Last Friday (01/09), KAP Agus Ubaidillah dan Rekan team, Mrs. Dhea Tiza Marathani (Team Leader, Audit & Assurance Malang branch office) became a speaker at the Technical Gathering on Friday (TGIF) activity which is routinely held every Friday.

TGIF is a forum for all employees of KAP Agus Ubaidillah dan Rekan (TGS AU Partners) to obtain information and knowledge in the fields of audit, tax, finance, business, and soft skills training materials. KAP Agus Ubaidillah and Partners are committed to making this TGIF activity not only useful for internal companies, but also for the general public.

This time, TGS AU Partners team will discuss the determination of the final audit risk assessment (combined risk) by providing an overview.

Overview of the Final Risk Assessment

  1. An audit is not just checking or focusing on the accounts presented in the financial statements;

  2. Auditor is not an administrative officer who only copies client data or matches data between one another;

  3. The importance of understanding the client's business will facilitate audit checks down to the account level;

  4. Increase skepticism in every examination which can support the professional judgment of an auditor.

Common Transaction Cycle in Audit

Understanding the various transaction cycles in an audit is important to properly plan and execute the audit. Here's how to understand some common transaction cycles in an audit:

  1. Understanding Expenditure and Disbursement Cycle

  • Transaction Identification: Auditor should understand the client's business processes related to expenditure and disbursement of funds. This includes expenditures for the purchase of goods or services, payment of bills, and other expense processing.

  • Evaluation of Internal Controls: Auditor should evaluate the internal controls in place to ensure that expenditures are properly approved, audited, and recorded.

  • Testing: Auditor will conduct tests on randomly selected expense transactions to verify their accuracy. This may involve checking receipts, invoices, and internal approvals.

  • Disbursement of Funds: Auditor should understand how funds are withdrawn from the bank account and verify it with the corresponding expense records.

  1. Understanding Payroll Cycle

  • Process Identification: Auditors should understand the employee payroll process, including salary calculations, tax withholding, and salary payments.

  • Evaluate Internal Controls: Auditors should evaluate internal controls related to payroll, including checks for compliance with tax regulations and labor laws.

  • Testing: Auditor will perform tests on selected payrolls to verify their accuracy and see if withholding taxes and other deductions have been calculated correctly.

  1. Understanding Financial Statement Closing Process

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  • Auditor should understand the client's year-end process, including book closing, year-end adjustments, and financial statement preparation.

  • Auditor will check whether all year-end transactions and adjustments have been recorded correctly and whether the financial statements are in accordance with applicable accounting principles.

  1. Understanding Revenue Cycle

  • Auditor must understand how revenue is earned by the client, whether through the sale of products, services, or other revenue.

  • Evaluation of Internal Controls: Auditor should evaluate internal controls related to revenue recognition, including the sales order process, delivery of goods, and facturing.

  • Testing: Auditor will perform tests on selected sales transactions to verify their accuracy and check whether revenue has been recognized in accordance with applicable accounting principles.

  1. Understanding Inventory Cycle

  • Auditor should understand how inventory is managed by the client, including purchasing, issuing, and monitoring inventory.

  • Evaluation of Internal Controls: Auditor should evaluate internal controls related to inventory, including controls over the receipt, storage, and disposal of goods.

  • Testing: Auditor will perform tests on selected inventories to verify their quantity, existence, and condition.

Throughout the transaction cycle, auditor will use appropriate testing techniques to identify potential risks and evaluate existing internal controls. The results of these tests will be used to form auditor's opinion on the client's financial statements.

Conclusion

The final risk assessment is to ensure that the audit is conducted efficiently and effectively, focusing on the areas of highest risk. This assists auditor in directing the auditor's efforts to the riskiest areas and ensuring that those risks are properly managed in the audit. This conclusion is also the basis for the auditor to detail the testing and evaluation steps during the execution stage of the audit.

A good understanding of the transaction cycle in an audit helps auditor to plan the audit carefully, conduct the audit in accordance with applicable guidelines and standards, and produce an audit report that is accurate and useful to the client's management and other stakeholders. These two concepts also help ensure that audits are conducted with integrity, independence, and high professionalism.

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