RISK-BASED APPROACH TO AN AUDIT OF FINANCIAL STATEMENTS,
PROFESSIONAL SKEPTICISM AND PROFESSIONAL JUDGMENT
SA 200 (Tujuan Keseluruhan Auditor Independen dan Pelaksanaan Audit
Berdasarkan Standar Audit) Paragraf 5
Sebagai basis untuk opini auditor, SA mengharuskan auditor untuk memperoleh
keyakinan memadai tentang apakah laporan keuangan secara keseluruhan bebas dari
kesalahan penyajian material, baik yang disebabkan oleh kecurangan maupun kesalahan.
… Keyakinan tersebut diperoleh ketika auditor telah memperoleh bukti audit yang cukup
dan tepat untuk menurunkan risiko audit … ke level rendah yang dapat diterima. …
Reasonable assurance (keyakinan memadai) → in doing the audit process, there is
considerable uncertainty in the application of accounting principles, the auditors can’t give
absolute assurance.
Material misstatement (kesalahan penyajian material) → a misstatement that, if not
corrected, is significant enough for the financial statements not to give a true and fair view.
● At the financial statement level → the risks of material misstatements that relate
pervasively to the financial statements as a whole and potentially affect many
assertions.
● At the assertion level → the risks of material misstatements of individual
transactions, account balances, and disclosures.
SA 200 (Tujuan Keseluruhan Auditor Independen dan Pelaksanaan Audit
Berdasarkan Standar Audit) Paragraf 13 Huruf (c)
Risiko audit: Risiko bahwa auditor menyatakan suatu opini audit yang tidak tepat ketika
laporan keuangan mengandung kesalahan penyajian material.
SA 315 (Pengidentifikasian dan Penilaian Risiko Kesalahan Penyajian Material
Melalui Pemahaman Atas Entitas dan Lingkungannya) Paragraf 4 Huruf (b)
Risiko bisnis: Suatu risiko sebagai akibat dari kondisi, peristiwa, keadaan, tindakan atau
tidak adanya tindakan signifikan yang dapat berdampak negatif terhadap kemampuan
entitas dalam mencapai tujuannya dan dalam melaksanakan strateginya, atau dari
penetapan tujuan dan strategi yang tidak tepat.
Components of Audit Risk
● Inherent risk → the susceptibility of an assertion to a misstatement that could be
material, assuming that there are no related controls.
● Control risk → the risk that a misstatement that could occur in an assertion and that
could be material will not be prevented or detected and corrected on a timely basis by
the entity’s internal control.
● Detection risk → the risk that the auditor will not detect a misstatement that exists in
an assertion that could be material.
Broad Approach to Minimize Audit Risk
1. Investigating the legitimacy of the entity and the integrity and competence of its
management before acceptance of the audit assignment and before commencing each
subsequent audit.
2. Considering the independence of the audit firm and its staff in relation to the entity
before acceptance of the audit assignment and before commencing each subsequent
audit.
3. Understanding the nature of the entity and the environment in which it operates
before commencing any detailed audit work.
4. Planning by the auditor to minimize risk of failing to detect material misstatement at
the financial statement and assertion level.
5. Design the audit approach on the basis of what is now known about the audit
client and the setting of performance materiality; forming an engagement team with
the required experience and skills.
6. Design of audit programmes to obtain the evidence necessary to form conclusions
at the assertion level, leading to an opinion on the truth and fairness of the financial
statements taken as a whole.
SAMPLING AND MATERIALITY
SA 530 (Sampling Audit)
Tujuan (Paragraf 4)
Memberikan basis yang memadai bagi auditor untuk menarik kesimpulan mengenai
populasi yang menjadi sumber pemilihan sampel.
Definisi (Paragraf 5 Huruf (a))
Penerapan prosedur audit terhadap kurang dari 100% unsur dalam suatu populasi audit
yang relevan sedemikian rupa sehingga semua unit sampling memiliki peluang yang sama
untuk dipilih untuk memberikan basis memadai bagi auditor untuk menarik kesimpulan
tentang populasi secara keseluruhan.
Sampling Methods
● Random sampling → the auditors allocate an individual identifier to each sampling
unit and then use random procedures to determine which of the sampling units to
select for testing (statistical).
● Systematic or interval sampling → employing a random starting point and thereafter
selecting every nth item.
