Audit Charter dan Letter of Engagement Pertemuan 7-8 Matakuliah: A0294/Audit SI Lanjutan Tahun:...

Audit Charter dan Letter of Engagement

Pertemuan 7-8

Matakuliah : A0294/Audit SI Lanjutan Tahun : 2009

Bina Nusantara University 2

Learning Outcomes

Pada akhir pertemuan ini, diharapkan mahasiswa akan mampu :• Menjelaskan pengertian audit charter dan letter of

engagement• Menyusun Audit Charter


Outline Materi

• Materi 1 Fungsi Audit Internal pada suatu organisasi

• Materi 2 Pentingnya Audit Charter• Materi 3 Pengertian Letter of Engagement.


AUDIT CHARTER

• INTERNAL AUDIT CHARTER SHOULD BE WRITTING.

• IT PROVIDES FORMAL COMMUNICATION FOR REVIEW AND APPROVAL BY MANAGEMENT AND FOR ACCEPTANCE BY THE BOARD.

• THE PURPOSE, AUTHORITY AND RESPONSIBILITY SHOULD BE DEFINED AND COMMUNICATED TO ESTABLISH THE ROLE OF THE INTERNAL AUDIT ACTIVITY AND TO PROVIDE A BASIS FOR MANAGEMENT AND THE BOARD TO USE IN EVALUATING THE OPERATIONS OF THE FUNCTION


AUDIT CHARTER

• THE CHARTER MUST BE ADEQUATE TO ENABLE THE INTERNAL AUDIT ACTIVITY TO ACCOPLISH ITS OBJETIVES.

• THE RESULT OF THIS PERIODIC ASSESSMENT SHOULD BE COMMUNICATED TO SENIOR MANAGEMENT AND THE BOARD.


INDEPENDENCE

• INTERNAL AUDITORS ARE INDEPENDENT WHEN THEY CARRY OUT THEIR WORK FREELY AND OBJECTIVELY.

• IT PERMITS INTERNAL AUDITORS TO RENDER THE IMPARTIAL AND UNBIASED JUDGMENTS ESSENTIAL TO THE PROPER CONDUCT OF ENGAGEMENTS.

• IT IS ACHIEVED THROUGH ORGANIZATIONAL STATUS AND OBJECTIVITY• AUDITORS CAN COOPERATE WITH THE ENGAGEMENT CLIENT

WITHOUT INTERFERENCES FROM MANAGEMENT.

• THE INTERNAL AUDIT ACTIVITY SHOULD BE FREE FROM INTERFERENCES IN DETERMINING THE SCOPE OF INTERNAL AUDITING, PERFORMING WORK AND COMMUNICATING RESULTS.


OBJECTIVITY• IT IS AN INDEPENDENT MENTAL ATTITUDE THAT AUDITORS

SHOULD MAINTAIN IN PERFORMING ENGAGEMENTS.• AUDITORS ARE NOT TO SUBORDINATE THEIR JUDGMENT ON

ENGAGEMENT MATTERS TO THAT OF OTHERS.• IT REQUIRES AUDITORS THAT THEY HAVE AN HONEST BELIEF IN

THEIR WORK PRODUCT.• AUDITORS ARE NOT TO BE PLACED IN SITUATIONS IN WHICH THEY

FEEL UNABLE TO MAKE OBJECTIVE PROFESSIONAL JUDGMENTS• THE RESULTS OF IA WORK SHOULD BE REVIEWED BEFORE THE

COMMUNICATIONS ARE RELEASED TO PROVIDE REASONABLE ASSURANCE THAT THE WORK WAS PERFORMED OBJECTIVELY.

• IT IS UNETHICAL TO ACCEPT A FEE O GIFT FROM A EMPLOYEE, CLIENT, CUSTOMER, SUPPLIER OR BUSINESS ASSOCIATE.

• THE STATUS OF ENGAGEMENTS SHOULD NOT BE CONSIDERED AS JUSTIFICATION FOR RECEIVING FEES OR GIFT.

