Pertemuan 1 Auditing 1: Introduction To Auditing and Assurance Services

Slide 1.
PERTEMUAN 1
AUDITING 1
Introduction to Auditing and

Assurance Services
Aria Kanaka
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 1.2
Nature of 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.
1-2
Slide 1.3
Information and Established Criteria
To do an audit, there must be information in a

verifiable form and some standards (criteria)
by which the auditor can evaluate the information.
Criteria
FASB IASB
1-3
Slide 1.4
Accumulating Evidence and Evaluating

Evidence
Evidence is any information used by the auditor

to determine whether the information being
audited is stated in accordance with the
established criteria.
Transaction
data Written and
electronic Observations
Communications
with outsiders
Client inquiry
1-4
Slide 1.5
Competent, Independent Person
Judgment and
Competence
Experience
Independence
Evaluation
of Evidence
Proper
Conclusion
1-5
Slide 1.6
Distinguish 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.
1-6
Slide 1.7
Economic Demand
for Auditing
Demand Driver Information risk
Auditing can have a significant effect

on information risk.
What is meant by “Information risk”?
1-7
Slide 1.8
Causes of Information Risk
 Remoteness of information
 Biases and motives of the provider
 Voluminous data
 Complex exchange transactions
1-8
Slide 1.9
Reducing Information Risk
 User verifies information
 User shares information risk with management
 Audited financial statements are provided
1-9
Slide 1.10
By the audit process, the auditor enhances the

usefulness and value of the financial
statements, and also increases the credibility
of other non-audited information released by
management.
Slide 1.11
The function of auditing is to lend credibility to the financial

statements
 Is the company a going concern?

 Is it free of fraud?
 Is it managed properly?
 Is there integrity in its database?
 Do directors have proper and adequate
information to make decisions?
 Are there adequate controls?
 What effect do the company's products and by-
products have on the environment?
 Can an ‘unfortunate mistake’ bring this company
to its knees?
Slide 1.12
Assurance, Attestation, and Nonassurance

Services
Slide 1.13
Assurance Services
Engagement in which practitioner expressed a conclusion designed

to enhance the degree of confidence of the intended users other
than the responsible party about the outcome pf the evaluation or
measurement of a subject matter against criteria
An independent professional service
Can be performed by CPAs or by a variety of other professionals
Slide 1.14
ATTESTATION SERVICES
A type of assurance service
CPA reports on the reliability of an assertion
That is the responsibility of another party.
Slide 1.15
ISA 200 states the objective of an audit of

financial statements is to enable the auditor
to express an opinion whether the financial
statements are prepared, in all material
respects, in accordance with an identified
financial reporting framework.
Slide 1.16
TANGGUNG JAWAB AUDITOR
Slide 1.17
Slide 1.18
 Auditor bertanggung jawab untuk memperoleh keyakinan

memadai apakah laporan keuangan secara keseluruhan
bebas dari kesalahan penyajian material yang disebabkan
oleh kecurangan atau kesalahan.
 Auditor bertanggung jawab untuk menjaga skeptisisme
profesional selama audit, mempertimbangkan potensi
terjadinya pengabaian pengendalian oleh manajemen, dan
menyadari adanya fakta bahwa prosedur audit yang efektif
untuk mendeteksi kesalahan mungkin tidak efektif dalam
mendeteksi kecurangan.
Slide 1.19
TANGGUNG JAWAB MANAJEMEN
Slide 1.20
International Financial Reporting Standards
• International Financial Reporting Standards (IFRS)

are the standards that are applied for financial
accounting.
• IFRS were formerly called International Accounting
Standards (IAS)
• The International Accounting Standards Board (IASB)
has accounting standard setting responsibilities for
IFRS.
• The EU has agreed to apply most of the IFRS from
2005 onwards.
Slide 1.21
Advantages of International Auditing

Standards
• worldwide
– increases confidence in non-domestic
investment
• consistent
– international investors comprehend financial
statements from different countries
• high quality
– Non-national standards encourage better
quality, less political influence
Slide 1.22
International Auditing and Assurance Standards Board (IAASB)

Issues:
• International Standards on Auditing (ISAs) as the standards

to be applied by auditors in reporting on historical financial
information.
• International Standards on Assurance Engagements (ISAEs)
as the standards to be applied by practitioners in assurance
engagements dealing with information other than historical
financial information
• International Standards on Quality Control (ISQCs) as the
standards to be applied for all services falling under the
Standards of the IAASB, and
• International Standards on Related Services (ISRSs) as the
standards to be applied on related services, as it considers
appropriate
• International Standards on Review Engagements (ISREs) as
the standards to be applied to the review of historical
financial information.
Slide 1.23
General Principles Governing an Audit of

Financial Statements
 An auditor should comply with the Code of

Ethics for Professional Accountants issued by
IFAC.
 An auditor should conduct an audit in
accordance with International Standards on
Auditing.
Slide 1.24
General Principles Governing an Audit of Financial

Statements
 Scope of an audit - the audit procedures deemed

necessary to achieve the objective of the audit.
 Certain inherent limitations in an audit affect the
auditor’s ability to detect material misstatements.
 Test and sampling
 Internal control
 Audit evidence
 Audit process permeated by judgment
 Management is responsible for the financial
statements, accounting, and internal control.
Slide 1.25
Business Risk and Audit Risk

