A u diti ng

Auditingprofession

(Current and FutureProspect)

Lecturer:

Taufikur Rahman, SE, MBA,Akt.

Group

Members:

Ignatius Denny Kurniawan S./ 296514

Fathan Sabartian /320291

Novi Prastia Kusumastuti/ 320299

Table of Contents

 

Introduction..............................................................................................................  3  Definition  of  Public  Accountant  (IndependentAuditor)  ..............................................  3Relationship  of  accountant  and  auditor.............................................................

...............  4  History  of  Public  Accountant

.............................................................

....................................  6  

Services  Provided  by  a  Public  Accountant...................................................11  Law  no  5  year  2011  (UU  no  5  tahun  2011)

.............................................................

.........  11  The  universe  of  assurance  services

.............................................................

......................  12  Level  of  Assurance

.............................................................

......................................................  13  KeyIssues  of  Assurance  Provided  by  an  Audit.............................................................

.  14  Limitations  of  audit

.............................................................

....................................................  16  

Future  Opportunities,  Threats,  and  Challenges  to  be

a  Public  Accountant

......................................................

......................................................

..  18  Future  Opportunities.............................................................................................................  18  Future  Threat............................................................................................................................20  Future  Challenges ....................................................................................................................  22  

References: ............................................................................................................. 26  

Introduction

Nowadys, the role of the public accountant becomesespecially relevant following the downfall of Arthur Andersen(due to Enron and WorldCom case) and the establishment of the

Sarbanes-Oxley Act (SOX) in 2002. The SOX1 enacted strictreforms, including the appointment of independent auditors, toimprove the accounting and auditing procedures of publiccompanies.

Definition of Public Accountant (Independent Auditor)

• Independent auditors are usually CPAs2 who areeither individual practioners or members of publicaccounting firms who render professional auditing servicesto clients (Boynton and Johnson, 2006)

• Independent auditor is a certified public

accountant who examines the financial records and

business transactions of a company that he/she is not

affiliated with (Investopedia).

• Independent auditor is an audit professional who

performs an audit in accordance with specific laws

or rules on the financial statements of a company,

government entity, other legal entity or organization,

and who is independent of the entity being audited

(Wikipedia).

Independent auditors are also called external auditors. An

independent auditor is typically used to avoid conflicts of

interest and to ensure the integrity of the auditing process.

IntroductionWhen an audit is performed, it is the financial auditor's job

to make sure that records are examined in an honest and right

manner. Users of these entities' financial information, such

as investors, government agencies, and the general public, rely

on the external auditor to present an unbiased and

independent audit report. Independent auditors are

responsible to protect shareholders and potential investors

from the fraudulent of financial report made bypublic companies.

1 SOX - Sarbanes-Oxley Act2 CPA – Certified Public Accountant

Relationship of accountant and auditor

The relationship of auditing to accounting is close, yet

their natures are very different; they are business associates,

not parent and child. Accounting includes the collection,

classification, summarization, and communication of financial

data; it involves the measurement and communication of business

events and conditions as they affect and represent a given

enterprise or other entity. The task of accounting is to reduce

a detailed and complex information to manageable and

understandable information (Basu, 2009).

On the other hand, auditing does none of these things.

Auditing must consider business events and conditions too,

but it does not have the task of measuring or communicating

them. The task of auditing is to review the measurements and

communications of accounting for propriety. Auditing is

analytical, not constructive; it is critical, investigative,

concerned with the basis for accounting measurements and

assertions. Auditing emphasizes proof, the support for

financial statements and data. Thus, auditing has its principal

roots, not in accounting, which it reviews, but in logic on

which it leans heavily for ideas and methods (Wikipedia).

Another distinguishment between accountant and auditor

as described by Boynton and Johnson, there are several

relationship between accounting and auditing. Accounting

methods involve identifying the events and transactions that

affect the entitiy, once these are identified, these items are

measured, recorded, classified, and summarized in the

accounting records. The ultimate objective of accounting is the

communication of relevant and reliable financial data that will

Relationship of accountant and auditorbe useful for decision making.

Meanwhile, audit of financial statements involves performing

risk assessment procedures to understand the entitiy’s business

and industry, including its system of internal control. This

knowledge allows the auditor to develop a point of view

regarding the risk of material misstatement.

The relationship between acounting and auditing in thefinancial reporting process is illustrated below.