● Block or cluster sampling → involves the selection of a block of transactions and
testing for the existence of some criteria.
● Haphazard sampling → samples are selected by such methods as using blindfolds
and pins or spouses’ birthdays (purely random).
Nonstatistical Sampling (Judgment Sampling)
Steps – Audit Sampling for Tests of
Details of Balances
Steps – Audit Sampling for Tests of
Controls and Substantive Tests of
Transactions
Plan the Sample
1. State the objectives of the audit test.
2. Decide whether audit sampling applies.
3. Define a misstatement.
3. Define attributes and exception conditions.
4. Define the population.
5. Define the sampling unit.
6. Specify tolerable misstatement.
6. Specify the tolerable exception rate.
7. Specify acceptable risk of incorrect
acceptance (ARIA).
7. Specify acceptable risk of overreliance.
8. Estimate misstatements in the
population.
8. Estimate the population exception rate.
9. Determine the initial sample size.
IGSM: 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 =
Arens: 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 =
𝑅𝑒𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑓𝑎𝑐𝑡𝑜𝑟
𝑇𝑜𝑙𝑒𝑟𝑎𝑏𝑙𝑒 𝑒𝑟𝑟𝑜𝑟 𝑟𝑎𝑡𝑒
𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑒𝑐𝑜𝑟𝑑𝑒𝑑 𝑎𝑚𝑜𝑢𝑛𝑡 × 𝐶𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝑓𝑎𝑐𝑡𝑜𝑟
𝑇𝑜𝑙𝑒𝑟𝑎𝑏𝑙𝑒 𝑚𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Select the Sample and Perform the Audit Procedures
10. Select the sample.
11. Perform the audit procedures.
Evaluate the Results
12. Generalize from the sample to the population.
13. Analyze the misstatements.
13. Analyze the exceptions.
14. Decide the acceptability of the population.
Monetary Unit Sampling (Statistical Sampling)
The most commonly used statistical method of sampling for tests of details of balances
because it has the statistical simplicity of attributes sampling yet provides a statistical result
expressed in dollars (or another appropriate currency)
Determining Sample Sizes Using MUS
Confidence Factors for Monetary Unit Sample Size Design
Calculation of Projected Misstatement and Allowance for Sampling Risk
Calculation of Basic Precision
𝐵𝑎𝑠𝑖𝑐 𝑃𝑟𝑒𝑐𝑖𝑠𝑖𝑜𝑛 = 𝑆𝑎𝑚𝑝𝑙𝑖𝑛𝑔 𝐼𝑛𝑡𝑒𝑟𝑣𝑎𝑙 × 𝐶𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝐹𝑎𝑐𝑡𝑜𝑟
Confidence Factors for Monetary Unit Sample Size Evaluation
Calculation of Upper Misstatement Bound
𝑈𝑝𝑝𝑒𝑟 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 𝐵𝑜𝑢𝑛𝑑 = 𝐵𝑎𝑠𝑖𝑐 𝑃𝑟𝑒𝑐𝑖𝑠𝑖𝑜𝑛 +
𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 𝑃𝑙𝑢𝑠 𝐼𝑛𝑐𝑟𝑒𝑚𝑒𝑛𝑡𝑎𝑙 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑜𝑟 𝑆𝑎𝑚𝑝𝑙𝑖𝑛𝑔 𝑅𝑖𝑠𝑘
AUDIT OF THE SALES AND COLLECTION CYCLE
Classes of Transactions, Accounts, Business Functions, and Related Documents and
Records for the Sales and Collection Cycle
Classes of
Transactions
Accounts
Business
Functions
Documents and Records
Sales
● Sales
● Accounts
receivable
1. Processing
customer
orders
2. Granting
credit
3. Shipping
goods
4. Billing
customers and
recording
sales
●
●
●
●
●
●
●
Cash receipts
● Cash in
bank
● Accounts
receivable
5. Processing
and recording
cash receipts
●
●
●
●
6. Processing
and recording
sales returns
and
allowances
● Credit memo
● Sales returns and allowances
journal
Sales returns
● Sales
and allowances
returns and
allowances
● Accounts
receivable
Customer order
Sales order
Shipping document
Sales invoice
Sales transaction file
Sales journal or listing
Accounts receivable master
file
● Accounts receivable trial
balance
● Monthly statement
Remittance advice
Prelisting or cash receipts
Cash receipts transaction file
Cash receipts journal or
listing
Write-off of
uncollectible
accounts
● Accounts
receivable
● Allowance
for
uncollectibl
e accounts
7. Writing off
uncollectible
accounts
receivable
● Uncollectible account
authorization form
● General journal
Bad debt
expense
● Bad debt
expense
● Allowance
for
uncollectibl
e accounts
8. Providing for
bad debts
● General journal
Methodology for Designing Tests of Controls and Substantive Tests of Transactions
for Sales
1. Understand internal control – sales
● Study the client’s flowcharts or other control documentation
● Make inquiries of the client using an internal control questionnaire
● Perform walkthrough tests of sales
2. Assess planned control risk – sales
a. Needs a framework for assessing control risk
b. Identify the key internal controls and deficiencies for sales
c. Associate the controls and deficiencies with the objectives
d. Assess control risk for each objective by evaluating the controls and deficiencies
for each objective
e. Examine key control activities for sales:
● Adequate separation of duties
● Proper authorization
● Adequate documents and records
● Prenumbered documents
● Monthly statements
● Internal verification procedures
3. Determine extent of test of controls
4. Design tests of controls for sales
Methodology for Designing Tests of Controls and Substantive Tests of Transactions
for Cash Receipts (more or less the same with sales)
Analytical Procedures for the Sales and Collection Cycle
Designing Tests of Details of Balance
Balance
Tests of Details
The summation of accounts
receivable agrees with the master
file and the general ledger
● Test the information on the aged trial balance
for detail tie-in
● Trace a sample of individual balances to
supporting documents
Recorded accounts receivable exist
Confirmation of customers’ balances
Existing accounts receivable are
included
Foot the accounts receivable trial balance and
reconcile the balance with the control account in
the general ledger
Accounts receivable are accurate
● Confirmation of accounts selected from the
trial balance
● Examine supporting documentation for
shipments and cash receipts
Cutoff for accounts receivable is
correct
1. Decide on the appropriate criteria for cutoff
2. Evaluate whether the client has established
adequate procedures to ensure a reasonable
cutoff
3. Test whether the cutoff was correct
Accounts receivable is stated as
realizable value
● Prepare an audit schedule that analyzes the
allowance for uncollectible accounts
● Review the results of the tests of controls that
are concerned with the client’s credit policy
● Examine the noncurrent accounts on the aged
trial balance to determine which ones have not
been paid subsequent to the balance sheet date
Accounts receivable are properly
classified
● Review the aged trial balance for material
receivables from affiliates, officers, directors,
or other related parties
● Verify that notes receivables or accounts that
should be classified as noncurrent assets are
separated from regular accounts
The client has rights to accounts
receivable
●
●
●
●
Accounts receivable presentation
and disclosure
● Evaluate the appropriateness of the client’s
revenue recognition policy to determine
whether it is properly disclosed in the financial
statements
● Decide whether the client has properly
aggregated amounts and disclosed related party
information in the statements
Review the minutes
Discuss with the client
Confirm with banks
Examine debt contracts for evidence of
accounts receivable pledged as collateral
● Examine correspondence files
AUDIT OF THE PURCHASE AND PAYMENT CYCLE
Classes of Transactions, Accounts, Business Functions, and Related Documents and
Records for the Acquisition and Payment Cycle
Class of
Transactions
Acquisitions
Accounts
● Inventory
● Property, plant,
and equipment
● Prepaid expenses
● Leasehold
improvements
● Accounts payable
● Manufacturing
expenses
● Selling expenses
Business
Functions
Documents and Records
1. Processing
purchase
orders
● Purchase requisition
● Purchase order
2. Receiving
goods and
services
Receiving report
3. Recognizing
the liability
● Vendor’s invoice
● Debit memo
● Administrative
expenses
Cash
disbursements
● Cash in bank
● Accounts payable
● Purchase
discounts
● Voucher
● Acquisitions
transaction file
● Acquisitions journal
or listing
● Accounts payable
master file
● Accounts payable
trial balance
● Vendor’s statement
4. Processing
and recording
cash
disbursements
● Check or electronic
payment
● Cash disbursements
transaction file
● Cash disbursements
journal or listing
Methodology for Designing Tests of Controls and Substantive Tests of Transactions
1. Understand internal control
● Studying the client’s flowcharts
● Reviewing internal control questionnaires
● Performing walkthrough tests for acquisition and cash disbursement transactions
2. Assess planned control risk
● Authorization of purchases
● Separation of asset custody from other functions
● Timely recording and independent review of transactions
● Authorization of payments
3. Determine extent of tests of controls
4. Design tests of controls and substantive tests of transactions for acquisitions
Methodology for Designing Tests of Controls and Substantive Tests of Transactions
for Cash Disbursements (more or less the same with acquisitions)
Analytical Procedures for the Acquisition and Payment Cycle
Designing Tests of Details of Balance
AUDIT OF INVENTORIES
The Nature of Inventories
● Inventories vary as much in character as non-current assets and pose a variety of
problems for auditors who must adapt procedures to the nature of the product.
