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Kuliah 6

Audit Evidence –
Cycle Approach and
Audit Objectives

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Topik Bahasan
1 Audit Approach – Transaction Cycle

2 Management Assertions

3 Using Assertions in Auditing

Setting Audit Objectives Based on


4 Assertions

5 Phases of an Audit Process

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Tujuan Pembelajaran
Setelah mengikuti kuliah ini mahasiswa diharapkan mampu:
1. Menjelaskan pendekatan siklus transaksi dalam audit laporan
keuangan;
2. Menjelaskan bagaimana auditor memperoleh suatu kombinasi
asurans dengan pendekatan siklus transaksi dalam audit
laporan keuangan;
3. Menjelaskan asersi manajemen dan kategori asersi
manajemen;
4. Mengaitkan hubungan antara tujuan audit dan asersi
manajemen;
5. Menjelaskan hubungan antara tujuan audit dan proses
perolehan bukti audit.

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Cycle Approach to
Segmenting on Audit.

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Segmenting the Audit

Audits are performed by dividing the financial


statements into smaller segments or components.

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Segmenting the Audit

Financial Statements
Unaudited

Segment Segment Segment Segment AUDIT

Common way to devide


Financial Statements an audit is to keep
Audited closely related classes
of transactions and
account balances in the
same segment.
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Segmenting - Cycle Approach
Divide financial statements into closely related classes of
transactions and accounts balances.
Sales and Collection Cycle

Acquisition and Payment Cycle

Payroll and Personnel Cycle

Inventory and Warehousing Cycle

Capital Acquisition and Repayment Cycle OR

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Segmenting - Cycle Approach

Revenue Cycle Sales & Collection

Expenditure Cycle Acquisition & Payment

Production Cycle Inventory & Warehousing

Personnel Service Cycle Payroll & Personnel

Investing Cycle Acquisition & Payment

Financing Cycle Capital Acquisition & Repayment

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Sales & Collection (Revenue) Cycle -
Example
Transactions : • Sales
• Sales return & allowances
• Cash receipts
• Write-off of uncollectible accounts
• Provision for bad debt
Accounts : • Sales
• Sales return & allowances
• Accounts receivable
• Allowance for doubtful
• Bad debt expense
• Cash (debit)

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Acquisition & Payment (Expenditure)
Cycle - Example
Transactions : • Acquisition of goods & services
• Puschase return & allowances
• Cash disbursements
Accounts : • Prepaid expenses
• Purchased inventory
• Property, plant & equipment
• Accounts payable
• Manufacturing expenses
• Selling expenses
• Administration expenses
• Cash (credit)
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Relationships Among Transaction Cycles
General
cash

Capital acquisition
and repayment cycle

Sales and Acquisition Payroll and


collection and payment personnel
cycle cycle cycle

Inventory and
warehousing
cycle

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The Logic of Cycle Approach
Transaction Flow - Example
Transactions Journals Ledger, Trial Balance, and
Financial Statements
Sales Sales journal

Cash receipts General ledger


Cash receipts journal and subsidiary
records
Acquisition of Acquisitions
goods/services journal General ledger
trial balance
Cash Cash Disburs
Disbursements journal
Payroll Financial
Payroll journal
Disbursements statements
Allocation and General journal
adjustments
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Obtaining assurance by auditing class of
transactions & ending balances
Accounts Receivable (in thousands)
Beginning balance $ 17,521

Sales $144,328 $137,087 Cash receipts

Sales returns
$ 1,242 and allowances

Charge-off of
$ 3,323 uncollectible
accounts

Ending balance $ 20,197


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Obtaining assurance by auditing class of
transactions & ending balances
If the auditor could be completely sure that each of classes
of transactions is correctly stated, the auditor could also be
sure that the ending balance is correctly stated.
Several audit objectives must be met before the auditor
can conclude that the transactions are properly recorded.
These are called transaction related objectives.