3 GAAP - Generally Accepted Accounting Principles

In conclusion, accountants and auditors assemble, analyze,and check the accuracy of financial information. Accounting isthe communication of relevant and reliable financial datathat will be useful for decision making, while this usefulinformation is audited in order to obtain reasonableassurance that the financial statements present fairlythe entity’s financial position, result of operations, and

cash flows in conformity with GAAP3. Rather than creating anew information, the primary objective of auditing is to addcredibility to the financial statements prepared by management.Audits allow financial statement users to make decisions with

3 GAAP - Generally Accepted Accounting Principles

knowledge about a high level of integrity of the informationthat they are using to support their decisions (Boynton andJohnson, 2006).

4 AICPA - American Institute of Certified Public Accountants

History of Public Accountant

The public accountant profession can not be seperated from

the organization that govern this profession. The American

Institute of Certified Public Accountants (AICPA) becomes the

official organization of public accountant in U.S. Meanwhile,

the Institute of Certified Public Accountants (IAPI) supervise

the public accountant profession in Indonesia. Both of these

organization will be discussed below.

H i stor y o f AICP A

AICPA4 was found in 1887, the AICPA represents the CPAprofession nationally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies,public interest groups and other professional organizations.The AICPA develops standards for audits of private companiesand other services by CPAs; provides educational guidancematerials to its members; develops and grades the Uniform CPAExamination; and monitors and enforces compliance with theprofession’s technical and ethical standards.

The AICPA's mission is to provide members with the

resources, information and leadership that enable them to

provide valuable services in the highest professional manner to

benefit the public, employers and clients. In fulfilling its

mission, the AICPA works with state CPA organizations and

gives priority to those areas where public reliance on CPA

skills is most significant.

4 AICPA - American Institute of Certified Public Accountants

History of Public AccountantAICPA Activities

• Advocacy - Protecting and promoting the

profession’s interests as the national representative

of CPAs before government, regulatory bodies and other

organizations.

• Certification and Licensing - Seeking the highest

possible level of uniform certification and licensing

standards and promoting and protecting the CPA

designation.

• Communications - Promoting public awareness of and

confidence in the integrity, objectivity, competence and

professionalism of CPAs and incorporating the needs and

views of CPAs into communications programs.

• Recruitment and Education - Encouraging highly qualified individuals to become

CPAs and supporting the development of outstanding academic programs.

• Standards and Performance - Establishing

professional standards; assisting members in

continually improving their professional conduct,

performance, and expertise; and monitoring such

performance to ensure adherence to current standards and

requirements.

AICPA MAJOR PROGRAMS

The AICPA has developed major programs to implement this mission. Ongoing programs include:

• Evaluating international, national and local issues

and trends, and tracking and analysis of threats to

and opportunities for the profession.

• Undertaking recruitment efforts to attract highly

qualified individuals into the profession and position

the profession as offering diversity in work and career

paths.

• Promoting outstanding academic programs, an emphasis

on teaching quality and aggressive minority

educational initiatives.

• Preparing and grading the Uniform CPA Examination and

encouragement of efforts to adopt uniform, high level

requirements governing the issuance of the AICPA

certificate.

• Promulgating standards, setting of requirements for, and

membership assistance in the continuous improvement of

professional and ethical conduct, performance and

expertise.

• Chartered Global Management Accountant (CGMA) - Two

of the world’s most prestigious accounting bodies, the

AICPA and the Chartered Institute of Management

Accountants (CIMA), have formed a joint-venture to

establish the Chartered Global Management Accountant

(CGMA) designation to elevate management accounting. The

designation recognizes the most talented and committed

management accountants with the discipline and skill to

drive strong business performance.

• Supporting changes to U.S. GAAP made by the Financial Accounting Foundation’s

Private Company Council to reflect the private company environment.

• Developing a financial reporting framework for use by

smaller, for-profit, owner- managed enterprises to help

them prepare more reliable, relevant and cost-beneficial

financial statements.

• Supporting the development of international

convergence, including accounting standards, auditing

standards, and ethics.

• Developing measures to continually improve the financial

reporting system and to detect, expose and prevent fraud.

• Operating comprehensive Continuing Professional Education (CPE) programs for

CPAs.

• Managing 360 Degrees of Financial Literacy, a

national volunteer effort of the nation’s CPA to

help Americans understand their personal finances

and develop money management skills.

