By Aditama Nugroho Putra 20160420185

Irma Rahmawati 20160420273

Gifa Jihan Nabilah 20160420322

Group 1
 RELATIONSHIP BETWEEN
ACCOUNTING AND AUDITING

 The relationship of accounting and auditing is
close, the task of accounting is to reduce a
tremendous mass of detailed information to
manageable and understandable proportions.
The other hand, the task of auditing is to review
the measurements and communications of
accounting for propriety.
 Auditing is analytical, not constructive , it is
critical , investigative, concerned with the basis
for accounting measurement and assertions.
 
 How can auditor can understand there is condition
of organization weakness on IC
 What happen if the auditors give the wrong opinion
without reason, so what the responsibility of auditor
 How the way the company told the shareholders if
there is a fraud will impact the company bankrupt
 
 How should auditors do, if there is misapprotiation
of asset?
 What characteristic could make illegal acts influence
on auditors responsibility?
 How the auditors responsible to detect illegal acts
well performing financial statement?
  IMPORTANT FUNDAMENTAL CONCEPTS

 Verifiability

Data are verifiable when two or more qualified individuals,
working independenty, reach essentially simillar
conclutions from an examination of the data. Verifability is
primarily concerned with the avaibility of evidence attsting
to the validity of the information being considered
 Professional Jugment

The auditor as a professional jugment seeks only a


reasonable basis for expressing an opinion on the fairness
of the financial statements.
The five rules of the professional jugment
 1.Identify and define the issue
 2.Gather the facts and information, and identify the
relevant literature
 3.Perform the analysis and identify alternatives
 4.Make the decision
 5.Review and complete the documentation and rationale
for the conclusion
 Fair Presentation
The obligation to report thruthfully and accurately. Audit reports,
audit conclusions must reflect accurately the audit activities.

Significant obstacles encountered during the audit and unresolved
diverging opinions between the audit team and the auditee should
be reported.

 Materiality
Auditors is only designed to look for misstatement in financial
statements that are materail, orsignificant, to financial statement
users. Auditors may not attempt to verify items that are so small,
or immaterial, that they have no significance for financial
statement users
 Independent Auditor Relationship
 Management
In an auditing context, management refers to the company

officers, controller, and key supervisory personnel. During
the course of audit, there is extensive interaction between
the auditor and management. To obtain the audit evidence,
the auditor often requires confidential data about; the
entity. It is, therefore, imperative to have relationship
based on mutual trust and respect.
 Board of Directors & Audit committee
Act on behalf of owners becaus the board of directors of an

entity is responsible for seeing that the entity operates in
the best interests of the shareholders.

The auditor’s relationship with the directors largely

depends on the composition of the board and works best
when the majority are outside or non-executive directors.
 Internal Auditor
Internal auditors From the perspective of the independent
auditor, internal auditing is a component of the entity’s


control environment. As an independent unit within the
entity, the internal auditor examines, evaluates and
monitors the adequacy and effectiveness of the internal
control structure.

The Work of Internal Audit requires the independent

auditor to assess the work of the internal auditor for the
purpose of planning the audit and developing an effective
audit approach.
 Stockholders
Shareholders rely on the audited financial statements for
assurance that management has properly discharged its
stewardship responsibility.
The auditor, therefore, has an important responsibility to
shareholders of the company.

In theory, the directors’ powers to appoint the auditor are

limited; in practice, the shareholders of the company
generally accept the recommendations of the directors.
 ASSURANCE PROVIDE BY AN AUDIT


Users of audited financial statement expect auditors to:

 Perform the audit with technical competence, integrity, independence, and

objectivity.

 Search for and detect material misstatements, whether intentional or

unintentional

 Prevent the issuance of misleading financial statement

Key issues associated with the assurance provide by an audit

Auditor Independence

Reasonable Assurance

Detect and Reporting Fraud

Detect and Reporting Illegal Acts

Evaluation of Internal Control

Evaluating whether an entity is a going concern

 DETECTING AND REPORTING FRAUD
Responsibility to Detect Fraud

1. The auditor must specifically assess the risk of fraud in every audit, both
fraudulent financial reporting and misappropriation of assets

2. The auditor must plan and perform an audit to respond to identified risk

3. The auditor shuold conduct the audit with due professional care and an
attitude of professional skepticism.
 DETECTING AND REPORTING FRAUD
Responsibility to Report Fraud

When the auditor conclude that the financial statements are materially misstated
and the financial statement are not prepared in accordance with GAAP, the auditor
should insist that the financial statement be revised by management.
 Detecting and Reporting Illegal Acts


 The determination of whether an act is
Responsibility to
illegal is dependent on legal judgment
Detect Illegal Acts
that normally is beyond the auditor’s
professional competences

 Illegal acts very considerably in their

relation to financial statements.
 Detecting and Reporting Illegal Acts


The auditor’s primary responsibility is for fair

Responsibility to presentation in the financial statements.

Report Illegal Acts When an illegal act having a material effect on
the financial statements is not properly
disclosed, the auditor should insist that
management revise the financial statement.
 Evaluation of Internal Control


1. Evaluating internal control over financial reporting

2. Reporting this evaluation to theshareholders and other users of financial

statements is different for public companies versus private companies.
 Assurance about a going concern


The auditor’s consideration of an entity’s ability to continue as a going
concern, provide that the auditor has a responsibility to evaluate whether
there is substantial doubt about the entity’s ability to continue as a going
concern for a resionable period of time, not to exceed one year beyond the
date of the financial statement being audited.
 The standard report on financial
statement

 Title and Adress
 Introductory Paragraph
 Scope Paragraph
 Opinion Paragraph
 Additional Explanation Wording
 Departures from the standard report


 Standard report with explanatory language
 Other types opinion
 Qualified opinion
 Adverse opinion
 Disclaimer opinion
 Key Terms

 1st: Public company auditors report on
management’s financial statements as discussed in
the preceding section

 2nd: Auditors report on internal control over financial

reporting.
 Why is it important?


Effective internal controls over
financial reporting serve to
safeguard public resources against
material loss due to waste, abuse,
mismanagement, errors, fraud,
omissions, or other irregularities.

Further, they provide a means by which

management and users of financial
statements can have confidence that the
financial statements fairly reflect financial
transactions.
 What is Standard
Report?


A standard report is the common report

issue. It contains an unqualified opinion
stating that managements assertion about
its systems of internal control is fairly
stated in all material respects.
 The Standard Report

 Title and Address
 Introductory Paragraph
 Scope Paragraph
 Definition Paragraph
 Inherent Limitations Paragraph
 Opinion Paragraph
 Explanatory Paragraph
 Signature and Date
 Departures from the
Standard Report

A significant
A material weakness: is
deficiency’s: is internal
a significantly deficiency
control can deficiency
that, by itself, or in
that adversely affects the
combination with other
company’s reliably
significant deficiencies.
accordance with GAAP.
 Material weakness in Internal
Control over Financial Reporting.

If there are significant deficiencies that, individually
or in combination, result in one or more material
weakness,

management is precluded from

concluding it is effective

. In these case, the auditors must express an adverse

opinion on the effectiveness of the company’s internal
control > financial reporting.


 Audit conclusion

The Audit is that the
process of internal The Department utilizes
controls over financial a risk-based approach
reporting is generally when assessing the
effective in identifying effectiveness of the
and mitigating the risk system of internal
that financial statements controls at the
may be materially Department.
misstated.