Auditing I

Exercise 2-4, 8, 10, 11, 13, 14, 16

Group 4 (Telolet) Accounting Class 4:
Amellia Samantha / 008201500036
Fajar Widya Kusumah / 008201400035
Ginsi Trianesti / 008201500117
Lyra Raisa / 008201500122
Muhammad Ihsan / 008201500124
Exercise 2-4
 What are the functions of the PIOB in the IFAC’s governance and
standard-setting activities?
A Public Interest Oversight Board (PIOB) oversees the auditing and assurance,
ethics, and education standard-setting activities of the International Auditing and
Assurance Standards Board (IAASB), the International Ethics Standards Board for
Accountants (IESBA), and the International Accounting Education Standards Board
(IESBA), and the International Accounting Education Standards Board (IAESB).
Before a standard is final, the PIOB must approve that the standard-setting has
followed a due process, including that the standard-setting was sufficiently
responsive to the needs and perceptions of various stakeholders, with the
primary emphasis on investors, regulators, and corporate users.
The PIOB also oversees the IFAC’s Compliance Advisory Panel and thereby
IFAC members’ endeavors to incorporate the international standards. Members of
the PIOB are nominated by regulators and related organizations. A Consultative
Advisory Group (CAG) for each of the standard-setting boards serves to provide
further public interest input into the standard-setting process.
Exercise 2-8

 Compare and contrast management’s responsibility for the entity’s

financial statements with the auditor’s responsibilities for detecting
errors and fraud in the financial statements.
Management is responsible to prepare financial statements, in accordance
with the applicable financial reporting framework, that fairly present the
company’s financial condition and operations. The auditor is responsible to issue
an opinion in regards to the financial statements prepared by management. In
order to issue this opinion, the auditor must plan and perform the audit in
accordance with established standards to obtain reasonable assurance that the
financial statements are free of material misstatement, whether caused by error
or fraud. However, it is important to note that an auditor’s unmodified opinion
does not mean that errors or fraud do not exist but rather that there is
reasonable assurance that they do not exist in material amounts.
Exercise 2-10

 What are the main services offered by audit firms?

o Assurance Services:
Audit of financial statements, review of financial information, and other
assurance services (e.g. assurance on a entity’s reporting on
sustainability performance).
o Related Services:
Agreed-upon procedures regarding financial information and compilation
of financial information.
o Other Services:
Tax services, advisory services, accounting services and other
specialized services (e.g. forensic audit).
Exercise 2-11
 List the various types of auditors.
Auditors can be classified under four types: (1) external auditors, (2)
internal auditors, (3) government auditors, and (4) forensic auditors.
o External Auditors are auditors who performs an audit, in accordance
with specific laws or rules, of the financial statements of
a company, government entity, other legal entity, or organization, and
is independent of the entity being audited.
o Internal Auditors are an employee of a company charged with
providing independent and objective evaluations of the company's
financial and operational business activities, including its corporate
governance.
o Government Auditors are auditors who are employed to review the
finances and practices of government agencies.
o Forensic Auditors are experienced auditors of legal and financial
documents that are hired to look into possible suspicions of fraudulent
activity within a company. They are trained in detecting,
investigating, and deterring fraud and white-collar crime.
Exercise 2-13

 What roles do information systems and systems of internal control

play in the high-level model of business discussed in the chapter, and
why might it be important for an auditor to understand these roles?
The information system must maintain a record of all businesses
transactions. It should be capable of producing accurate financial reports to
summarize the effects of the entity’s transactions. Internal control is required to
ensure that transactions are appropriately conducted and recorded by the
information system and company employees. They provide safeguards to ensure
the 1) reliability of financial reporting, 2) compliance with laws and regulations,
and 3) the effectiveness and efficiency of operations. Auditing standards require
that the auditor obtain an understanding of internal control in planning the
nature, timing, and extent of testing.
Exercise 2-14

 How might the three categories of management assertions provide a

powerful tool for the financial statement auditor?
The three categories of management assertions cover every aspect of what
is needed for a transaction to be handled properly, for a financial statement
account to be fairly stated, and for the financial statements to be presented
appropriately and to contain adequate disclosures. The management assertions
form the basis for planning and evaluating the evidence that the auditor must
obtain about the fairness of the client’s financial statements.
Exercise 2-16
 Various types of auditors offer and perform a wide range of assurance services
such as audit of financial statements, review of financial information,
assurance on compliance with laws and regulations, assurance on financial
forecasts, assurance on the effectiveness of internal control, forensic audits
and operational audits.
Required:
For each of the following descriptions, indicate which type of assurance service best
characterizes the nature of the service being conducted. Also indicate which type of
auditor (external auditor, internal auditor, government auditor, or forensic auditor is likely
to perform the engagement.
a) Evaluate the policies and procedures of the Medical Control Agency in terms of
bringing new drugs to market. Type of audit: Operational; Type of auditor:
Government.
b) Determine the fair presentation of Ajax Chemical’s balance sheet, income
statement and statement of cash flows. Type of audit: Financial Statement; Type
of auditor: External.
c) Review the payment procedures of the Accounts Payable Department for a large
manufacturer. Type of audit: Compliance or Operational; Type of auditor: Internal
or External.
d) Evaluate if the internal controls of the entity comply with the criteria of COSO
(Committee of Sponsoring Organizations of the Treadway Commission)
framework.
Type of audit: Forensic; Type of auditor: Internal, External or Forensic.
e) Evaluate the feasibility of forecasted rental income for a planned student
housing project.
Type of audit: Operational; Type of auditor: Government, External or
Internal.
f) Evaluate a company’s computer services department in terms of the efficient
and effective use of corporate resources.
Type of audit: Operational; Type of auditor: Internal or External.
g) Control the partnership tax return of a real estate development company.
Type of audit: Compliance; Type of auditor: Government.
h) Investigate the possibility of payroll fraud in a pension fund.
Type of audit: Compliance or Forensic; Type of auditor: Government,
External or Forensic.