• AUDITORS SHOULD REPORT THE OFFER OF ALL MATERIAL FEES OR GIFTS TO THEIR SUPERVISORS


AUDIT COMMITTEES

• IT IS A SUBCOMMITTEE MADE UP OF OUTSIDE DIRECTORS WHO ARE INDEPENDENT OF MANAGEMENT.

• ITS PURPOSE IS TO HELP KEEP EXTERNAL AND INTERNAL AUDITORS INDEPENDENT OF MANAGEMENT AND TO ASSURE THAT THE DIRECTORS ARE EXERCISING DUE CARE.

• THE RESPONSABILITIES AND CHARACTERISTICS ARE FOLLOWING:

• THE AUTHORITY SHOULD DEVELOP AND APPROVE A WRITTEN CHARTER.

• THE AUDIT COMMITTEE SHOULD REVIEWED THE INDEPENDENCE OF THE PUBLIC ACCOUNTANT.

• A.C. SHOULD MONITOR COMPLIANCE WITH CODES OF CONDUCTS.

• A. C SHOULD HAVE NECESSARY RESOURCES AVAILABLE.• TO REGULATE THE REPORTING PROCESS.


AUDIT COMMITTEE Functions• TO SELECT EXTERNAL AUDITOR AND REVIEW THE AUDIT FEE AND

ENGAGEMENT LETTER.• TO REVIEW THE EXTERNAL AUDIT PLAN.• REVIEW PRELIMINARY, ANNUAL AND INTERIN FINANCIAL

STATEMENTS.• REVIEW RESULTS OF ENGAGEMENTS PERFORMED BY EXTERNAL

AUDITORS.• APPROVE THE CHARTER OF THE IA ACTIVITY.• REVIEW AND APPROVE THE IA PLANS AND RESOURCES

REQUIREMENTS• COMMUNICATES WITH THE CHIEF AUDIT EXECUTIVE.• REVIEWS EVALUATIONS OF RISK MANAGEMENT, CONTROL AND

GOVERNANCE PROCESSES REPORTED BY THE INTERNAL AUDITORS.• REVIEWS POLICIES ON UNETHICAL AND ILLEGAL PROCEDURES.


AUDIT COM …• REVIEWS FINANCIAL STATEMENTS TO BE TRANSMITTED TO

REGULATORY AGENCIES.

• REVIEWS OBSERVATIONS OF ORGANIZATIONAL PERSONNEL

• REVIEW THE ORGANIZATION´S INSURANCE PROGRAM.

• REVIEW THE EXTERNAL AUDITOR´S MANAGEMENT LETTERPARTICIPATE IN THE SELECTION OF ACCOUNTING POLICIES.

• REVIEW THE IMPACT OF NEW OR PROPOSED LEGISLATION OR GOVERNMENTAL REGULATIONS.


THE CODE OF ETHICS• THE PURPOSE IS TO PROMOTE THE ETHICAL CULTURE

IN THE PROFESSION OF INTERNAL AUDITING.

• INCLUDES TWO ESSENTIAL COMPONENTS:

– PRINCIPLES THAT ARE RELEVANTS TO THE PROFESSION AND PRACTICE OF INTERNAL AUDITING.

– RULES OF CONDUCT THAT DESCRIBES BEHAVIOR NORMS EXPECTED OF INTERNAL AUDITORS. THESE RULES ARE IN AID TO INTERPRETING THE PRINCIPLES INTO PRACTICAL APPLICATIONS AND ARE INTENTED TO GUIDE THE ETHICAL CONDUCT.


The Code OF ETHICS: Principles

• INTEGRITY: PROVIDES THE BASIS FOR RELIANCE OR THEIR JUDGMENT.

• OBJECTIVITY: THE AUDITORS ESHIBIT THE HIGEST LEVEL OF PROFESSIONAL OBJECTIVE IN GATHERING, EVALUATING AND COMMUNICATING INFORMATION ABOUT THE ACTIVITY OR PROCESS BEING EXAMINED.


