Definition of the Basic Principles of Assessment: Functions and Things That Influence It

Definition of the basic principle of assessment – In auditing or auditing the basic principle of assessment or judgment is the auditor’s policy in giving an opinion on information found throughout the audit process, which refers to ideas, ideas or estimates about events that occurred at the object of the audit. The results issued by an auditor must be able to provide correct information and evidence, so that the audit assessment submitted will be correct or appropriate.

Definition of Basic Principles of Assessment

According to the Financial Services Authority (OJK), the basic principle of assessment is an opinion based on facts or evidence that has been found in order to pay attention to several implied matters.

For example, the basic principle of assessment can be illustrated by providing a test of the quality of the internal control system for an audit based on the auditor’s assessment of a particular situation.

In the audit process, the basic principle of assessment is defined as the policy of an auditor in giving an opinion regarding the information found during the audit process. Usually, the opinion is in the form of ideas, ideas or estimates of the object of the audit.

In addition, an auditor must also provide information based on facts and truth, because it can affect the audit’s judgment whether it is true according to the facts or not. Therefore, an auditor must have a trustworthy nature, so as not to complicate the audit process which requires an opinion based on existing facts.

Basic Functions of Assessment (Judgement)

In every matter related to financial bookkeeping, it must have its own main function. Like the basic principle of an assessment that has a function as a judgment.
Judgment is necessary because an audit is not carried out on all evidence. This evidence is used to express an opinion on the audited financial statements, so that it can be said that financial judgment also determines the results of the audit.

If the audit does not run smoothly, it will have an impact on a company. An auditor can be said to be qualified if he has fulfilled various kinds of provisions and standards that apply to auditing. Therefore, it is very important for companies to have quality auditors, because the financial accounting process is very influential from the audit process.

The objective of the audit is to obtain reasonable assurance that the financial reports prepared by management are true and fair or have been prepared in accordance with the standard financial reporting framework and are free from material misstatement.

Pursuant to ISA 200, this basic principle of professional judgment is required in making the following conditions:

  • Before starting the audit, the auditor needs to exercise professional judgment in deciding on material and audit risks.
  • To develop an appropriate audit plan according to the circumstances, the auditor requires professional judgment. Audit scope, timing and audit procedures require the auditor’s basic judgment and skepticism.
  • In deciding the adequacy and appropriateness of audit evidence, if it is insufficient, the auditor may evaluate new procedures and actions for the audit using the basis of his judgment.
  • In accounting for bad debts requires consideration from management.
  • An auditor uses the basic principles of his assessment, then he must be able to require the ability to find out whether there is fraud or error ( fraud and error ) that occurs behind the decision.
  • The basic principle of judgment is required when the auditor makes conclusions and judgments about audit evidence.

Matters Affecting the Basic Principles of Assessment

The following are a number of things that may affect the basic principles of judgment, including:

1. Auditor Experience

The auditor’s experience is a combined accumulation of all that is obtained from everything he has done. Experience can provide opportunities for someone to do a better job than before. With more experience, the more skilled in also doing their job.

In addition, experience also makes an auditor have a better chance of doing his job compared to those who are inexperienced. This experience will make an auditor more skilled in doing his job.

2. Auditor Knowledge

In addition, the company must have a qualified auditor as previously described. In detecting an error, an auditor must be supported by knowledge of what and how the error occurred.

In general, an auditor must have some knowledge so that the audit process runs smoothly regarding General Auditing , Functional Area , Computer Auditing , Accounting Issues , Industry Specific , General World Knowledge and Problem Solving Knowledge .

3. Obedience pressure

In this case, obedience pressure is defined as pressure received by junior auditors from senior auditors or superiors and audited entities to take actions that deviate from ethical and professional standards. Pressure from superiors and audited entities can also have a negative impact, such as loss of professionalism and loss of public trust and social credibility.

As a result of pressure from senior auditors or superiors, it can eliminate a sense of trust in one another, as well as loss of social credibility. This will create an uncomfortable working atmosphere for junior auditors and be reluctant to ask questions when they make mistakes.

4. Task complexity

While working, it is not uncommon for an auditor to find work that is difficult to understand and looks unstructured. This will affect the assessment, and it is feared that it will not give optimal results at the end of the audit. This is where the experience and knowledge of the auditor must be relied upon.

In this matter, the experience and knowledge of the auditor plays an important role in order to complete the work properly and correctly without any errors. That is the reason why knowledge and experience greatly influence the basic principles of judgment.

The more factors that support an auditor, the better the auditor’s assessment. Or the more experience the auditor has, the better the preparation of the assessment, so it is important for the auditor to understand the basics of auditing.

Audit is the collection and examination of evidence related to information to determine and make a report regarding the degree of conformity between the information and the established criteria. An audit must also be carried out by someone who is competent and independent.

Accounting Principles in Assessing Basic Principles of Valuation

An auditor in assessing the valuation principle is also in accordance with accounting principles, as follows:

1. Cost Principles

Most of the assets and liabilities are reported at cost. However, the use of the historical cost principle to record the acquisition of assets ignores the effects of changes in value. The FASB and IFRS are now beginning to believe that information presented on a fair market basis will be more relevant to users of financial statements than historical cost.

Measurement using fair value will provide a better picture of the value of assets and liabilities and provide a basis for assessing prospects for future cash flows.