• Managing Feed the Pig, a public service announcement

campaign launched with the Ad Council designed to

encourage 25-34-year-olds to take control of their

personal finances. Feed the Pig is an extension of 360

Degrees of Financial Literacy.

• The AICPA is committed to promoting fiscal

responsibility and understanding through advocacy,

public awareness, and resources.

H istor y o fIAP IIndonesian Institute of Certified Public Accountants

(IAPI) has had a long history. Starting from the establishment

of the Indonesian Institute of Accountants (IAI) in 1957, which

is the first Indonesian accountants association. Organizational

development and public accounting profession in Indonesia could

not be separated from the development of the economy, the

global business, capital markets, and both foreign and

domestic investment. The development of public accounting

profession organization in Indonesia is strongly influenced by

changes in the country's economy in particular and the world

economy in general.

Indonesian Institute of Accountants ( IAI ) : December 23, 1957

In the early days of Indonesian independence from Dutch

colonial, we still can see that there’s only small number of

Indonesian accountant. However, in the Netherlands, there are

two professional organizations namely Vereniging van

Academisch Gevormde Accountans (VAGA), which is the bond of

college graduates and accountants Nederlands Instituut van

Accountants (NIVA), whose members include graduates of the

program of

accountant certification and experienced people. Indonesian accountants graduates, in the first post-independence period, cannot be a member of VAGA or NIVA .

This situation encouraged Prof. R. Soemardjo Tjitrosidojo

and four graduates of Universitas Indonesia, Drs. Basuki

T.Siddharta, Drs. Hendra Darmawan, Drs. Joe Tong Tan and Drs.

Siem Go Tie to initiate the establishment of Indonesian

Institute of Accountants, abbreviated IAI, on December 23, 1957

in the Hall of the Universitas Indonesia.

Indonesian Institute of Accountants - Section of Public Accountants (IAI - SAP) :7 April

1977

In the reign of the new order, there were many significant

changes in the Indonesian economy, among others such as the

publication of the Law of Foreign Investment ( FDI ) and

Domestic Investment (DCI) and the establishment of the capital

market. The economic changes had an impact on demand for public

accounting profession, reflected by the establishments of many

Indonesian accounting firms and the entry of foreign

accounting firms that worked with Indonesian accounting firms.

30 years after the founding of the IAI with the idea of Drs.

Theodore M. Tuanakotta, Public Accounting Section IAI was

formed as a forum of public accountants in Indonesia to

implement development program of public accountants on 7 April

1977.

Indonesian Institute of Accountants - Certified Public Accountants

Compartment (IAI - KAP) : 1994

In a period of 17 years since the establishment of the

Public Accounting Section, the public accounting profession was

growing rapidly. Along with the development of the capital

markets and banking in Indonesia, the necessary changes in

accounting standards and professional standards of public

accounting were at par with international standards. In the

VII Congress of IAI in 1994, IAI members agreed to grant an

autonomy to the public accountant with a change in public

accounting section, becoming Compartment Public Accountants .

Indonesian Institute of Accountants (IAPI) : May 24, 2007

After almost 50 years since the establishment of

associations of Indonesian public accountants, precisely on May

24 2007, it was formed Indonesian Institute of Certified

Public

Accountants ( IAPI ) as an organization of independent publicaccountants with independent legal entity which was decided bythe Extraordinary General Meeting of Members IAI - CompartmentPublic Accountants .

The establishment of Indonesian Institute of Certified

Public Accountants was a response to the impact of

globalization, in which Drs. Ahmadi Hadibroto as Chairman of

the National Board of IAI proposed an expanding membership in

addition to the individual. It had been decided in the X IAI

Congress on 23 November 2006. Decision that became the basis

for the change of IAI-Compartment Public Accountant

stated that the association should be an independent

association and be able to independently develop the public

accounting profession. IICPA expected to meet all requirements

of the International Federation of Accountans (IFAC) associated

with a public accounting profession and ethics , as well as to

meet the requirements demanded by IFAC set out in the Statement

of Member obligation (SMO).

On 4 June 2007, IAPI was formally accepted as a member of

the association IICPA first by IAI. On 5 February 2008, the

Government of Indonesia through the Minister of Finance

Regulation No. 17/PMK.01/2008 recognized IICPA as a

professional organization which is authorized to carry out a

certified public accountant exam, the preparation and

publication of professional and ethical standards of public

accounting, and also education programs sustainable for all

public accountants in Indonesia.