The Code of ETHICS: Principles• CONFIDENTIALITY: AUDITORS RESPECT THE

VALUE AND OWNERSHIP OF INFORMATION THEY RECEIVE AND DO NOT DISCLOSE INFORMATION WITHOUT APPROPIATE AUTHORITY UNLESS THERE IS A LEGAL OR PROFESSIONAL OBLIGATION TO DO SO.

• COMPETENCY: AUDITORS APPLY THE KNOWLODGE, SKILL AND EXPERIENCE NEEDED IN THE PERFORMANCE OF INTERNAL AUDITING SERVICES


The Code of ETHICSRules of Conduct

INTEGRITY:– SHALL PERFORM THEIR WORK WITH HONESTY, DILIGENCE

AND RESPONSIBILITY– SHALL OBSERVE THE LAW AND MAKE DISCLOSURES

EXPECTED BY THE LAW AND THE PROFESSION– SHALL NOT KNOWINGLY BE A PARTY TO ANY ILLEGAL

ACTIVITY OR ENGAGE IN ACTS THAT ARE DISCREDITABLE TO THE PROFESSION OF INTERNAL AUDITING OR TO THE ORGANIZATION

– SHALL RESPECT AND CONTRIBUTE TO THE LEGITIMATE AND ETHICAL OBJECTIVES OF THE ORGANIZATION



OBJECTIVITY:– SHALL NOT PARTICIPATE IN ANY ACTIVITY OR RELATIONSHIP

THAT MAY IMPAIR OR BE PRESUMED TO IMPAIR THEIR UNBIASED ASSESMENT.

– SHALL NOT ACCEPT ANYTHING THAT MAY IMPAIR OR BE PRESUMED TO IMPAIR THEIR PROFESSIONAL JUDGMENT.

– SHALL DISCLOSE ALL MATERIAL FACTS KNOWN TO THEM THAT, IF NOT DISCLOSED, MAY DISTORT THE REPORTING OF ACTIVITIES UNDER REVIEW



• CONFINDENTIALITY: – INTERNAL AUDITOR SHALL BE PRUDENT IN THE USE

AND PROTECTION OF INFORMATION ACQUIRED IN THE COURSE OF THEIR DUTIES.

– SHALL NOT USE INFORMATION FOR ANY PERSONAL GAIN OR IN ANY MANNER THAT WOULD BE CONTRARY TO THE LAW OR DETRIMENTAL TO THE LEGITIMATE AND ETHICAL OBJECTIVES OF THE ORGANIZATION


The Code Of Ethics, Rules Of Conducts

COMPETENCY: INTERNAL AUDITORS– TO HAVE THE NECESSARY KNOWLEDGE, SKILL AND

EXPERIENCE.

– SHALL PERFORM INTERNAL AUDITING SERVICES IN ACCORDANCE WITH THE STANDARDS FOR THE PROFESSIONAL PRACTICE OF INTERNAL AUDITING.

– SHALL CONTINUALLY IMPROVE THEIR PROFICIENCY AND THE EFFECTIVENESS AND QUALITY OF THEIR SERVICES.


Terms of Audit Engagement

ISA 210 Takes about the Terms of Audit Engagement. Purpose of this ISA is:

• Agreeing the engagement with the client• Auditor’s response to a request by the client to

change the terms of the engagement. • Agreed terms needed to be recorded in an

engagement letter. • Assist the auditor in preparing the engagement letter• This may be informative still if the scope of audit is

govern by country ‘s law.


Audit Engagement letter

It is in the interest of both client and auditor that the auditor sends as engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstanding with respect to the engagement. The engagement letter documents and confirm the auditor’s acceptance of the appointment the objective and scope of the audit, the extent of the auditor’s responsibilities to the client and the form of any report.


