Definition of Audit


generally, the notion of an audit is a systematic process carried out by competent and independent people by collecting and evaluating evidence and aiming to provide an opinion on the reasonableness of the financial statements.

In carrying out audits, the following factors must be considered:

  1. It requires measurable information and some criteria (standards) that can be used as a guide for evaluating that information,
  2. The determination of the economic entity and the period being audited must be clear to determine the scope of the auditor’s responsibilities,
  3. Evidence must be obtained in sufficient quantities and quality to meet the audit objectives,
  4. The ability of the auditor to understand the criteria used as well as an independent attitude in gathering the evidence needed to support the conclusions he will draw.


Audits are generally divided into three groups, namely: financial statement audits, compliance audits, and operational audits.

  1. Financial statement audit (financial statement audit). Financial statement audit is an audit conducted by an external auditor on the client’s financial statements to provide an opinion on whether the financial statements are presented by established criteria. The results of the audit are then shared with outside parties such as creditors, legal holders, and the tax service office.
  2. Compliance audit. This audit aims to determine whether the audits are following certain conditions, regulations, and laws. The criteria set out in the compliance audit come from different sources. For example, it might come from management in the form of internal control procedures. A compliance audit is usually called an internal audit function because it is a company employee.
  3. operational audit (operational audit). An operational audit is a systematic review of an organization’s operational activities about specific objectives. In an operational audit, the auditor is expected to make objective observations and comprehensive analysis of certain operations.

The purpose of operational audits is to:

  1. Assess performance, performance compared to policies, standards, and goals set by management,
  2. Identifying opportunities and,
  3. Provide recommendations for improvement or further action. The parties that may request an operational audit are management and third parties. The results of the operational audit are submitted to the party requesting the audit.

The objectives and benefits of an independent audit

independent audit

The general purpose of an audit of financial statements is to express an opinion on the reasonableness of the financial statements, in all material respects, by generally accepted accounting principles.

The reasonableness of the financial statements is measured based on the assertions contained in each element presented in the financial statements, which are called management assertions.

Management assertions presented in financial statements can be classified into five categories:

1. Existence or occurrence.

This assertion is a statement of management of assets, liabilities, and equity listed in the balance sheet that existed at the balance sheet date and whether the income and expense stated in the income statement occurred during the accounting period.

2. Completeness.

Completeness means that all transactions and accounts that should be recorded in the financial statements have been recorded. The assertion of completeness is the opposite of the assertion of existence. If the presence assertion is incorrect, the account will be declared too high, while if the completeness assertion is incorrect, the account will be declared too low.

Assertions of completeness are related to the possibility of missing things that must be included in the financial statements, while assertions of existence relating to the mention of numbers should not be included.

3. Rights and obligations.

The auditor must ascertain whether the asset is indeed the right of the client and whether the liability represents the client’s name on a certain date.

4. Valuation or allocation.

This assertion concerns whether assets, liabilities, equity, income, or expenses have been included in the financial statements at the right amount.

5. Presentation and disclosure.

This assertion concerns the issue of whether the components of the financial statements have been classified, described, and disclosed appropriately.

Disclosure is related to whether the information in financial statements, including related notes, has clearly explained things that could affect their use.


The main problem faced by public accountants today is the reduction in their power in carrying out assignments. An independent accountant is required to act by statutory regulations and a professional code of ethics. The phenomenon of the relationship between public accountants and clients has become the center of attention for decision-makers, such as investors, creditors, and shareholders.

They are very aware of the capabilities possessed by the company management. First, the ability related to the tendency of company management to manipulate the performance of the company’s financial statements to get a positive assessment of its responsibilities as the party that manages the company. This trend is known by the term window dressing, usually performed by way of fixing the financial statements such that it looks better than it should.

Unlike other professions, auditors cannot act in the best interests of their clients as lawyers and their clients. Although paid by a client, a public accountant works in the interests of the general public. The auditor must be independent of all obligations and ownership interests in the company being audited.

It must also avoid circumstances that may cause the community to doubt its independence. In reality, auditors often have difficulty maintaining an independent mental attitude. The circumstances that often interfere with the auditor’s independent mental attitude are as follows:

As an independent auditor, the auditor is paid by his client for these services.

  • Tendency to satisfy his clients.
  • The risk of losing a client.

 Kinds of auditors

kinds of auditors

Auditors are usually classified into three categories based on who hires them: public accountants, government accountants, and internal accountants.

1. Public accountant.

Public accountants are professional accountants who sell their services to the general public, especially in the field of auditing financial statements made by their clients.

2. Government accountant.

Government accountants are professional accountants who work in government agencies whose main task is to examine financial accountability presented by organizational units in government or financial accountability aimed at the government.