IAPIAuthorities

In addition, IAPI also play the major roles that handled by IAIbefore. IAPI has some authorities as follows.

• Provide CPA exam• Develop and publish SPAP (The Auditing Standard)• Develop and publish code of ethics• Running the profession education• Running the training for public accountants

Services Provided by a Public Accountant

The services provided by public accountant are included in

the assurance service. Assurance service is a broader term

that includes audits and a variety of other assurances about

various representations of management. Assurance services are

independent professional services that improve the quality of

information, or its context, for decision makers (Boynton and

Johnson, 2006). The assurance services itself will guarantee

the credibility of the information.

There are several concepts that relate to the quality of the auditor. They include

• Independence

It is the key aspect of assurance services. The users may

rely on the CPA’s independence and obtain the value as the

CPA is unbiased and objective.

• Professional services

The professional services are related to the professional

judgment that CPA brings to the engagement process.

Through the engagement, the CPA brings their skepticism

and objectivity. However, the professional judgment can’t

be replaced even by the technologies that nowadays become

a big thing in a business and other area.

• Quality of Information

The quality of information is related to the decision

usefulness. The quality of information may be improved by

improving the reliability and relevance of the assurance

services. The reliability includes representational

faithfulness, neutrality, and consistency among periods.

The relevance includes understandability, comparability

with other entities usability, and completeness.

• Decision maker

The assurance services are intended to provide benefits tothe decision maker. The decision makers may refer to theclients or outside third parties.

Law no 5 year 2011 (UU no 5 tahun 2011)

According to the law article 3, the scope of the services by a public accountant involve

• Audit service based on the historical financial information

• Review service based on the historical financial information

• And other assurance services

The public accountant can also provide services related

to the accounting, finance, and management in accordance with

the legislation. However, a public accountant who provides an

audit services for a several consecutive years, will have a

limited time to conduct the services.

The universe of assurance services

1. Attest Services

It is one in which the CPA firm issues a written

communication that expresses conclusion about the

reliability of a written assertion that is the

responsibility of another party. The attest services

include:

Review engagement

The review engagement consists primarily of inquiriesof an entity’s management and comparative analysesof financial information. The purpose is to give anegative assurance and stating that the auditor is“not aware of any material modifications that shouldbe made to management’s assertions.”

Agreed-upon procedures engagement

An agreed-upon procedures engagement is a

professional engagement in which an auditor agrees

with the client to perform specific procedures with

respect to information.

In such an engagement the auditor reports the factualfindings resulting from the procedures performed.

2. Accounting and Compilation

Accounting services may include doing manual or automated

bookkeeping, journalizing, and posting adjusting

entries. The compilation services include

compiling the financial statements for the clients andthere’s no assurance whether the financial statements ispresented fairly in accordance with GAAP.

3. Other services

CPA Risk Advisory

It is a service in which CPA can improve the quality

of risk information for internal decision makers

through independent assessments of the likelihood

that an event or action will adversely affect and

organization’s ability to achieve its objectives and

executes its strategies successfully.

CPA Performance View

It is a service that focuses on providing assurance

regarding an organization’s use of both financial and

non-financial measures to evaluate the effectiveness

and efficiency of its activities.

Level ofAssurance• Reasonable Assurance

This is a very high level of assurance but not guarantee.In audit and examination engagements the CPA needs toobtain sufficient, competent evidence to support apositive opinion that the assertion is presented fairly inall material respects.

• Negative assurance review-level assurance

This is substantially less than an audit or examination.In a review engagements the CPA makes inquiries andperforms analytical procedures so that the reviewer can

state that he or she is “not aware of any materialmodifications that should be made to management’sassertion.”

• Agreed-upon procedures

In some cases the entity making an assertion and the

entity using an assertion will agree on specific

procedures to be performed by the CPA. The level of

assurance that is obtained depends on the nature and

extensiveness of the agreed upon procedures performed by

the CPA

• Compilation without assurance

In some cases the CPA may compile information to providedecision makers with relevant information. In this caseCPA provides no assurance about the underlying reliabilityof the information.

