What is an audit and how to conduct an audit procedure? Some people may still be questioning this, especially for those who have just entered the world of business or accounting and finance. Beginning of the year, between January and March is the auditing period. Generally audits are conducted on financial statements, various accounting records and other supporting evidence. The audit process itself is carried out by an auditor, ie an independent person has the ability and competence to conduct an audit.
Unfortunately, to conduct an audit is not easy. The audit process requires a lot of procedures, costs, labor, time, and others. Yes, as we know it takes several months to audit. The cost is quite expensive especially if your company is a large-scale company. In addition, the audit process also has procedures that must be followed. Before conducting the audit process, it helps you understand more about the audit first. Some things that you should pay attention to so that the audit process can run smoothly, as follows:
What is an Audit?
Before discussing further, you should first understand the meaning of auditingfirst. Audit according to Arens is a systematic process for obtaining and evaluating evidence objectively assertions about various economic actions and events to determine the level of compliance with specified criteria and convey the results to the stakeholders. Similar to Arens, William F. Meisser defines audit as a systematic process with the aim of evaluating evidence regarding economic actions and events to ensure the level of appropriateness between assignments and established criteria, then the results of assignments are communicated to users. Therefore, the existence of this audit process will make a more transparent and objective assessment of the condition and performance of the company.
Reasons for Audit of Financial Statements
Here are some reasons or objectives regarding the reasons why an audit should be carried out:
1. Knowing the Company’s Financial Condition
Financial condition is one indicator of a company’s success. Therefore do not be surprised if many companies are willing to do anything to keep their financial condition stable. One of the activities to ensure or check the company’s financial condition is through an audit process.
2. Fulfill Obligations
Referring to Company Law No. 40 of 2007 Article 68, companies are required to conduct audits. Indeed, not all companies are required to audit. To clarify the following will be a quotation on the contents of Company Law No. 40 of 2007 Article 68:
(1) The Board of Directors must submit the Company’s financial statements to public accountants for auditing if:
- The Company’s business activities are collecting and / or managing public funds;
- The Company issues debt recognition letters to the public;
- The Company is a publicly listed company;
- The company is a state-owned company;
- The Company has assets and / or total business circulation with a total value of at least Rp 50,000,000,000 (fifty billion rupiah); or
- Required by statutory regulations.
(2) In the event that the obligations as referred to in paragraph (1) are not fulfilled, the financial statements are not approved by the GMS.
(3) Reports on the results of audits of public accountants as referred to in paragraph (1) shall be submitted in writing to the GMS through the Board of Directors.
3. Know Company Information
In addition to financial conditions, through an audit you can also find information about the company. To meet the information needs of various parties, a general information report is needed and can be understood by all users not only, in the accounting field. The process of translating the company’s financial statements is to be understood by all users called audit. Where this information report is reflected through an audit opinion provided by the auditor.
Important Things The Company Must Prepare When Auditing Financial Statements
To conduct an audit, you or your company must prepare several things, including such as:
· Money
The audit is carried out by an independent party. The independent party referred to is the auditor of the public accounting firm. To use their services, of course, you or your company must give money. Therefore, you need to prepare money as a fee for paying auditor services.
· Proof
Audit evidence is all information that supports either in the form of numbers, data or other information that occurs in the form of financial statements. Audit evidence is important in the audit process because the audit evidence has a lot of influence on the audit opinion that will be generated. Konrath (2002), divides audit evidence into six types. The 6 types of evidence are as follows:
1. Physical Proof
Physical evidence is evidence that is visible, can be calculated, observed, and inspected. So that the physical properties of factual evidence from which it can provide support for audit purposes existence ( existence ). Some of the evidence that is categorized in physical evidence is physical examination, observation, and reperformance .
2. Document Evidence
Document evidence is one of the important evidences in the audit process. So you have to prepare a lot of documents in the audit process because the auditor will examine the client’s documents and records. Proof of this document can be in the form of paper, electronic, or others. Evidence documents are also divided into two, namely internal documents and external documents.
Also read: 3 Requirements that Must Be Fulfilled to Become an Auditor
3. Proof of Confirmation
Confirmation is an activity to obtain a direct written response from a third party that provides verification of the accuracy of the information requested by the auditor. There are two kinds of conflict, positive and negative. Positive confirmation means the third party must reply or write down the data or information requested by the auditor. While negative confirmation is that the third party does not need to reply if the information that needs to be confirmed is correct but if it is wrong the third party is obliged to reply by writing down the correct data or information.
4. Mathematical Proof
Mathematical evidence is evidence obtained by the auditor through direct calculation. Activities undertaken to obtain mathematical proofs such as calculations, recalculation (recalculation) and reconciliation.
5. Analytical Evidence
According to the AICPA Professional Standards, the analytical audit evidence procedure is a substantive test of financial information by conducting studies and comparing relationships between data. This analytical evidence is better known as analytical procedures, where it is used at the planning and completion stages of an audit.
6. Proof of Explanation
Proof of information or inquiries of the client is a way to obtain information both written and oral in response to the auditor’s question.
· Financial statements
Another important thing that you need to prepare in an audit is the financial statements. yes of course, for auditing there must be financial reports because the audits themselves check the financial statements of the companies concerned. So if you or your company will do an audit, don’t forget to prepare the financial statements.
What is the Audit of Financial Statements
The stages of the financial statement audit are as follows:
1. Acceptance of the Audit Engagement
An agreement is an agreement between the two parties. In the case of an audit, both parties are the auditor and the company which is usually represented by management. Before conducting an audit, there must be an agreement that must be made and agreed upon. The form of this engagement is in the form of an audit engagement letter.
2. Audit Process Planning
Next is planning the audit process. To make an audit plan, an auditor must carry out several activities such as understanding the client’s business and industry; performing analytical procedures; determine materiality, determine audit risk and default risk; understand the structure of internal control and determine risk control; develop audit plans and audit programs.
3. Implementation of Audit Testing
After making an audit plan it is time to carry out an audit test. At this stage, the auditor will carry out analytical testing, testing, controlling, and substantive testing.
4. Audit Reporting
The last stage is audit reporting. Audit reports are the results of audit work that has been done. The audit report usually includes the type or service provided, the object being audited, the scope of the audit, the purpose of the audit, the results of the audit and recommendations provided if there are deficiencies, and other information.
Audit Results of Financial Statements
After the audit process is completed, the auditor will finally provide the results of the audit process. The audit results are reflected in the audit opinion . There are four types of audit opinion on financial statements, namely:
- Fair without exception / Unqualified Opinion,meaning that the financial statements are presented in accordance with applicable accounting standards.
- Fair With Exceptions / Qualified Opinion,meaning that financial statements can be relied upon but there are still some problems / items that are excluded so as not to make mistakes in making decisions.
- Unreasonable/ Adversed, meaning that the financial statements are not presented in accordance with accounting standards or there are material errors in the financial statements.
- Do not provide income / disclaimer, meaning that financial statements have material errors and management limits the scope of the audit so that the auditor does not find enough evidence.
How to Make Financial Statements Easily
One audit evidence that you must prepare in the audit process is company financial data. Therefore, as a business owner, you must be able to ensure that financial data and financial reports are made properly. To make it easier for you to make financial reports, you can use the help of Journal of online accounting software .
The journal has an integrated system and also a safety standard that has been certified by ISO / IEC 27001 . So that making financial statements becomes easy, fast and safe.
With Journals, you can make financial statements more complete ranging from the Balance Sheet, Income, Cash Flow, Changes in Capital, and much more. With Journals, you only need to enter all business transactions through the system, and Journals will automatically process these transactions into the financial statements that you need.
