Definition of Audit: Types, Functions and Benefits

Definition of auditing – What is auditing? Audit, auditing or checking in a broad sense is an evaluation of an organization, process system or product. The audit is carried out by a competent, objective and impartial party called the auditor.
The purpose of conducting auditing is to verify that the subject of the audit has been completed or is running in accordance with standards, regulations and practices that have been approved or accepted.

Definition of Audit According to Experts

Whittington, O.Ray and Kurt Pann (2012)

Whittington, O.Ray and Kurt Pann said that an audit is an examination of the results of an entity or company’s financial statements by an independent public accounting firm. By observing, checking documents and assets and asking questions both inside and outside the company and carrying out audit procedures.

The auditor will obtain the necessary data to determine whether the financial statements can describe the company’s financial position and activities during the period being audited.

Arens and Loebbecke (2003)

Arens and Loebbecke reveal that auditing is an activity of collecting and evaluating evidence regarding information to determine and report the level of conformity between information and predetermined criteria where the audit process is carried out by a competent and independent person.

Konrath (2002)

According to Konrath, an audit is a systematic process objectively to obtain and evaluate assertion evidence regarding economic activities and events to ensure the link between these assertions and predetermined criteria and to communicate the report results to interested parties.

William F. Meisser. Jr. (2003)

The definition of an audit is a systematic process with the aim of evaluating evidence regarding economic actions and events to ensure the degree of conformity between the assignment and the established criteria. The results of the assignment are communicated to interested parties.

Sawyer (2005)

Sawyer states that an audit is a systematic and objective assessment made by the auditor/person who audits the different operations and controls within an organization.

Mulyadi (2002)

According to Mulyadi, an audit is a systematic process to objectively obtain and evaluate evidence regarding statements about economic activity. The aim is to determine the level of conformity between the report and the criteria and convey the results to the relevant users.

Sukrisno Agoes (2004)

According to Sukrisno Agoes, an audit is an examination of financial statements that have been compiled by management along with bookkeeping records and supporting evidence. This examination is carried out by the company critically and systematically by an independent party. The purpose of this process is to be able to provide an opinion regarding the fairness of the financial statements.

Types of Audits

Based on Commonly Conducted Audits

The following are the types of auditing that are commonly carried out:

1. Financial Audit

Examination of financial reports is an evaluation of the fairness of the financial statements presented by management as a whole compared to generally accepted financial accounting standards. In that sense, are financial statements generally information that can be exchanged and can be verified and then presented according to certain criteria.

2. Operational Audit

Operational audit is an assessment of each part of the organization against standard operating procedures and methods applied by an organization with the aim of evaluating efficiency, effectiveness and economy.

Operational audit can be an effective and efficient management tool to improve company performance. The results of the operational audit are in the form of recommendations for improvement for management, so that this type of audit is more of a management consultancy.

3. Compliance Audits

Compliance audit is a work process that determines whether the party being audited has followed certain procedures, standards and rules set by the competent authority. Compliance audits are usually assigned by authorized authorities who have established procedures or regulations within the company, so that the results of this type of audit are not for publication, but for internal management.



Based on the Audit Examination Examination

Judging from the extent of the audit, the types of audits can be divided into several, including:

1. General Audit (General Audit)

General audit is a general examination of the financial statements carried out by an independent Public Accounting Firm (KAP) with the aim of providing an opinion on the overall fairness of the financial statements.

2. Special Audit

A special audit is a form of inspection that is limited to the request of the auditor which is carried out by a Public Accounting Firm (KAP) by providing an opinion on the part of the audited financial statements, for example an examination of the company’s cash receipts.

Based on Executor Audit

Meanwhile, based on the group or executor of the audit, the audit is divided into 4 types, namely:

1. External Auditor

External or independent auditors work for public accounting firms whose status is outside the corporate structure they audit. Generally, external auditors produce reports on financial audits .

2. Internal Auditors

Internal auditors work for the companies they audit. Management audit reports are generally useful for the management of the company being audited. Therefore, the task of the internal auditor is a management audit which is a type of compliance audit .

3. Tax Auditor

The tax auditor is tasked with examining the compliance of audited taxpayers against the applicable tax laws.

4. Government Auditors

The task of the government auditor is to assess the fairness of financial information compiled by government agencies. In addition, an audit is also conducted to assess the efficiency, effectiveness and economical operation of the program and the use of government property.

Audits carried out by the government can be carried out by the Supreme Audit Agency (BPK) or the Audit Agency for Finance and Development (BPKP).

Auditing Activities

In order to understand more about auditing, we will learn together about auditing activities. The following is an audit activity.

1. Process for Collection and Evaluation of Measurable Information Evidence

Matters that are qualitative must be grouped in a measurable form, so that they can be assessed according to clear measurements, for example very good, good, sufficient, not good and not good with clear criteria.

2. Economic Entities

This is what is being audited, whether it is a unit in the form of a company, division or something else. Performed by a person or a number of competent and independent people who are referred to as auditors.

3. Determining the Conformity of Information with the Criteria for Deviations Found

This determination must be based on a clear size. That means, with what criteria it is said to deviate.

4. Reporting the Results

This report contains information about the conformity between the information tested and the criteria, and shows the facts of the discrepancy.

Difference between Audit and Accounting

Auditing and accounting terms that frequently appear in the field of business science. In general, the two terms have different aims and methods. In accounting, you can say that it describes an activity of identifying transactions and evidence that can affect companies and the government.

In addition, this activity also includes measurement, recording and classifying evidence and subsequent transactions in accounting records. The result of this process is the arrangement of financial statements in accordance with general accounting principles.

The purpose of accounting is to communicate data that is relevant and useful in decision making. The parties involved include company employees and government employees, while the company’s management is ultimately responsible for the financial statements.