● The costing system plays an important role in determining cost of inventories and
construction contracts, and auditors pay particular attention to ensuring that costs
are genuine, accurate and complete.
● The auditors will determine whether the methods used to allocate overheads to
production are reasonable in the circumstances.
● The other element of inventory valuation – net realizable value (NRV) – may also cause
problems for the auditor. NRV may not be easily determinable because inventories at
the balance sheet date may not be used or sold until after audit fieldwork is complete,
resulting in doubt about amounts realizable on disposal.
Inherent Risks Affecting Inventories and Work In Progress
● Demand for the company products may alter significantly
● Production levels may have changed significantly
● Defects in product lines may have come to light
● Many inventories are attractive and easily transportable, making attempted theft likely
● Production process is complex
● Production process results in joint products
● There have been significant variances from standard costs
● Competitors have provided a more risky environment by introducing new products or
existing products at lower prices with doubt about saleability of company inventories
● Complex calculation of overheads
Other factors that relate to the assertion that inventories exist. These include:
● Reliability of inventory recording system
● Where inventories are not counted at year end the reliability of records used to roll
forward from count date to year end date
● Sometimes inventories are at locations not controlled by the organization
● Poor physical controls particularly over high-value items and those subject to
deterioration unless protected
● Independence and experience of inventory counters and supervisors
● Degree to which inventory levels fluctuate
● Inventories requiring special procedures to count and identify both quantity and quality
Controls to Reduce the Impact of Inherent Risk
● Acquisitions of inventory
● Safeguarding of inventory
● Disposals of inventories whether by sale or otherwise
● Determining existence, condition and ownership at period end dates
● Valuation of inventories
Substantive Approach to Prove Figures are Genuine, Accurate and Complete
Class of Assertion
Genuine
Assertions
● Inventories exist, are in good condition and are owned by the
company (Existence and rights)
● The recorded costs are properly attributed to production
(Occurence)
Accurate
● Inventories have been properly priced at cost to bring them to
present condition and location (Valuation)
● Inventories have been valued at the lower of cost determined
above and NRV, and provisions have been made to take account
of condition (Valuation)
● Inventories bear proper relationship to movements in the period
(Cut-off)
● The production costs have been correctly calculated
(Valuation)
● Production cost has been properly allocated to inventories or to
cost of sales in accordance with relevant accounting principles
(Valuation)
● All production costs have been allocated to the right period
(Cut-off)
Complete
● All inventories have been recorded in the underlying
accounting records that are in agreement with the figure for
inventories in the financial statements (Completeness)
● All production costs have been identified and recorded in the
appropriate accounting records (Completeness)
AUDIT OF FIXED ASSETS
The Nature of Tangible Non-Current Assets
● PSAK 16 (Aset Tetap)
Aset tetap adalah aset berwujud yang:
(a) dimiliki untuk digunakan dalam produksi atau penyediaan barang atau jasa untuk
direntalkan kepada pihak lain, atau untuk tujuan administratif; dan
(b) diharapkan untuk digunakan selama lebih dari satu periode.
● Tangible non-current assets vary in nature within companies but also between
industries.
● Associated costs such as depreciation, maintenance and insurance also vary in
nature, but their existence often help to prove existence, condition, and valuation of
the asset itself.