2. Revenue Principles

Net profit ( net income ) is defined as ” the excess of income compared to expenses, added or subtracted by the company’s profits or losses from sales and exchange or replacement of other assets “. That is, net profit comes from transactions of income, expenses, gains and losses.

The FASB’s conceptual framework identifies two criteria that should be considered in determining when revenue should be recognized, namely realized or realizable and earned or incurred.

Revenue recognition is generally done at the point of sale. However, it could also be in the production process that is still ongoing, for example for long-term construction contracts or often called the project completion percentage method or proportional performance method, the end of production when demand and prices for the resulting production are guaranteed, for example certain types of metal products or agricultural products, or even when cash is received, for example for sales using the installment method.

3. Matching Principles

The right amount of income and expenses in the right period can be recorded in the choice of cash basis and accrual basis. Cash basis will report income and expenses in the income statement in the period in which cash is received for revenues or cash is paid for expenses. The amount of net profit or net loss resulting from the difference between income and expenses will reflect the net amount of cash generated (for net income ) or the net amount of cash issued (for net loss ).

Meanwhile, for the accrual basis, income and expenses will be reported in profit or loss in the period in which the income and expenses are incurred, regardless of cash inflows and cash outflows.

With an accrual basis, the expenses associated with generating income must be reported in the same period in which the revenue is also recognized. The accounting concept that supports reporting income and related expenses in the same period is called the matching concept .

Types of Audits

Generally, inspection or auditing is carried out on financial statements, various bookkeeping records and supporting evidence made by the management of a company. Therefore, audits can be grouped into 3 (three) types, namely operational audits , compliance audits and financial statement audits .

1. Operational Audit (Operational Audit)

In this type of audit, the audit is focused on examining the operational efficiency and effectiveness of the company. The evidence collected related to the company’s operations will be compared with the standards or policies set by the company. The results of the audit conducted are in the form of recommendations that will be submitted to the company.

2. Compliance Audit

The implementation of a compliance audit is intended to determine the level of compliance of the auditor with the established rules, procedures or regulations. The results of this compliance audit will be reported to management as the main party related to the company’s level of compliance with procedures and regulations.

3. Financial Statement Audit

In carrying out a financial statement audit, the auditor focuses on determining the level of fairness and conformity between the financial statements and applicable accounting standards such as PSAK, IFRS and GAAP.

In addition, the level of fairness of the financial statements is determined based on the evidence gathered by the auditor. The results of the audit on the fairness level of the financial statements are set forth in the audit report which contains the audit opinion from the auditor.

Audit Objectives in Performing the Basic Principles of Assessment

In carrying out the principle of assessment. Audit also has certain objectives which can be classified as follows:

1. Completeness

To ensure that all transactions have been recorded or are in the journal have actually been entered.

2. Accuracy

To ensure transactions and account balances that exist have been recorded based on the correct amounts, correct calculations, properly classified and recorded.

3. Existence

To ensure that all recorded assets and liabilities have an existence or occurrence on a certain date, the recorded transactions must have actually occurred and are not fictitious.

4. Valuation

To ensure that generally accepted accounting principles are properly applied.

5. Classification (Classification)

To ensure that transactions included in the journal are properly classified. If related to balances, then the numbers entered in the client register have been classified appropriately.

6. Accuracy

To ensure that all transactions are recorded on the correct dates, the details in the account balances agree with the general ledger figures. In addition, the total balance has been done correctly.

7. Cut off

To ensure that transactions near the balance sheet date are recorded in the proper period. Transactions that are likely to be misstated are those that are recorded near the end of an accounting period.

8. Disclosure (Disclosure)

To ensure that account balances and related disclosure requirements are fairly presented in the financial statements and explained fairly in the contents and footnotes to those reports.

In making a judgment about the existence of a material misstatement, the auditor is responsible for applying the judgment of relevant training, knowledge and experience in making an informed decision about the appropriate course of action in the circumstances of the audit engagement. In addition, the auditor is also responsible for fulfilling his duties diligently and prudently.

Auditor Principles

The principles related to the auditor’s responsibilities in an audit emphasize important personal qualities. Therefore, an auditor must have the following things:

1. Appropriate Competency and Capability

The auditor is responsible for having the appropriate competence and ability to conduct an audit. Therefore, to have this competition, the auditor must go through formal education in auditing and accounting, practical experience and continuing professional education. The court cases clearly demonstrate that auditors must have technical qualifications and experience in the industries in which their clients are involved.

2. Adhere to Ethics

IAPI outlines ethical requirements for public accountants who practice in KAPs or work in companies as part of management. The auditing code and standards emphasize the need for independence in audit engagements.

Apart from that, the most important thing is the requirement for KAP to participate in several practices, thereby increasing the independence of all personnel. For example, there are established procedures regarding larger audits when there is a dispute between management and the auditor.

3. Maintain Professional Skepticism and Professional Judgment

The auditor is responsible for maintaining professional skepticism and exercising professional judgment throughout the planning and work of the audit. Skepticism is an attitude that includes a questioning mind, being alert to conditions that might indicate possible fraudulent misstatement or error and a critical assessment of audit evidence.

Thus, the auditor must remain alert to the possibility of material misstatement whether due to fraud or errors during the planning and performance of the audit.


So that’s about the basic principles of assessment that can be understood, Matobers. So, the basic principle of assessment or judgment needs to be considered by the auditor and not forgetting to pay attention to matters that can affect judgment so that the auditor’s process can run without any problems. I hope this article inspires you!