Audit Engagement

• Circumstances of first audit engagement• Factors to consider prior to accepting

– Rules of professional conduct– Communication with predecessor auditor– Additional information sources

• Accepting the engagement• Auditing Problems• Specific reporting requirements• Example/Scenarios


Circumstances of First Audit Engagement

• New entity, never audited• Existing company, never audited• Existing company, audited periodically• Existing company, consistently audited


Accepting the Engagement


Actions & Considerations

• Discuss major issues with management:– related to initial auditor selection– communication of this issues to those in charge of governance– analysis of how these issues affect the audit plan and strategy

• Audit procedures to obtain sufficient audit evidence pertaining to opening balances

• Delegation of tasks to firm employees – to determine potential audit risks

• Any procedures required for quality control of the initial audit engagement – i.e. the firm may require that an additional partner review the

audit strategy before the commencement of audit procedures


Engagement Letter

• Used for audits, engagements, compilations• Good practice• Signed by both client and auditor

– corporations: signed by authoritative figure such as the president or chair of audit committee

– private businesses: signed by authoritative figure such as partner or proprietor


Important Features of Engagement Letter

• Purpose of engagement• Services to be rendered• Standards to comply by• Auditor’s responsibilities in respect to misstatements, internal

control• Management’s responsibilities with respect to financial

reporting• Mention of significant limitations• Important dates (deadline, payment dates)• Request for the client to sign and send duplicate copies back to

the auditor


Sample Engagement LetterChairman of the Board of Directors,

Price Marwick & Co was appointed to audit the financial statements of the company for the year ended September 30, 20x8. This letter explains our understanding of the scope and objectives of the audit engagement as well as the method of determination of our fees. We would appreciate your acknowledgement that this is also the understanding of the Board of Directors.

We will conduct the audit in accordance with GAAS. The objective of our audit is to form an opinion as to whether the financial statements are, in all material respects, presented fairly and in accordance with GAAP and to communicate this opinion to your shareholders.

Please note that the purpose of the audit is not to detect instances of fraud or to report on the adequacy of the company's accounting information system and related control procedures. Neither is the purpose of the audit to provide a warning as to the likelihood of business failure. However, if, during the course of our audit, we become aware of any fraud or significant weaknesses in either the information or operating systems of the company, we will notify you accordingly.


Sample Engagement Letter

Please also note that we are not responsible for the preparation of the financial statements. If we were to be responsible for their preparation, we would not be able to provide an independent opinion on their presentation. The responsibility for the preparation of the financial statements rests with the management of the company.

In forming our opinion, we will not examine all transactions relating to the financial statements. To do so would be prohibitively costly. Instead, and in accordance with appropriate auditing standards, we will form our opinion based on both an examination of a selection of representative transactions and an evaluation of accounting policies and information derived there from. As a result, and bearing in mind other limitations (of the audit, internal control procedures and accounting information generally), our audit will provide less than absolute assurance that the financial statements are free of material misstatement.

We recognize that the company's officers and employees are generally fully occupied attending to their own duties. However, in order for us to conduct our audit effectively, we will need to make inquiries to, and receive representations from, some of the company's officers and employees as well as a number of third parties with whom XYZ Industries has dealings. We intend to carry out this work with as little disruption as is possible. In addition, we will require access to any records, accounting or otherwise, that we consider may be relevant to the formation of our opinion on the financial statements.


Sample Engagement Letter

Our fee for the audit will be based on the actual time spent by this firm (in planning the audit, and in gathering and evaluating the necessary evidence we need to form an opinion on the financial statements), plus out-of-pocket costs. Please sign and return the attached copy of this letter to acknowledge that the letter properly sets out the Board's understanding.Sincerely,Peta Fabiano, .................................{signature) ..................(date)Partner, Price Marwick & Co Chairman of DirectorsCopy: Chairman of Audit Committee.

XYZ Industries.


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Audit Charter dan Letter of Engagement Pertemuan 7-8 Matakuliah: A0294/Audit SI Lanjutan Tahun:...

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