Key Issues of Assurance Provided by an Audit

(A figure by Boynton and Johnson, 2006)

1. Auditor independence

In this case, the auditor is neutral about theentity, and therefore is objective. Thus the public canplace faith in the audit function because an auditor isimpartial and recognizes an obligation for fairness.

2. Reasonable assurance

This concept implies that audits involve tests. If no

evidence of material misstatement is found in these

tests, the auditor concludes that the financial

statements are presented fairly in accordance with GAAP.

The concept of reasonable assurance also implies that

management’s financial statements include accounting

estimates and are not exact. The concept of reasonable

assurance however doesn’t guarantee that the accuracy of

the financial statements. Hence, an audit can only

provide a high level of assurance, reasonable assurance, that the financial statements are presented fairly in allmaterial aspects.

3. Detecting and reporting fraud

There are two types of misstatements; there are

fraudulent financial reporting and misappropriation of

assets. An audit conducted in accordance with the auditing

standards generally accepted in is designed to provide

reasonable assurance that the financial statements taken

as a whole are free from material misstatement, whether

caused by fraud or error. The fact that an audit is

carried out may act as a deterrent, but the auditor is

not and cannot be held responsible for the prevention of

fraud and error (AAS 4).

4. Detecting and reporting illegal acts

The term illegal acts refer to violations of laws or

governmental regulations. Illegal acts by clients are

acts attributable to the entity whose financial statements

are under audit or acts by management or employees acting

on behalf of the entity. Illegal acts by clients do not

include personal misconduct by the entity's personnel

unrelated to their business activities. The auditor should

be aware of the possibility that such illegal acts may

have occurred.

If specific information comes to the auditor's

attention that provides evidence concerning the existence

of possible illegal acts that could have a material

indirect effect on the financial statements, the auditor

should apply audit procedures specifically directed to

ascertaining whether an illegal act has occurred. However,

because of the characteristics of illegal acts explained

above, an audit made in accordance with generally accepted

auditing standards provides no assurance that illegal acts

will be detected (PCAOB, 2002).

5. Evaluation of internal control

The evaluation and the reporting of internal control

by auditor in public companies are different with those in

private companies. The auditor of private company only

reports on financial statements and provides no assurance

regarding the internal control to the users.

Meanwhile, the auditor of public company should

perform an integrated audit that results in opinion on

financial statements, an opinion on management’s

assessment of internal control over financial reporting,

and an opinion on the effectiveness of internal control

over financial reporting. The auditor’s report on internal

control over financial reporting that goes to the public

must report material weaknesses in the internal control,

because if there’s one weakness, then it can be reported

that the internal control is inadequate. And if there is a

significant deficiency in internal control, the auditor

must report to the audit committee.

6. Evaluating whether an entity is a going concern

Financial statement users must use the financial

statements in making their own decisions about the risk

of doing business with a company or making an investment

in a company. The fair presentation is not a guarantee

that an entity will continue as going concern. Therefore,

the auditor should evaluate whether there is substantial

doubt about the entity’s ability to continue as a going

concern for a reasonable period of time.

Limitations of auditBesides the above assurance service provided, auditing also hassome limitations such as:

• Reasonable cost

A limitation on the cost of an audit results in selective

testing or sampling, of the accounting records and

supporting data. In addition, the auditor may choose to

test internal controls and may obtain assurance from a

well functioning system of internal controls.

• Reasonable length of time

The auditor's report on many public companies is usually

issued three or five weeks after the balance sheet date.

This time constraint may affect the amount of evidence

that can be obtained concerning events and transactions

after the balance sheet date that may have an effect on

the financial statements. Moreover, there is a relatively

short time period available for resolving uncertainties

existing at the statement date.

• Alternative accounting principles

Alternative accounting principles are permitted underGAAP. Financial statement users must be knowledgeableabout a company's accounting choices and their effect onfinancial statements.

• Accounting estimates

Estimates are an inherent part of the accounting process,

and no one, including auditors, can foresee the outcome of

uncertainties. Estimate range from the allowance for

doubtful accounts and an inventory obsolescence reserve to

impairment tests of fixed assets and goodwill. An audit

cannot add exactness and certainly to financial statements

when these factors do not exist.

Future Opportunities, Threats, and Challenges to be aPublic Accountant

FutureOpportunitiesNowadays, the users of financial statements look to the

independent auditor’s report for assurance about the

reliability of information and its conformance to GAAP. Hence,

there is a need for independent audits of financial statements

that is attributable to four conditions as follows.