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Audit of Transaction Cycles

Phase Risk Perform risk assessment procedures


1 Assessment for each transaction cycles

Design further audit procedures for


transactions & account balances
Phase Risk
in the cycles
2 Response
Perform the audit procedures

Evaluate audit evidence obtained

Phase Reporting
Draw conclusions about
3 the fairness of the transactions and
account balances in the cycles

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Management assertions

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Management Assertions
Implied or expressed representations by management
that are embodied in the financial statements,
• Relate to the recognition, measurement, presentation,
and disclosure of the various elements (amounts and
disclosures) in the financial statements.
• Example assertion about
− the existence of assets;
− the occurrence of revenue transactions;
− the appropiateness of valuation of inventory balance, etc.

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Management Assertions

Category of Assertions :
1. Assertions about classes of transactions and events
for the period under audit
2. Assertions about account balances at period end
3. Assertions about presentation and disclosure

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Management Assertions
Assertions About Transactions & Events
Assertion Description
Transactions and events that have been recorded
Occurrence
have occurred and pertain to the entity.
All transactions and events that should have been
Completeness
recorded have been recorded
Amounts and other data relating to recorded
Accuracy transactions and events have been recorded
appropiately
Transactions and events have been recorded in the
Classification
proper accounts
Transactions and events have been recorded in the
Cutoff
correct accounting period.

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Management Assertions
Assertions About Account Balances
Assertion Description
Existence Assets, liabilities, and equity interests exist
All assets, liabilities, and equity interests that
Completeness
should have been recorded have been recorded
Assets, liabilities, and equity interests are included
Valuation & in the financial statements at appropiate amounts
Allocation and any resulting valuation adjustments are
appropiately recorded
Rights & The entity holds or controls the rights to assets and
Obligations liabilities are the obligation of the entity.

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Management Assertions
Assertions About Presentation and Disclosure
Assertion Description
Occurrence & rights Disclosed events and transactions have
& obligations occurred and pertain to the entity.
All disclosures that should have been included
Completeness
in the financial statements have been included.
Financial and other information are disclosed
Accuracy & valuation
appropiately and at appropiate amounts
Financial and other information is appropiately
Classification &
presented and described and disclosures are
understandability
clearly expressed.

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Using Assertions in Auditing

The auditor must obtain sufficient appropiate audit evidence


to support all management assertions in the financial
statements.
Assertions are used by the auditor to form a basis for :
- considering the different types of potential misstatements
that may occur;
- assessing the risks of material misstatement (RMM) at
the financial level and the assertion level;
- designing audit procedues, that are responsive to the
assessed risks, to obtain sufficient appropiate audit
evidence.

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Using Assertions in Auditing – Example

Low

Relevant Assertions Risk of Material Misstatement (RMM)


Existence High
Completeness Low
Valuation Mod
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Setting audit objectives based on
management assertions

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General Transaction-Related Audit Objectives

Transaction-Related
Assertions Description
Audit Objectives
Occurrence Occurrence Recorded transactions exist
Existing transactions are
Completeness Completeness
recorded
Accuracy Recorded transactions are
stated at the correct amounts
Accuracy Posting & Recorded transactions are
Summarization properly included in the master
file & are correctly summarized
Transactions are properly
Classification Classification
classified
Transactions are recorded on
Cutoff Timing
the correct dates

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General Balance-Related Audit Objectives

Balance-Related
Assertions Description
Audit Objectives
Existence Existence Amounts included exist
Completeness Completeness Existing amounts are included
The entity holds or controls the
Rights & Rights &
rights to assets and liabilities are
obligations obligations
the obligation of the entity
Valuation & ………..
allocation

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General Balance-Related Audit Objectives

(cont’d)
Balance-Related
Assertions Description
Audit Objectives
Valuation & Accuracy Amounts included are stated at the
allocation correct amounts
Classification Amounts included are properly
classified
Cutoff Transactions are recorded in the
correct period
Detail tie-in Details in the account balances
agree with related subledger & with
the general ledger
Realizable value Assets are included at the amounts
estimated to be realized

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Presentation & Disclosure –
Related Audit Objectives

Presentation & Disclosure-


Assertions
Related Audit Objectives
Occurrence & rights & obligations Occurrence & rights & obligations

Completeness Completeness
Accuracy & valuation Accuracy & valuation

Classification & understandability Classification & understandability

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End

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