3. Internal accountant.

Is an accountant who works in a company whose main task is to determine whether the policies and procedures established by top management have been complied with, determine whether or not good care of the assets of the organization, determine the efficiency and effectiveness of organizational activity procedures, and determine the reliability of information generated by various organizational section.

Auditor’s Report

Auditor's Report

Definition and types of auditor’s report

The making of an auditor’s report is the last and most important step of the entire audit process. In general, an auditor’s report can be defined as a report that states the opinion of an independent auditor regarding the appropriateness or accuracy of a client’s statement that its financial statements are fairly presented following generally accepted accounting principles, which are applied consistently with the previous year.

In preparing and publishing an audit report, the auditor must be guided by the four reporting standards contained in the Public Accountant Professional Standards (SPAP).

Most importantly, it should be seen the last standard because this standard requires a statement of opinion on the financial statements as a whole or a statement that opinions cannot be given along with the reasons.

This standard requires the auditor to make a clear statement of the nature of the examination carried out and to what extent the auditor limits his responsibilities. The auditor’s opinion is presented in a written report which is generally in the form of a standard form audit report.

Recognizing the main function of audit reports as a medium of communication between management and other interested parties, reporting uniformity is needed to avoid confusion. Therefore professional standards have formulated and detailed various types of audit reports that must be included in the financial statements.

There are several types of accountant opinions that are given in connection with a general examination, namely:

1). Fair opinion report without exception (unqualified opinion)

The term unqualified here does not mean not qualified or not qualified. The meaning of unqualified here is without qualification (qualification) or reserve or objections.

Unqualified opinions are granted by the auditor if there are no limitations on the scope of the audit and there are no significant exceptions regarding the fairness and application of generally accepted accounting principles in preparing financial statements, consistency in applying generally accepted accounting principles, and adequate disclosures in financial statements.

Financial statements are considered to present fairly the financial position and results of operations of an organization, following generally accepted accounting principles if they meet the following conditions:

  • Generally accepted accounting principles are used to prepare financial statements.
  • Changes in the application of generally accepted accounting principles from period to the period has been adequately explained
  • The information in the supporting notes has been adequately described and explained in the financial statements by generally accepted accounting principles

2). Unqualified opinion with explanatory language.

The financial statements still present fairly the financial position and results of operations of the client’s company but are added to the matters that require the language of explanation.

3). Fair opinion report with an exception (qualified opinion )

This opinion is only given if the overall financial statements presented by the client are reasonable, but there are some excluded elements, the exception of which does not affect the overall reasonableness of the financial statements as a whole.

Several conditions make the auditor must provide a reasonable opinion with the exception, namely:

  • The scope of the audit is restricted by the consumer
  • The auditor cannot carry out important audit procedures or cannot obtain important information because of conditions that are beyond the power of the client and auditor
  • monetary statements not ready by generally accepted accounting principles
  • Generally accepted accounting principles used in preparing financial statements are not consistently applied

4). Unnatural opinion report (adverse opinion )

The opinion of the fair is not given if the client’s financial statements are not prepared on the principles of generally accepted accounting so it does not present fairly the financial position, results of operations, changes in retained earnings and cash flows of the client company.

The auditor gives an unnatural opinion if there is no limitation of audit evidence. Unnatural opinion is the opposite of fair opinion with an exception. The auditor gives an unnatural opinion if he is not limited by the scope of his audit, so he can collect competent evidence in the amount of enough to support his opinion.

5). The statement did not give an opinion (disclaimer of opinion )

statement does not give an opinion given the auditor if he could not convince himself that the whole of the financial statements presented fairly.

A statement does not give an opinion given if, among other things, there are many restrictions on the scope of the audit, the relationship is not independent between the auditor and the client. Each of these conditions does not allow the auditor to be able to express his opinion on the financial statements as a whole.

The objectives and benefits of the auditor’s report

In a company, where managers are placed in positions where they can benefit the company which is reflected in the financial statements that are prepared in a certain period. Financial statements prepared are a form of accountability for the results of their work for a period.

Managers are tempted to present biased financial statements, contain things that are not true, and may hide certain information from other parties with an interest in the financial statements, including investors, creditors, and regulators.

Therefore the financial community needs professional services to assess the reasonableness of financial information presented by management. Based on reliable financial information, the community will have a strong basis to channel their funds to businesses that operate efficiently and have a sound financial position. For this reason, the public requires that the financial statements submitted to them be first checked by an independent auditor.

The involvement of an independent audit will provide benefits such as increasing the credibility of financial statements, reducing company fraud and providing a more trusted basis for tax reporting and other financial statements that must be submitted to the government.



During the examination, the auditor continues to be confronted with questions about how much evidence must be collected, the type of evidence, and what action should be taken against the evidence examined. In general, materiality is very dependent on the auditor’s intuition.