• Conflict of InterestMany users of financial statements are concerned about an

actual or potential conflict of interest between

themselves and the management of the reporting entity. It

is because the financial statements prepared by the

management may be significantly biased in management’s

favor. Therefore, users seek assurance from outside

independent auditors.

• ConsequencePublished financial statements represent an important and,

in some cases, the only source of information used in

making significant lending, investment, and other

decisions. Thus, users want the financial statement to

contain as much relevant and reliable information as

possible. The financial statements users look to

the independent auditor for assurance that the financial

statements have been prepared in conformity with GAAP.

• ComplexityAs the level of complexity in the process of preparing

financial statements increases, so do the risk of

misinterpretations and the risk of intentional or

unintentional misstatements. Hence, users rely on the

independent auditors to assess the quality of the

information contained in the statements.

• RemotenessDistance, time, and costs make it impractical for users of

financial statements to seek direct access to the

accounting records and to perform their own verifications

of the financial statements assertions. Thus, once again,

users rely on the independent auditor’s report to meet

their needs.

(Boynton andJohnson, 2006)

Moreover, auditing profession offers a wide variety of

potential career opportunities. According to the Bureau of

Labor Statistics, the employment related with accounting and

auditing is expected to grow by 18% between 2006 and 2016. This

percentage growth is a faster growth rate than average relative

to all other occupations. This 18% increase represents more

than 226,000 new job opportunities in accounting and auditing.

Here below are some reasons why auditing profession has a good

prospect of career opportunities.

• The establishment of Sarbanes-Oxley Act in 2002The SOx Act was established after the fraudulentfinancial report case of Enron andWorldCom. This act in section404 requires that:

o Management and external auditors report on the adequacy of internal controls over financial reporting

o Management report on the effectiveness of the company's internal controls over financial reporting

Therefore, auditing profession is a growing field.

Stricter accounting and auditing regulations in the U.S.

present high growth prospects for the auditing field.

The stricter government regulations offer a variety of job

responsibilities related with auditing profession.

• The establishment of Law no. 5 year 2011 (UU no. 5 tahun 2011)

In Indonesia, the numbers of CPA who take practices is few

enough. There is approximately 60.000 numbers of State

Accountant Registered but only 2000 people who take CPA

certification. Among those 2000 people, only 100 numbers

of CPA who take practice. Even, approximately 50 of them

are already more than 50 years old. Hence, the work field

of public accountant is still widely open. This Law no. 5

year

2011 gives facilities to become a public accountant or

auditor. According to this Law, the accounting profession

is open for all bachelors. Moreover, an auditor is allowed

to make a partner that is from other background.

• The emergence of Good Corporate Governance conceptThe fall of Enron company has inspired the efforts in

introducing corporate governance. GCG5 exists due to theagency conflict, the conflict of interest betweenmanagement and owners, inside the corporate. Then, GCGis needed to establish order between corporate owners andtop-level management. GCG aims to create a sustainabilityof a company while concerning the interest of theshareholders.

5 GCG - Good CorporateGovernance

Nowadays, most investors consider the GCG of a company

besides the credibility of their financial information.

GCG in a corporate set up leads to maximize the value of

the shareholders legally, ethically and on a sustainable

basis, while ensuring equity and transparency to every

stakeholder – the company’s customers, employees,

investors, vendor-partners, the government of the land

and the community (Murthy,

2006). In order to create GCG inside a corporate, the

requirements or components of GCG are Board of

Commissioner, Audit Committee, Internal Auditor, and

Audited- Financial Statement. Therefore, the auditing or

public accountant profession offers widely variety of

potential career opportunities.

• The huge amount of salary of being public accountantThis is the last, but not least, reason why auditing

profession has a good prospect of career opportunities.

The huge amount of salary gives incentive and motivation

for people to become the auditors. The fresh graduate that

joins public accounting firm will earn approximately Rp 4

million salary per month, in the first and second year.

During the 9 up to 12 years working on Public Accounting

Firm, an auditor might become a “Partner”. This position

will have approximately Rp 100 million salary per month.

Future ThreatIn general, the threat to an auditor (or public

accountant) is independence threat. There are some threats to

an auditors independence are as followed:

• Self-interest threat

It is a threat when the auditor could get benefit in some

way or form with the client. For example in the form of

financial bribe.