Inherent Risks Affecting Tangible Non-Current Assets
● Technological changes affecting industry, rendering assets obsolete
● Closure of part of business, related assets being stated at net realizable value
● Difficulties in making estimates of useful lives for calculating depreciation
● Revaluation of tangible non-current assets with consequent subjectivity
● The company owns a significant number of idle non-current assets
● The company has significant non-current assets in course of construction with
uncertainty about stage of completion and point of coming on-stream
● The company has incurred significant borrowing costs in constructing non-current
assets
● The company has capitalized own costs of construction of non-current assets
● Existence of moveable, high value assets, such as desktop PCs, with high risk of loss
Controls to Reduce the Impact of Inherent Risk Affecting Non-Current Assets
● Acquisitons, revaluation and impairment of non-current assets
● Safeguarding non-current assets
● Disposals of non-current assets
● Maintenance and insurance of non-current assets
● Authorization of depreciation charges and accumulations
Substantive Approaches to Prove that Figures are Genuine, Accurate and Complete
● Additions to non-current assets
Class of Assertion
Assertions
Genuine
● Acquisitions are properly authorized (Occurence)
● Recorded acquisitions represent non-current
assets that have been received or for which title
has passed (Occurence)
Accurate
● Acquisitions of non-current assets are correctly
calculated in accordance with relevant accounting
principles and the proper capital / revenue
decision (Valuation)
● All acquisitions are recorded in the right period
(Cut-off)
Complete
All acquisitions are recorded, excluding any revenue
items in the relevant non-current asset account
(Completeness)
Substantive procedures include:
- Check board minutes to confirm director approval of the non-current assets budget
- Review management analyses of variances between budgeted and actual acquisition
cost and determine that any significant variances are legitimate and have been
approved in the same way as the original budget
- Select major items in the budget on a random basis and trace to acquisition
documentation
- For each selected item check the capital / revenue decision has been properly made
● Revaluation of Non-Current Assets
Class of Assertion
Genuine
Assertions
● Intending to retain within the business – use
existing value use (EVU)
● Intending to dispose of the asset – use open
market value (OMV)
● If it is impossible to determine the EVU, use
depreciated replacement cost (DRC)
Accurate
The calculation of current value of non-current assets
appropriately reflects their underlying value in
accordance with relevant accounting principles
(Valuation)
Complete
All non-current assets in a particular class have been
revalued (Completeness)
Substantive procedures include:
- Determine the valuer is properly qualified
- Determine the valuer is independent of the company
- Ensure the valuer’s scope of work is appropriate
- The auditor should review the working papers of the valuer and make such tests of
the data used to prove that the valuer’s conclusions are valid
- Where the amounts involved are significant, the auditor may feel that an auditor’s
expert should be engaged
● Disposals of non-current assets
Class of Assertion
Assertions
Genuine
● Disposals of non-current assets represent the
transfer of the risks and benefits (Rights) in them
to third parties
● Disposals have been properly authorized
(Occurence)
Accurate
● Disposals have been correctly calculated
(Valuation)
● All disposals are recorded in the right period
(Cut-off)
Complete
All disposals have been recorded (Completeness)
Substantive procedures include:
- Check number sequence of disposal approvals as one test helping to prove
completeness
- Select a random sample of approvals and check authorization signature
● Non-current assets balances
Class of Assertion
Assertions
Genuine
● The recorded non-current assets physically exist
(Existence)
● The risks and benefits of holding the asset rests
with the company (Rights)
● Recorded non-current assets are used in the
business (Occurence)
Accurate
Non-current assets reflect all matters affecting their
underlying valuation (whether cost or revalued
amount) in accordance with relevant accounting
principles (Valuation)
Complete
● All non-current assets owned by the company are
recorded (Completeness)
● Non-current assets have been properly
summarized for disclosure in the financial
statements (Classification)
● Sundry matters affecting depreciation
Class of Assertion
Assertions
Genuine
The depreciation charge is in respect of non-current
assets in existence and for which the risks and
benefits of ownership accrue to the company
(Existence and rights)
Accurate
● Depreciation is correctly calculated using
appropriate depreciation methods and useful lives
(Valuation)
● The accumulated depreciation serving to reduce
the amount attributable to non-current assets is
appropriate in the light of changed circumstances,
if any (Valuation)
● Depreciation is allocated to the right period
(Cut-off)
Complete
● All depreciation is recorded in the accounting
records and costing records (Completeness)
● The depreciation charge has properly entered the
costing records and is included under appropriate
headings in the profit and loss account
(Classification)
● Accumulated depreciation is properly summarized
for disclosure in the financial statements
(Classification)