KEYNOTE SPEECH

HEAD OF FINANCE PROFESSIONS SUPERVISORY CENTRE

AT
IAPI-ACCA JOINT WEBINAR 2020
KEY AUDIT MATTERS IN THE CONTEXT OF THE NEW AUDIT
REGULATION
JUNE, 30th 2020

Honorable Chair of IAPI, Pak Tarkosunaryo

Honorable Market Director ACCA ASEAN & ANZ Mr. Pulkit Abrol
Honorable Panelists Mr. Chiew Chun Wee, Mr. Anung Herlianto, Mrs.
Kusumaningsih Angkawidjaja, Mr. Kanaka Puradiredja, and Mr. Lucas
Kurniawan
and Distinguished Participants, Ladies and Gentlemen.

Assalamu’alaikum Warohmatullohi Wabarakaatuh.

Good afternoon and best wishes for all of us

Allow me first, to congratulate the IAPI and the ACCA that been
successfully organizing this joint webinar in this pandemic situation. Even
in the situation of social and physical distancing we are facing now, the
technology brings us closer while we are separating miles away. Thanks
to the technology, we can attend this joint webinar to have a knowledge
and experience sharing across the countries without even moving from
out seat. I would like to express my gratitude for the presence of all
participants in this IAPI-ACCA Joint Webinar 2020. As the theme of this
webinar ‘Key Audit Matters in the Context of The New Audit Regulation”,
I hope we can gain a thorough understanding about Key Audit Matters
and be ready to encounter the implementation of Key Audit Matters in the
new normal of Auditor’s Report.

We realize that Key Audit Matters is a new audit regulation in the

International Standards on Auditing (ISA). In a continually changing global
business environment, with increasingly complex financial reporting
requirements, International Standards on Auditing (ISA) and International
Financial Reporting Standard (IFRS) keep evolving and advancing
through the times. In 2015, we learned that the International Auditing and
Assurance Standards Board (IAASB) has issued the new ISA 701
concerning “Communicating Key Audit Matters in the Independent
Auditor’s Report”, with an effective date of December 2016. This new
standard and its implementation has become a frequent topic discussed
in the international gatherings and meetings, as in the IFIAR and AARG
meetings for example. Many countries shares their experiences in
carrying out the new standard in their respective countries. From 2016,
many countries gradually started to implement the ISA 701, yet still there
are countries haven’t implemented it, as in Indonesia. Since we are
committed to adopt the international standards, we are here, in this
webinar, in the process to implement the ISA 701. Auditing Standard
Board or DSPAP IAPI had already issued the Exposure Draft of ISA 701
in the beginning of 2020, and hopefully the standard can be implemented
in the near future.

We know that the Key Audit Matters or KAMs is a new terminology

that never been there before the era of ISA 701. The questions is what
the Key Audit Matters is and how to determine the Key Audit Matters?
According to the ISA itself, Key Audit Matters are those matters that, in
the auditor’s professional judgment, were of most significance in the audit
of the financial statements of the current period. Moreover, Key audit
Matters are those matters that communicated with Those Charged with
Governance. The ISA required auditors to put those Key Audit Matters in
the Auditor’s Reports. Thus, there would be Key Audit Matters’ section in
the Auditor’s Report. The new format of Auditor’s Report will not the same
as the ones we had get familiar with previously. As we live in a new normal
during this pandemic Covid-19, the implementation of ISA 701 will bring
out a new normal as well to auditors in doing their audit process and
reporting. As we are now starting get used to the new normal of Covid-19,
here in this webinar we are starting to learn how to get used to the new
normal of extending Auditor’s Report.

Before we go further, let us question ourselves what is the science

behind the introduction of the new ISA 701. I believe there should be
something that trigger the making of the ISA 701. We learned that for
many years, investors are demanding more information from Auditor’s
Report, rather than just knowing the auditor’s opinion in the report. They
have been saying that they want audit reports to give more transparency
about the audit process. They were of the view that more contextual
information about the audit would help investors differentiate better
between companies that had received unqualified or clean opinion in
Auditor’s report. Users of financial statement have expressed particular
interest in understanding areas of significant auditor attention in
performing the audit because they are often related to the areas of
significant management judgment in preparing the financial statements.

To meet those investors and users’ interest, the inclusion of Key

Audit Matters in an Auditor’s Report is believed can enhance the
usefulness of Auditor’s Report to users of financial statement. The
information about Key Audit Matters will enhance the relevance and
usefulness of auditor communications with users. Hence, users – like
investors, analysts, regulators, suppliers, employees and governments –
may have insight about the area or matters that auditor put more focused
on and matters in which the auditors and Those Charged with Governance
have a robust dialogue about.

Furthermore, as a regulator, I would like to convey the benefit of the

Key Audit Matters from regulator’s point of view and how the Key Audit
Matters can align and support to what we are doing now. Finance
Professions Supervisory Centre or known as PPPK, is a unit under the
Ministry of Finance that is responsible for, among others, developing
regulation on accountancy professions, including Public Accountants, and
conducting oversight for the Public Accountants and the Firms to ensure
their compliance to the regulation and professional standards. One of our
purpose is to promote high quality audit that contributes to public
confidence in the business and investment in Indonesia.