• Familiarity threatIt is a threat when the auditor has a close relationship

with the client (top management or employees), which may

cause them to be generous and sympathetic when assessing

the client.

• Intimidation threatIt is a threat when the auditor is deterred from acting in

an objective, professional manner as a result of threats

from the client.

• Self-review threatIt is a threat when the auditor is hired to

review/evaluate any product or judgment that they

themselves were responsible for preparing in order to

reach a conclusion.

• Advocacy threatIt is a threat when the auditor promotes the client or the client’s business to the point that objectivity perceives to be impaired.

Specifically, there was an issue facing the audit

profession, which is the auditor concentration. Now, there are

only four firms that capable in serving the largest U.S. public

companies. The current members of the “Big 4” are

PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, and

KPMG. According to the Government Accountability Office’s (GAO)

July 2003 Mandated Study on Consolidation and Competition, the

Big 4 audit 78% of all U.S. public companies and 97% of those

with sales of more than $250 million. The Big 4 audit 99% of

all public company sales and dominate the international audit

market.

According to the GAO6 report, 87% of the more thanthousand companies formerly audited by Arthur Andersenswitched to a Big 4 auditor. Mid-tier firms have significantdifficulty competing for large, multinational companies asclients, and face legitimate and artificial barriers toacquiring a larger share of the audit market. In otherwords, Mid-tier firms faced significant barriers to entry. TheGAO study concluded that the Big 4 firms constitute anoligopoly, but there is no indication that they have behavedlike one in terms of pricing, competition, and commoditization

of services. The existence of an oligopoly, however, has notaffected audit cost or quality.

The greatest potential problem of concentration is the

degree to which large public companies may not have or only

have one alternative to their current auditor. Simply said, the

real choices of auditors are not sufficient. The largest

multinational companies require similarly large and

multinational audit firms. Currently, their needs are met with

limited choices by the Big 4 Public Accounting Firms.

Increased concentration, however, would be disastrous for

the remaining firms, public companies, the financial markets,

shareholders, and investors. Thus, There is a need for

financial leaders to act with a sense of urgency and

coalesce around solutions to offer aframework of what the audit profession, regulators, and government officials should do to

6 GAO - Government Accountability Office’s

protect and preserve the role of the private audits of public companies. More can be done so that mid-tier firms can confidently and competently audit a greater share of the market.

Future ChallengesAt least, there are three important challenges faced by public accountant nowadays as follows.

1. More complex financial and regulatory environment2. The implementation of e-audit for government auditors3. The morality and ethics of auditors.

1. More complex financial and regulatory environmentAccounting professionals face ever-changing challenges

in today’s increasingly complex financial and regulatory

environment. The downfall of Arthur Andersen, a Public

Accounting Firm, due to Enron and WorldCom case triggered

the establishment of the Sarbanes-Oxley Act in 2002. One

feature of the SOx Act is prohibit firms from providing

certain non-audit services to their audit clients and

required that the corporation’s audit committee must approve

all services provided by the firm’s external auditor. The

Act also required auditors to examine and report on

companies’ internal controls – the practices in place to

maintain records and prevent abuse or fraud known as Section

404. As a result both of the scandals and the new laws and

regulations, the accounting profession has much more work to

do.

This year, 2013, brings many “new and improved”

professional standards. These include:

• The AICPA’s new Codification of Statements on Auditing Standards

(Clarified)

• The AICPA’s Financial Reporting Framework for Small and Medium Sized Entities

for non-GAAP financial reporting• The GAO’s new Government Auditing Standards

• COSO’s new Internal Control—Integrated Framework

2. The implementation of e-audit for government auditorsE-audit is an online, integrated system between BPK

internal information systems with information systems owned

by government agencies, thereby forming the center of data

management and state finances accountability. The purpose

of e-audit is to make the

auditing process become more efficient by cutting the time

required of auditing process for collecting the documents

that are need to be observed. The current auditing process

requires up to 1 week to wait the documents that are

needed are collected and provided by the auditee. The idea

from e-audit is to store the data and document that are

needed in the government’s cloud. Hence, the authorized

person can access the data easily. (see the diagram at the following

page)

Furthermore, e-audit can be used to develop audit scope

wider and more extensive. The advantages of e-audit can be

evaluated from the quality of data stored. Since the system

was computerized, data storage becomes better and

cross section analysis becomes easier. In addition, e-

audit is considered as the solution to overcome the limited

number of auditors in Indonesia.