Meanwhile, an audit can be regarded as a financial report covering activities in obtaining and assessing evidence related to financial reports. This activity allows the auditor to examine the level of adequacy or fairness of a financial report whether it has been presented fairly in accordance with Generally Accepted Accounting Principles (PABU) or not.

Audit Functions and Benefits

What are the functions and benefits of the audit that Matobers needs to know about? Here’s the explanation:

1. Checking the Accuracy of a Financial Report

The benefit of the first audit is checking the level of accuracy of a financial report. Sometimes, there are human errors or fraud committed by elements in the company. The auditor’s job is to find the crime, so that the report is in accordance with the facts on the ground.

2. Monitoring the Network System

Not only reports, but auditors can also independently monitor a company’s financial system. If there is an act of corruption and so on, the auditor can provide a written report regarding this behavior to the authorities.

3. Achieving financial goals
By checking finances if something goes wrong, the auditor can suggest the company to fix it. Report improvements can also be used as a basis for running the next financial system. When financial statements are healthy, the potential for a company to achieve profit goals will also be higher.

4. Accountability and Credibility

The next benefit of the auditor is the increased quality of accountability and credibility of the company. This company can increase the value of investment, trusted by the public and so on.



Audit Purpose

The objectives of the audit are as follows:

1. Ensuring Completeness

An audit is carried out to ensure that all transactions that occur have been recorded or entered into a journal with all its completeness.

2. Ensuring Accuracy

In this audit activity, the objective is to ensure that all transactions and account balances have been properly documented, the calculations are correct, the amounts are correct and classified based on the type of transaction.

3. Ensuring Existence

With an audit, the recording of all assets and liabilities has an existence in accordance with a certain date. That is, all recorded transactions are in accordance with actual events.

4. Make an Assessment (valuation)

Audit activities also aim to ensure that all generally accepted accounting principles have been properly applied.

5. Make a Classification (Classification)

The audit aims to ensure that all transactions recorded in the journal are classified according to the type of transaction.

6. Ensuring Accuracy

Audit activities aim to ensure that the recording of transactions is carried out according to the correct date, the details in the account balance are in accordance with the
general ledger figures and the total of the balance is carried out correctly.

7. Make Boundary (Cut – Off)

Audit activities aim to ensure that all transactions that are close to the balance sheet date are recorded in the appropriate period. Recording transactions at the end of the accounting period is very likely to occur misstatements.

Stages of Audit Implementation

To achieve the audit objectives in accordance with the company’s plans, there are several steps that need to be carried out, including:

1. Acceptance of Materials

Prior to the implementation of this activity, there is usually a mutually agreed upon agreement. Therefore, in this stage there will be an explanation of the role of the auditor and the terms of the contract for the client to sign.

After that, the client will submit his financial statements to the auditor to carry out the auditing process of financial statements according to his duties. This preparation involves training personnel and ensuring the completeness of records and documents.

Making financial reports must be thorough in order to avoid mistakes. By using accounting software to make financial reports, mistakes will be avoided because of an accurate system. In addition, the time used is also more efficient because this system does it automatically.

2. Preparation and Planning

The preparation and planning process is a stage that the auditor must know. In general, this process can take just one day or even a week depending on the nature of the audit. There are several things that the auditor needs to understand before carrying out this process, which include:

  • Understand the client’s business industry.
  • Perform analytical procedures.
  • Determine materiality and assign risk.
  • Understand the internal control structure and determine control risk.
  • Develop audit plans and programs.

3. Execution Implementation

The next stage after planning is execution. This is usually done by auditors collecting and analyzing data and information. Mainly to assess the needs of the organization’s internal controls. In this process, the auditor usually conducts interviews, examines documents and other matters to develop auditing findings.

4. Reporting

Reporting is the result stage of the audit work that has been completed. This report is a form of communication between the auditor and other parties, so the auditor may not make it haphazardly. In this report, there are things that the auditor must include, such as the type of opinion, the services the company offers, the object, scope and objectives of the audit. This report also contains the auditor’s opinion and recommendations on how to correct the error.

5. Corrective Audit

The final stage in this process is the corrective stage. Reports that have been completed certainly require corrective or preventive action. This action includes repairing the failures or deficiencies in the findings of the audit results.

In addition, at this stage we also take some precautions. The preventive action aims to prevent the occurrence of factors that can lead to the failure of a company in the future.

Implementation Standards

In its implementation, there are several standards that Matobers needs to pay attention to in financial auditing, including:

Common Standards

This is a standard that regulates expertise, ongoing training, independence and professional skills of auditors. Some general standards that the auditor must pay attention to, namely:

  • The audit must be carried out by one or more people who have sufficient technical expertise and training as an auditor and not just an accountant.
  • In all matters related to bonding, an auditor must be able to act professionally and must also be objective without taking sides and not suspecting cooperation.
  • The auditor must maintain the mentality of all matters relating to the engagement and independence.
  • The auditor must utilize his professional expertise in the process of carrying out audits to reporting activities carefully and thoroughly.
  • Examination must be carried out by a party who has sufficient expertise as an auditor, not just an accountant.

Field Standard

Field standards as standards governing the field work process during auditing. This process is more specific in nature covering matters regarding audit performance in the field. There are several procedures that the auditor must pay attention to in implementing this standard, namely:

  • Field performance basically depends on the planning carried out. Therefore, as professionals, all work must be well planned and mature.
  • Informative disclosures in the financial statements must be adequate, unless otherwise stated in the auditor’s report.
  • If the preparation of the company’s financial statements is inconsistent, the auditor’s report should explain it and provide recommendations for improvement.
  • There must be a statement or opinion regarding the financial statements being examined in the audit report.