PEM Audit

L/O/G/O
PUBLIC SECTOR
ACCOUNTING AND
AUDIT
Aeshath Nasra / MET16301

Hasanuddin Najib / MEF16505
Audit - Contents
1 Audit in General
2 Public Sector Audit
3 Case Study in Indoensia
4 Treads and Problems
www.themegallery.com
Audit in General- Definition
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.
(Alvin A. Arens, Randal J. Elder, and Mark S. Beasley. Auditing and Assurance Services 13th ed.)
To do an audit, there must be information in a verifiable form

and some standards (criteria) by which the auditor
can evaluate the information.
Audit in General : Type of Auditor
Independent certified public accounting firms

exp. PwC, Ernst & Young, Deloitte, KPMG etc.
Governmental general accounting office auditors
exp. Supreme Audit Board
Internal auditors
exp. Inspectorate General in every ministry (In Indonesia)
Internal Revenue agents
exp. NTA, IRS
and so on
Audit in General : Audit VS Accounting (Financial)
ACCOUNTING AUDITING
Accounting is the Auditing is

recording, classifying, determining whether
and summarizing of recorded information
economic events for properly reflects the
the purpose of economic events that
providing financial occurred during the
information used in accounting period.
decision making.
Audit in General : Opinion of Financial Audit
unqualified Qualified
All financial statements, limitation on the scope
Sufficient evidences, of the audit, failure to
Standard of Accounting follow GAAP, etc
are provided
The Opinion
of Financial
Unqualified with Audit Report
Adverse or disclaimer
explanatory
Same as Unqualified, but Adv : materially misstated
need more explanation or misleading
exp. going concern, Disclaimer : auditor not
GAAP consistency etc. sure financial statements
are fairly presented
Audit in General : 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.
Materiality Significance in Terms of Type of

Level Reasonable Users Decisions Opinion
Users decisions are unlikely

Immaterial Unqualified
to be affected.
Users decisions are likely

Material Qualified
to be affected.
Highly Users decisions are likely Disclaimer

Material to be significantly affected. or Adverse
PUBLIC SECTOR AUDIT
Public Sector Governance
Governance is defined as the combination

of processes and structures implemented
by the board to inform, direct, manage, and
monitor the organizations activities toward
the achievement of its objectives.
In the public sector, governance relates to the means

by which goals are established and accomplished. It
also includes activities that ensure a public sector
entitys credibility, establish equitable provision of
services, and assure appropriate behavior of
government officials reducing the risk of public
corruption.
PUBLIC SECTOR AUDIT
Principles of Governance - 1
Setting direction => Establishe policies to guide an
organizations actions exp. national goals, strategic plans,
performance goals
Instilling ethics => clearly articulated ethical values,
objectives, and strategies; appropriate tone at the top; and
internal control
Overseeing results => continuing oversight to ensure that policy is
implemented as intended, strategies are met, and the overall
performance of the public sector entity meets expectations while
conforming with policies, laws, and regulations
Accountability reporting => Audit
Correcting course => Audit finding and recommendation

PUBLIC SECTOR AUDIT
Principles of Governance - 2
Accountability. Accountability is the process whereby public sector
entities, and the individuals within them, are responsible for their
decisions and actions, including their stewardship of public funds and
all aspects of performance, and submit themselves to appropriate
external scrutiny
Transparency. related to the openness of a public sector entity to its

constituents
Integrity. Public officials to act consistently with the ethical principles

and the values, expectations, policies, and outcomes of the public
sector entity
Equity. The principle of equity relates to how fairly public sector officials
exercise the power entrusted to them : Service costs, Service delivery,
Police and regulatory power , Exchange of information
PUBLIC SECTOR AUDIT
The Roles of Audit
Oversight. Focus on Has the policy been implemented as intended? and Are
managers implementing effective controls to minimize risks?
Detection. Identify inappropriate, inefficient, illegal, fraudulent, or abusive acts

that have already transpired and to collect evidence to support decisions
regarding criminal prosecutions, disciplinary actions, or other remedies.
Deterrence. Identify and reduce the conditions that allow corruption
Insight. assist decision-makers by assessing which programs and policies are

working and which are not, sharing best practices and benchmarking
information, and looking horizontally across public sector entities and vertically
among the levels of the public sector to find opportunities to borrow, adapt, or
reengineer management practices
Foresight. help Pub Sec Org look forward by identifying trends and bringing
attention to emerging challenges before they become crises
PUBLIC SECTOR AUDIT
Key Elements of an Effective Public Sector Audit Activity
Organizational independence
A formal mandate
Unrestricted access
Sufficient funding
Competent leadership
Objective staff
Competent staff
Stakeholder support
Professional audit standards
PUBLIC SECTOR AUDIT
Types of Audits and Other Services
Types of Audits Other Services
Financial Audit Advisory