Materiality with accounting and audit reporting is a misstatement in the financial statements that can be considered material if the knowledge of the misstatement can affect the rational decision of users of financial statements. Misstatement of accounting information, judging from the circumstances surrounding it, can result in changes in or influence on the considerations of people who place trust in such information, due to omissions or misstatements.

In an audit of financial statements, the auditor is not a guarantee to the client or other users of the financial statements, that the audited financial statements are accurate.

The auditor cannot provide guarantees because he does not check every transaction that occurs in the year being audited and can not determine whether all transactions that have occurred have been properly recorded, summarized, classified and compiled into financial statements.

Also, someone can’t state the accuracy of the financial statements (the accuracy of all information presented in the financial statements), given that the report itself contains opinions, estimates, and considerations in the process of its preparation, which is often inaccurate or accurate. one hundred percent. Therefore, in an audit of financial statements, the auditor gives the following confidence :

  1. Amounts presented in the financial statements and their disclosures have been recorded, summarized, classified and compiled.
  2. Efficient competent audit evidence has been collected as an adequate basis for providing an opinion on the audited financial statements.
  3. In the form of an opinion, that the financial statements as a whole are presented fairly and there are no material misstatements due to errors or fraud.

Statement of No Opinion

Understanding the statement does not give an opinion

The statement of not giving an opinion can be defined that the public accountant refuses to give an opinion on the reasonableness of the financial statements that it inspects or if the auditor cannot carry out an audit because of the limitations of the audit scope.

If the auditor is not willing to express an opinion, all the main reasons must be made in the inspection report, and the reason for not expressing the opinion must be prepared so that it focuses on the presentation of financial statements that cannot be verified. Also, the reasons for unwillingness must explain how the relationship between the unverified presentation and the overall reasonableness of the financial statement is not given an opinion.

Refusal to give an opinion may not be given by the auditor if he believes based on the results of his examination, that there are material deviations from generally accepted accounting principles.

The difference between the statement not giving an opinion with an unnatural opinion is: an unnatural opinion is given by the auditor in the case the auditor is aware of the irregularities of the client’s financial statements. While the statement does not give an opinion given because he did not get enough evidence about the fairness of the audited financial statements or he was not independent about the client.

The following conditions cause the auditor to refuse to give an opinion, namely:

  1. deviations from generally accepted accounting principles, or misstatements, or improper disclosures, or limitations on the scope of the audit, or changes in accounting methods that are not approved by the auditor.
  2. The related accounts are material enough so that fair opinions are not worth giving.
  3. The results of the financial statements are materially misleading or the auditor is not sure of the accuracy of certain accounts.
  4. the impact of accounts that are materially misstated can damage financial statements.

Restrictions on the scope of the audit

The limitation of audit scope can be caused by the client or circumstances. Restrictions on the scope of the audit result in the amount and competence of the evidence that can be collected by the auditor. If these limitations can be overcome by the auditor by adopting alternative audit procedures, the auditor does not need to include exceptions in the audit scope paragraph and the auditor can provide a reasonable opinion without exception.

For example, if the auditor is not allowed by the client to send a confirmation letter to the debtor, but the auditor can prove the existence of debts to the debtor through an audit procedure for cash receipts after the balance sheet date of the debtor, the auditor has been able to take alternative audit procedures to replace the audit procedure as required by accounting standards.

If alternative procedures cannot be carried out, so that sufficient and competent amount of evidence cannot be obtained, the auditor usually adds words in the audit scope paragraph to draw attention to the exception. The auditor can determine that he can express a fair opinion without exception only if the audit has been carried out based on auditing standards set by the Indonesian Institute of Accountants.

Restrictions on the scope of the audit, whether that is imposed by the client or circumstances, failure to obtain sufficient competent evidence or insufficient accounting records, can provide a basis for the auditor to provide exceptions in his opinion or statement of not giving an opinion. In this case, the reason for the exception or statement not giving an opinion must be explained by the auditor in the report.

The auditor’s decision to provide a fair opinion with the exception or statement does not give an opinion because the limitations of the scope of the audit depends on the auditor’s assessment of the importance of the procedure that can not be carried out for the auditor in providing an opinion on the audited financial statements.

This valuation will be influenced by the nature and magnitude of the damages that may arise as a result of the exclusion and the importance of the financial statements. if the impact that may arise concerns a lot of financial statement posts, then the importance of the excluded item is greater when compared to if it only involves fewer financial statement items.

If the limitations on the scope of this audit are less material impact on the information presented by the client in its financial statements, so the auditor can still give a fair opinion of the financial statements as a whole, then the auditor will give a fair opinion with the exception.

If the limitations on the scope of the audit result in the auditor’s lack of competent evidence to provide an opinion on the audited financial statements, the auditor will declare not to give an opinion on the financial statements.

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