Matakuliah
Tahun
: Manajemen Kinerja Sistem Komputer
: Feb - 2010
08. Financial Statement Audits,
Adjustments, and Disclosures
Pertemuan 15 - 16
08. Financial Statement Audits, Adjustments, and
Disclosures
01. The Role of Generally Accepted
Auditing Standards
02. The Audit Risk Model
Relation to Engagement Risk
In applying the engagement risk approach, the
auditor screens out prospective clients and reviews
continuing clients for exceptional risk of litigation
against the auditor or loss of reputation and clients
with exceptional risk of declining prospect in the
future.
Audit Planning Overview
Application of the audit risk model begins after
the auditor decides that ABR and CBR are low
enough and the rewards from being the client's
auditor are high enough to make the
engagement attractive.
• Figure 8.2, diagrams components of the audit risk model
approach to the control of audit risk.
• As shown in figure 8.2, the auditor combines three
sources of information
-- pervasive factors risk, control failure risk, and book
value risk assessment -to yield an occurrence risk (OR) for each account and
assertion.
Occurrence Risk Assessment
• Pervasive Factors Risk
– Pervasive factors risk includes client viability threats, control environment
weaknesses, motivation for misstatement or fraud by management or
employees, industry and time specific factors, and weak general computer
controls.
• Control Failure Risk
– The auditor evaluates the design of control, including separation of duties, for
potential effectiveness
– Application of prescribed controls is tested by observing the system in
operation, making inquiries of personnel operating t he system, and testing
the inputs and outputs of processing.
• Book Value Risk
– Book Value Risk Is the risk that material misstatement has occurred .
Combining Occurrence Risks
• To summarize, the occurrence risk that a priorto-audit financial statement assertion is
materially misstated can be approximated by
the sum of the three risks :
OR = PFR + CFR + BVR
Applying the Audit Risk Model to limit
Detection Risk
All large CPA/CA firms have developed software to
assist with occurrence risk assessment and
determination of auditing procedures required to
economically limit detection risk to an acceptable level.
Figure 8.3 shows the three OR factors combined in an approximately additive fashion, with
OR ranging from low to high.
03. Evaluating Audit Results
Account Level Evaluation
• Application of auditing procedures typically results in a
"best estimate" or " most likely" amount of misstatement
for the account .
• Accounting Estimates
– Accounting estimates present a particularly difficult area for auditors.
– Accounting Estimates measure the effects of present and past
conditions such as net realizable values of inventory and receivables,
future costs to be incurred such as warranty costs, future income to be
earned, and allocation of past transactions such as depreciation of
fixed assets.
Financial Statement Level Evaluation
At the conclusion of the audit, the auditor should have a
high degree of belief that the financial statements are
not materially misstated.
How much adjustment is enough ?
– According to auditing standards, the auditor should
not certify financial statement as complying with
GAAP in all material respects if there are likely
misstatements that exceed materiality.
Audit Difference Summary
• To facilitate evaluation of audit difference for the
overall audit, most auditors prepare a schedule
of audit difference similar to that shown in figure
8.6 for Astro Gamas,Inc.
Final Review
• After all planned auditing procedures have been
conducted and adjustment negotiated and
recorded, the partner in charge of the audit
makes a final review of the financial statements.
04. Practice Considerations Regarding Adjustment of
Audit Differences
Incentives
• Auditors would like to please client management, other things equal,
to protect their future fees and earnings stream.
What do you get from a financial statement
audit ?
• Since management often installs better control in anticipation of the
audit, employees have less opportunity for fraud.
Adjustments waived
The effects of an audit are varied, and the resulting
imprecision and bias reduction are not absolute or
uniform.
Will your auditor "turn in" You or you
employees ?
Under GAAS, the auditor has an obligation as part of a financial
statement audit engagement to communicate several matters to the
audit committee of the board of directors.