=> Opinion
Assistance
Performance Audit Investigative
=> recommendation services
of effectivity,
efficiency, etc. Etc.
Compliance Audit
PUBLIC SECTOR AUDIT
Performance Audit
Performance audit is a type of audit (emphasis added) which is concerned with

the evaluation of economy, efficiency, and effectiveness of public sector
management (Incosai, 1986)
PUBLIC SECTOR AUDIT
INTERNAL AUDIT - Internal Control
Internal control is an integral process that is effected by an entitys

management and personnel and is designed to address risks and to
provide reasonable assurance that in pursuit of the entitys mission,
the following general objectives are being achieved:
executing orderly, ethical, economical, efficient and effective

operations
fulfilling accountability obligations
complying with applicable laws and regulations; safeguarding
resources against loss, misuse and damage.
PUBLIC SECTOR AUDIT
INTERNAL AUDIT The Standard
PUBLIC SECTOR AUDIT
SUPREME AUDIT INSTITUTION (SAI) External Audit
A supreme audit institution (SAI), or national audit

institution : fulfils the independent and technical public
sector external audit function that is typically established
within a countrys constitution or by the supreme law-
making body.
SAI is responsible for overseeing and holding government

to account for its use of public resources, together with
the legislature and other oversight bodies.
CASE STUDY IN INDONESIA
INTERNAL AUDIT
1. Finance and Development Supervisory Agency (BPKP)

=> The role is as a coordinator of Government Internal
Supervisory/Audit (APIP Aparat Pengawas Internal Pemerintah). BPKP
has a Representative Office in every province in Indonesia.
2. Inspectorate General in every ministry / government institution
3. Province Inspectorate in every Province Local Government
4. City/Regency Inspectorate in every City/Regency Local Government
5. Internal Audit Unit in every Indonesian State Owned Enterprises /
Local Government Owned Enterprises
INTERNAL AUDIT History of BPKP
1961 1966 1983 2014
Dir ervis
Sta
Su
BP
BP
.G
p
te A
KP
en. ory
KP
cc
Fin
Re
Ag
anc
enc
fo r
e
m
y
Under Ministry of Finance Under President
Finance and Development Supervisory Agency (BPKP)
1. Formulating National Internal Control Policy

2. Implementing Audit, Review, Evaluation, Monitoring, and other control
activities to State / Local Government / Other Govt. Institution
3. Internal Controlling of planning and organizing of government asset
utilization.
4. Coaching risk management, internal control, and governance to
govenrment institution
5. Controlling any kind of programs tread, Auditing of price policy,
Auditing of government lost and corruption and etc.
6. Reviewing of State Government Financial Statement and State
Government Performance Audit
7. Socializing, Coaching, and Consulting Internal Control Sytem for State
Government, Local Government, and other Government Insittution
8. Coaching Government Internal Control Capability and Serfitication of
Government Internal Auditor.
9. As an Agency of education, training, research and development of
President Regulation
Governement Internal Control System
Number 192 / 2014
10.Internal Controlling of BPKP it self.
INTERNAL AUDIT Ministry of Finance
INTERNAL AUDIT History of BPKP
Minister of Finance
Director General
of Taxes
Secretariat of Directorate
Senior Advisors (4)
General
Technical Implementing
Directorates (14) Regional Offices (33)
Units (5)
Tax Offices (335)
General Affairs and Tax Service, Counseling,

Tax Auditor
Internal Compliance & Consultation Offices
Data and Information

Tax Service Section
Processing Section
Tax Extensification Monitoring and

Audit Section Tax Collection Section
and Appraisal Section Consulting Section
SUPREME AUDIT BOARD (BPK)
LEGAL
LEGAL FRAMEWORK
FRAMEWORK
1. Indonesian Principle of Constitution 1945