• Companies, depending on the nature
of their operations and industry, the
regulatory environment in which they
operate, and their size and
complexity, they face a variety of
business risks.
• The risk that causes the greatest
concern by the auditor is the risk that
the auditor expresses an
inappropriate audit opinion when the
financial statements are materially
misstated (known as audit risk). “The
auditor should plan and perform the
audit to reduce audit risk to an
acceptably low level that is consistent
with the objective of an audit.” (ISA
200) [Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 1.26
TYPES OF AUDIT
Audit of financial statements
Examine financial statements, determine if they give
a true and fair view or fairly present the financial
statements.
Operational Audit
A study of a specific unit of an organization for the
purpose of measuring its performance.
Compliance Audit
A review of an organization’s procedures and
financial records performed to determine whether
the organization is following specific procedures,
rules, or regulations set out by some higher
authority.
Slide 1.27
Types of Auditors
 Independent certified public accounting firms
 Governmental general accounting office auditors
 Internal Revenue agents
 Internal auditors
Slide 1.28
Three Requirements for

Becoming a CPA
 Educational requirement
 Uniform CPA examination requirement
 Experience requirement
Slide 1.29
Three Requirements for

Becoming a CPA
Slide 1.30
Management Assertions and Audit

Objectives
• The audit starts with the financial statements
prepared by the client and the claims or
“assertions”. that the client makes about these
numbers.
• It is the auditor's job to validate management's
assertions. In order to do so, the auditor will
identify audit objectives, which can be
regarded as the auditor's counterpart of
management assertions.
Slide 1.31
Management
assertions
Management assertions
are implied or expressed
representations by
management about
classes of transactions
and related accounts in
the financial statements.
An example of a
management assertion is
that “the company’s
financial statements are
prepared based on
international financial
reporting standards.”
Slide 1.32
Assertions about classes of transactions and events for the

period under audit
 Occurrence. Transaction and events that have been

recorded have occurred and pertain to the entity.
 Completeness – All transactions and events that
should have been recorded have been recorded..
 Accuracy - Amounts and other data relating to
recorded transactions and events have been
recorded appropriately.
 Cutoff - Transactions and events have been
recorded in the correct accounting period.
 Classification - Transactions and events have been
recorded in the proper accounts.
Slide 1.33
Assertions about account balances at the period end.
 Existence:- Assets, liabilities and equity interests

exist.
 Rights and obligations:- An entity holds or controls
the rights to assets, and liabilities are the
obligations of the entity.
 Completeness—All assets, liabilities and equity
interests that should have been recorded have been
recorded
 Valuation and allocation —Assets, liabilities, and
equity interests are included in the financial
statements at appropriate amounts and any
resulting valuation or allocation adjustments are
appropriately recorded.
Slide 1.34
Assertions about presentation and disclosure
 Occurrence and rights and obligations—Disclosed

events, transactions, and other matters have
occurred and pertain to the entity.
 Completeness—All disclosures that should have
been included in the financial statements have been
included..
 Classification and understandability—Financial
information is appropriately presented and
described, and disclosures are clearly expressed.
 Accuracy and valuation—Financial and other
information are disclosed fairly and at appropriate
amounts.
Slide 1.35
International Public Accounting Firms
“The Big Four”:

Deloitte & Touche; PricewaterhouseCoopers;
Ernst & Young; KPMG
Audit Staff
Staff Accountants (or Junior Assistants then Senior)
Senior Accountants (or Supervisor)
Managers
Partners/Directors
Slide 1.36

Pertemuan 1 Auditing 1: Introduction To Auditing and Assurance Services

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Slide 1.

Introduction to Auditing and

Auditing is the accumulation and evaluation

Auditing should be done by a competent,

Information and Established Criteria

To do an audit, there must be information in a

Accumulating Evidence and Evaluating

Evidence is any information used by the auditor

Competent, Independent Person

Accounting is the recording, classifying,

Auditing is determining whether

Demand Driver Information risk

Auditing can have a significant effect

What is meant by “Information risk”?

Causes of Information Risk

 Biases and motives of the provider

 Complex exchange transactions

Reducing Information Risk

 User verifies information

 User shares information risk with management

 Audited financial statements are provided

By the audit process, the auditor enhances the

The function of auditing is to lend credibility to the financial

 Is the company a going concern?

Assurance, Attestation, and Nonassurance

Engagement in which practitioner expressed a conclusion designed

An independent professional service

Can be performed by CPAs or by a variety of other professionals

A type of assurance service

CPA reports on the reliability of an assertion

That is the responsibility of another party.

ISA 200 states the objective of an audit of

TANGGUNG JAWAB AUDITOR

TANGGUNG JAWAB AUDITOR

TANGGUNG JAWAB AUDITOR

 Auditor bertanggung jawab untuk memperoleh keyakinan

TANGGUNG JAWAB MANAJEMEN

International Financial Reporting Standards

• International Financial Reporting Standards (IFRS)

Advantages of International Auditing

International Auditing and Assurance Standards Board (IAASB)

• International Standards on Auditing (ISAs) as the standards

General Principles Governing an Audit of

 An auditor should comply with the Code of

General Principles Governing an Audit of Financial

 Scope of an audit - the audit procedures deemed

Business Risk and Audit Risk

 Independent certified public accounting firms

 Governmental general accounting office auditors

 Internal Revenue agents

Three Requirements for

 Uniform CPA examination requirement

Three Requirements for

Management Assertions and Audit

Assertions about classes of transactions and events for the

 Occurrence. Transaction and events that have been

Assertions about account balances at the period end.

 Existence:- Assets, liabilities and equity interests

Assertions about presentation and disclosure

 Occurrence and rights and obligations—Disclosed

International Public Accounting Firms

“The Big Four”:

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