
and disclosures are presented
disclosure in financial statements.
 Audit Evidence Decisions
(Audit Program)

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
Persuasiveness of Evidence

1.Competence
2.Sufficiency
3.Relevance
4.Timeliness
 Types of Audit Evidence
1. Physical examination
2. Confirmation
3. Documentation
4. Analytical procedures
5. Inquiries of the client
6. Reperformance
7. Observation
 1.Permanent Files

These files are intended to contain

data of a historical or continuing
nature pertinent to the current audit.
 2.Current Files
(used only in current period)

Audit program
General information
Working trial balance
Adjusting and reclassification entries
Supporting schedules
 Analytical Procedures

Analytical procedures use comparisons and

relationships to assess whether account
balances or other data appear reasonable.
 Five Major Types of
Analytical Procedures
1. Compare client and industry data.
2. Compare client data with similar
prior-period data.
3. Compare client data with
client-determined expected results.
4. Compare client data with
auditor-determined expected results.
5. Compare client data with expected
results, using nonfinancial data.
 Audit Risk Model
for Planning

PDR = AAR ÷ (IR × CR)

PDR = Planned detection risk

AAR = Acceptable audit risk
IR = Inherent risk
CR = Control risk
 Internal Control Objectives
Safeguards the assets
Reliability of financial reporting
Efficiency and effectiveness of operations
Compliance with applicable laws
and regulations
 Five Components
of Internal Control

Control Environment

Risk Control Information and

Monitoring
Assessment Activities Communication
 Types of Tests

1. Procedures to obtain an
understanding of internal control
2. Tests of control
3. Substantive tests of transactions
4. Analytical procedures
5. Tests of details of balances
 Relationship Between
Types of Tests and Evidence
Type of Evidence

Documentation
Confirmation
Examination

Observation
Physical
Type of Test
Procedures for internal control  
Tests of controls  
Substantive tests of transactions 
Analytical procedures
Tests of details of balances   
 Relationship Between
Types of Tests and Evidence
Type of Evidence

Reperformance

performance
Inquiries of
the client

Analytic
Type of Test
Procedures for internal control  
Tests of controls  
Substantive tests of transactions  
Analytical procedures  
Tests of details of balances  