Currently, we are proposing a Financial Reporting Bill, which has

been included in the National Legislation Program of the House of
Representatives of The Republic of Indonesia for the period of 2021 to
2024. The Financial Reporting Bill is aimed to creating an effective and
trusted financial reporting in Indonesia. This regulation will touch all the
parties that involved in the process of financial reporting, like entities as
preparer, Those Charged with Governance in an entity, and Public
Accountants as external auditor. This Financial Reporting Bill and the
Public Accountant Law in 2011 are expected to complete each other to
create a conducive ecosystem for investment and business, thus in the
end can escalate the Indonesian economy.
 Based on the ACCA’s Report on March 2018 (ACCA Report: Key
Audit Matters: unlocking the secret of the audit), ACCA had assessed the
first year-adoption of new auditor reporting standards in 11 countries
(which are Brazil, Cyprus, Greece, Romania, Kenya, Nigeria, Oman,
Romania, South Africa, the United Arab Emirates, and Zimbabwe). The
research applied both on quantitative and qualitative analysis. The
ACCA’s work identified that in addition to being useful for investors, there
are three other benefits of KAM, which are:
• KAMs encourage better conversations between the auditor and
Those Charged with Governance; this in turn contributes to better
governance
• KAMs help the auditor to focus on the areas of the audit requiring
the most careful judgement; this in turn contributes to higher audit
quality
• KAMs give preparers incentives for revisiting financial reporting and
disclosures in areas related to those KAMs. This in turn leads to
better financial reporting.

Those three benefits explained above is positively aligned with the

spirit of Financial Reporting Bill and Public Accountant Act which are to
achieve a better governance, a higher audit quality and a better financial
reporting. We believe the addition of Key Audit Matters in Auditor’s report
will focus the attention of auditors, management and Those Charged with
Governance on the areas of most significant risk which could enhance
audit quality and contribute to improving the quality of financial reporting.

Secondly, PPPK is conducting regular inspections to Public

Accountants and the Firms. Beside the regular basis, PPPK may conduct
non-regular inspections whenever there is any condition or information
that should be followed up by further and more focused procedures on
suspected issues in the audit. We issued sanctions to the Public
Accountants and the firms that violate either the regulation or the
professional standards.

In the ACCA’s Report I mentioned before, there were 1.321 KAMs

reported across 560 audit reports. The top 5 subject matters covered in
the KAMs are asset impairments, revenue recognition, allowance for
doubtful debt, goodwill impairment, and taxation including deferred tax
assets.

Comparing those research’s results above with our common

inspection findings, we can found some similar subject matters.
Regarding audit evidence, our inspections found insufficient audit
evidence of Accounts Receivable, Revenues, and Allowance for Bad
Debts. Besides audit evidence, most of our findings are also relating with
insufficient procedure in risk assessment and communication with Those
Charged with Governance. Based on the ACCA’s report and our common
inspection findings, the implementation of KAMs is expected to raise the
auditors’ alertness on those subject matters. KAMs is associated with the
high-risk asset impairment and revenue recognition, and moreover KAMs
deal a lot with procedure of risk assessment and communication with
Those Charged with Governance. Consequently, the KAMs is demanding
Public Accountants to work more on obtaining audit evidence in those
high-risk accounts and perform more satisfactory procedures in risk
assessment and communication with Those Charged with Governance.
 From my explanation above, we see that KAMs is not only
benefitting investors, but also regulator in promoting audit quality and
supporting a conducive ecosystem for better financial reporting in
Indonesia.

Lastly, as a regulator I want to emphasize that this new ISA also

require an updated knowledge and skill from auditors. The ISA said that
determining the KAMs is a matter of the auditor’s professional judgment.
Then, the KAMs are taken from the matters that communicated with
Those Charged with Governance. Those statements requiring two basic
skills from Auditors, not only the signing Public Accountant but also the
audit team, which are professional judgment and communication skill.
Thus, in respect to this new standard, I encourage Public Accountants
and the team to upskill their competency, thus in such a way the audit
process and reporting of Key Audit Matters in Auditor’s report can go well
and smoothly.

To wrap up my speech, once again I would like to address my

gratitude for all the panelists. In my consideration, all the panelists here
are already representing those who will have significant role in the
implementation of the KAMs. We realize that the ISA 701 is not only
relating to Public Accountants, but also to management or entity and
Those Charged with Governance. We have OJK as a regulator for entities
as preparer of financial statements, a representative from entities or
management, and chairman of Indonesian Institute of Commissioners and
Directors as representative from Those Charged with Governance. We
also have DSPAP IAPI as a panelist, that already issued the exposure
draft of ISA 701. Before issuing the ISA, we encourage the DSPAP to
consider developing more guidance for auditors, audit committees and
management with respect to interactions on key audit matters, since we
know that implementation of KAMs is a principle based approach for
identifying Key Audit Matters.

Finally, I would like to share my appreciation to ACCA for their kind

willingness to share their experience in implementing this new ISA. I wish
all the participants may have a fruitful discussion with the prominent
panelists here, and the implementation of ISA 701 can give a benefit for
all the users of financial statement and above all for our beloved country
Indonesia.

Thank you and hope you to stay safe and healthy in this pandemic covid-
19.

Wassalamualaikum Warrohamatullahi Wabarokatuh