Auditing II

Name : Kevin Henrico (01031181621042)

: Muhammad Defa Wiria Ghazali (01031281621100)

Auditing Case Study 2 about Easy Clean, Co.

Based on the information of this company, we have a few of key information that influenced
our decision, are:
Integrity and ethical values, Value = 2
There is no direct supervision and clear direction carried out by managers causes the
impression from the staff that they’re not always certain about their assigned functions
because the main considerations in assigning office responsibilities are that work should be
done by the people who are familiar with a task and who are capable of doing it. But, he also
admits that availability has to be a consideration. Although this does lead to some overlap in
duties.

Board of directors, Value = 2

Easy Clean have a board of directors but It is informal board of directors, Phil, Doug, and
their wives function as directors. They only do have at least one regularly scheduled meeting
each year. Easy Clean does not have an audit committee. Mr. Day, as an office manager, and
Doug are in charge of a small sales force that goes out on leads to give estimates for new
jobs. Mr. Day trains all new accounting help when they are first hired. the tasks between the
directors are not clear because the division of tasks does not exist.

Management’s philosophy and operating style, Value = 1

Management does not prioritize improving internal controls that are still bad, but their only
focus on expanding their sales territory, increasing advertising, investing in more help and
additional equipment.

Organizational structure, Value = 2

Operational activities lack control because like for the vans, each driver gets a key to the gate
lock so they can let themselves in or out for work. Policies in transactions and procedures are
not clearly defined and not strictly followed, like Phil, who is in charge of client services and
promotions, participates in authorization transactions in the company. The line of authority
and accountability is unclear, and its implementation overlap.

Financial reporting competencies, Value = 2

Employee training is carried out by management. Management is not competent, because
there is no evidence that management and employees are competent in their fields, because of
Doug, Mr.Day, and Phill is not an accounting background, Phil and Doug have no formal
accounting training. For employees, there are no graduates in accordance with accounting.
They not routinely collect checks when a transaction occurs, they collect all of the checks at
the end of the day, making it possible to record them all at one time.

Authority and responsibility, Value = 2

Giving delegates, authorities, duties, responsibilities, functions surgery does not exist and is
not well communicated, so it often occurs participate in management often participates. For
the authority, Phil, Mr. Day and Doug have keys to open the office.

Human resources, Value = 1

Not all employees have the right setting for their work, most are still in the ungraduated. The
employee understands the work duties and procedures, but lack of competence, so that it
becomes a limitation. Training new employees are carried out by management.

From the overall assesment on each of the seven components, we conclude that this
company is weak control environment in most of the seven factors or components
comprising the overall of control environment.
Auditing II
Name : Kevin Henrico (01031181621042)
: Muhammad Defa Wiria Ghazali (01031281621100)

International Standard on Auditing 505 : External Confirmations

Scope
This International Standard on Auditing (ISA) deals with the auditor’s use of external
confirmation procedures to obtain audit evidence in accordance with the requirements of
ISA 330 and ISA 500.

Objective
The objective of the auditor, when using external confirmation procedures, is to design and
perform such procedures to obtain relevant and reliable audit evidence.

Requirements
External Confirmation Procedures
1. When using external confirmation procedures, the auditor shall maintain control over
external confirmation requests, including:
2. Determining the information to be confirmed or requested; (Ref: Para. A1)
3. Selecting the appropriate confirming party; (Ref: Para. A2)
4. Designing the confirmation requests, including determining that requests are properly
addressed and contain return information for responses to be sent directly to the auditor;
and (Ref: Para. A3–A6)
5. Sending the requests, including follow-up requests when applicable, to the confirming
party. (Ref: Para. A7)

Management’s Refusal to Allow the Auditor to Send a Confirmation Request

If management refuses to allow the auditor to send a confirmation request, the auditor shall:
1. Inquire as to management’s reasons for the refusal, and seek audit evidence as to their
validity and reasonableness; (Ref: Para. A8)
2. Evaluate the implications of management’s refusal on the auditor’s assessment of the
relevant risks of material misstatement, including the risk of fraud, and on the nature,
timing and extent of other audit procedures; and (Ref: Para. A9)
3. Perform alternative audit procedures designed to obtain relevant and reliable audit
evidence. (Ref: Para. A10)

Results of the External Confirmation Procedures

Reliability of Responses to Confirmation Requests
1. If the auditor identifies factors that give rise to doubts about the reliability of the
response to a confirmation request, the auditor shall obtain further audit evidence to
resolve those doubts. (Ref: Para. A11–A16)
2. If the auditor determines that a response to a confirmation request is not reliable, the
auditor shall evaluate the implications on the assessment of the relevant risks of material
misstatement, including the risk of fraud, and on the related nature, timing and extent of
other audit procedures. (Ref: Para. A17)

When a Response to a Positive Confirmation Request Is Necessary to Obtain Sufficient

Appropriate Audit Evidence

If the auditor has determined that a response to a positive confirmation request is necessary to
obtain sufficient appropriate audit evidence, alternative audit procedures will not provide the
audit evidence the auditor requires. If the auditor does not obtain such confirmation, the
auditor shall determine the implications for the audit and the auditor’s opinion in accordance
with ISA 705. (Ref: Para A20)

Evaluating the Evidence Obtained

The auditor shall evaluate whether the results of the external confirmation procedures
provide relevant and reliable audit evidence, or whether further audit evidence is necessary
(Ref: Para A24–A25)