Associated with corruption practice in Indonesia, this

BPK integrated audit system might reduce the number of

corruption because it allows BPK in monitoring state assets

managed by various agencies as well as controlling

government units in order to achieve better performance. By

utilizing BPK data center, this system also has the

ability as an early warning system to ease and accelerate

in performing monitor, check, tracking, analysis and

evaluation of financial transactions and find those

evidences. Hence, a deviation in using budget or managing

the state finance can be discovered early. Therefore,

according to those benefits, the implementation of

e-audit is one of the homework that must be done by

Indonesia government auditors. E-audit is able to

enhance and improve the quality of public sector auditing in

Indonesia.

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3. The morality and ethics of auditors.Last but not least, the auditing profession also faces

the criticism of morality and ethics. For a common people,

accounting is only about numbers. However, for a business

people or those who involved in a business decision-making

process, accounting is very important. It is means that

accounting can be utilized for good and bad purpose. For

example: earnings management or income smoothing. It is a

legal management action to abuse profit in order to meet the

bonus target, meet the analyst expectation, and improve the

financial information. On the other hand, auditors want to

keep their clients. Auditors sometimes agree or even help

the management to do earnings management. Actually earnings

management is a legal action, but ethically it is not right.

That’s why the morality and ethics of auditors should be

maintained whenever they perform their services.

Accounting is not merely about the financial

statements. It also talks about behavioral management and

considers the social aspect. Therefore, accounting is one of

the social phenomena. It must be treated by the social

aspect, such as morality, ethics, and honesty. Finally,

accounting really depends on honesty. There will be no

accounting without honesty. (Taufikur Rahman, 2012)

References:

AICPA Activities & Major Programs Retrieved from http://www.aicpa.org/

American Assembly, The (2003, May 25). “The Future of the Accounting

Profession”. Retrieved from http://americanassembly.org/event/

American Institute of Certified Public Accountants

(AICPA). Retrieved from

http://id.wikipedia.org/wiki/

American Institute of Certified Public Accountants (AICPA). Mission and

History. Retrieved from http://www.aicpa.org/

Auditing and Assurance Standard (AAS) 4. The

Auditor's Responsibility to Consider Fraud and Error in an Audit of

Financial Statements. Retrieved from

http://www.caalley.com/aas/

Auditor. Retrieved from http://id.wikipedia.org/wiki/Auditor

Basu, S. K. (2009). Fundamentals of Auditing. India:

Pearson Education. Boynton, W. C., & Johnson, R. N.

(2006). Modern Auditing 8th. NJ: John Wiley& Sons.

Certified Public Accountant Retrieved from

http://en.wikipedia.org/wiki/ Dumon, Marv (2009,

February 26). Examining A Career As An Auditor.Retrieved from http://www.investopedia.com/articles/financial-careers/

Durak, Robert (2013, September). The AICPA's Framework for

SMEs offers an alternative in non-GAAP reporting. Retrieved

from http://www.journalofaccountancy.com/Issues/

Economist, The (2004, November 18). The Future Of Auditing Called Into

Account. Retrieved from http://www.economist.com/

Henderson, Perry M. Top Auditing Issues for 2013, CPE Course.

Retrieved from http://www.cchgroup.com/opencms/

Ikatan Akuntan Indonesia Retrieved from http://id.wikipedia.org/wiki/

Indonesian Law no 5 of 2011 regarding Public Accountant (UU no. 5 tahun

2011).

Institut Akuntan Publik Indonesia Retrieved from

http://id.wikipedia.org/wiki/ Satibi, M (2012,

December 13). Cegah korupsi melalui e-Audit. Retrieved fromhttp://m.sindonews.com/read/

Sejarah IAI Retrieved from http://www.iaiglobal.or.id/

Sejarah Institut Akuntan Publik Indonesia(IAPI) Retrieved from http://www.iapi.or.id/

Silks Audit Chartered Accountants. Agreed upon

procedures. Retrieved from

http://www.silksaudit.co.nz/agreed-upon-procedures

PCAOB. (2002). Illegal Acts by Client.

Retrieved from http://www.pcaobus.org/

What are the Threats to Auditors

independence? Retrieved from

http://wiki.answers.com/