Chapter VIIA : Supreme Audit Board - article 23E,
23F, 23G
2. The State Finances Act 2003 (No.17 of 2003)
3. The State Treasury Act 2004 (No.1 of 2004)
4. The State Financial Management and Accountability A
ct 2004 (No.15 of 2004)
1945 Indonesian Principle of Constitution, Article Number 23 as a Legal

Framework : The Audit Board for auditing accountability in the State
finances. The Audit Reports shall be presented to the House of
Representatives (DPR)
1947 Supreme Audit Board (BPK) was established
1963 improve BPK to be an effective tools of control by Government
Regulation - New Structure of BPK
1965 BPK under the President
1966 People's Consultative Assembly (MPR) bring back to BPK originally
1973 the Audit Board Act repealed to underlying job description of BPK
2002 People's Consultative Assembly (MPR) amanded the Indonesian
Principle of Constitution. Strengthened BPK position as the sole external
auditor of state finance, and that its role as an independent and
professional institution to be strengthened.
PUBLIC SECTOR AUDIT
Key Elements of an Effective Public Sector Audit Activity
Organizational independence
A formal mandate
Unrestricted access
Sufficient funding
Competent leadership
Objective staff
Competent staff
Stakeholder support
Professional audit standards
TREADS AND PROBLEMS
Corruption eradication
Political Issues
Exp. Some audit findings are not followed-up by other institution
such as Police / Indonesia Corruption Eradication Comission
Some of the jobs are overlap between Finance and Development
Supervisory Agency (BPKP) and Supreme Audit Board (BPK)
Implementing of Embedded Audit (part of e-audit)
Lack of employees who have Certified of Internal Auditor,
Especially in many ministries and most of local government
Etc.
Bibliography
Michael Barzelay, 1996, "Performance Auditing and the New Public

Management: Changing Roles and Strategies of Central Audit Institutions", in
OECD, Performance Auditing and the Modernisation of Government
Jack Diamond, 2002, The Role of Internal Audit in Government Financial
Management: An International Perspective, IMF Working Paper, WP/02/94
OECD, 2016, Supreme Audit Institutions and Good Governance Oversight,
Insight and Foresight
The Institue of Internal Auditor. 2012.The Role of Auditing in Public Sector
Governance.
Alvin A. Arens, Randal J. Elder, and Mark S. Beasley. 2010 . Auditing and
Assurance Services.
Indonesian Principle of Constitution 1945 (last amanded on 2002)
President Regulation Number 192 / 2014
BPK. 2016. Audit Report of State Financial Statement 2015
http://www.bpk.go.id
http://www.bpkp.go.id
http://www.kemenkeu.go.id
http://www.pajak.go.id
L/O/G/O
Thank You!

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L/O/G/O

Aeshath Nasra / MET16301

2 Public Sector Audit

3 Case Study in Indoensia

4 Treads and Problems

Auditing is the accumulation and evaluation

To do an audit, there must be information in a verifiable form

Independent certified public accounting firms

Accounting is the Auditing is

A misstatement in the financial statements can be

Materiality Significance in Terms of Type of

Users decisions are unlikely

Users decisions are likely

Highly Users decisions are likely Disclaimer

Governance is defined as the combination

In the public sector, governance relates to the means

Accountability reporting => Audit

Correcting course => Audit finding and recommendation

Transparency. related to the openness of a public sector entity to its

Integrity. Public officials to act consistently with the ethical principles

Detection. Identify inappropriate, inefficient, illegal, fraudulent, or abusive acts

Deterrence. Identify and reduce the conditions that allow corruption

Insight. assist decision-makers by assessing which programs and policies are

Types of Audits Other Services

Financial Audit Advisory

Performance audit is a type of audit (emphasis added) which is concerned with

Internal control is an integral process that is effected by an entitys

executing orderly, ethical, economical, efficient and effective

A supreme audit institution (SAI), or national audit

SAI is responsible for overseeing and holding government

1. Finance and Development Supervisory Agency (BPKP)

1961 1966 1983 2014

Under Ministry of Finance Under President

1. Formulating National Internal Control Policy

Tax Offices (335)

General Affairs and Tax Service, Counseling,

Data and Information

Tax Extensification Monitoring and

1. Indonesian Principle of Constitution 1945

1945 Indonesian Principle of Constitution, Article Number 23 as a Legal

Michael Barzelay, 1996, "Performance Auditing and the New Public

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