Financial Audit

HENNY FAUSTA – 2201750295 – LE53
QUIZ FINANCIAL AUDIT I – HOMEWORK GSLC WEEK 7
1. Explain the role of financial auditor in agency concept !

In agency concept, we can assume financial auditor as the third party who works independently.
Their job is to make sure that information reported on financial statements is true and accurate
and that the financial statements are prepared according to accounting standard. Because, the
audited financial statements will later be presented to those in need.
2. Indicate several factors that become the auditor’s consideration when accepting or rejecting a
client !
• Management’s use of an acceptable financial reporting framework.
Without an acceptable financial reporting framework , management does not have an
appropriate basis for the preparation of the financial statements, and the auditor does not
have suitable criteria for auditing the financial statements.
• The agreement of management that it acknowledges and understands its responsibilities.
These responsibilities include the preparation and fair presentation of the financial
statements, along with the design, implementation, and maintenance of internal control
over financial reporting.
Further, management needs to agree to provide the auditor with access to all relevant
information, such as records, documentation, and so on, and unrestricted access to persons
within the organization.
• The audit fee
Consider whether the fees given are as they should be.
• Personal integrity of the prospective client's management and principals.
The auditor needs to consider that the client is not engaged in illegal or unethical acts
• Ability to serve the client
Consider whether adequate resources and expertise would be available to carry out the
audit.
• Presence of circumstances pointing towards unusual risks in the engagement or requiring
special attention.
It can be incurred while conducting the inspection of tangible asset in test of control.
• Management’s authorization
Before accepting a new audit client, the auditor should request that management
authorizes the predecessor auditor to respond to the auditor’s inquiries on issues that will
assist the auditor in determining whether to accept the new client. If management refuses
to authorize the predecessor auditor to respond or limits the response, the auditor should
inquire about the reasons and consider the implications in deciding whether to accept the
engagement.
3. Specify some competencies that financial auditor must have !

• Professional skepticsm
An attitude that includes a questioning mind and critical assessment of audit evidence.
• Professional judgement
The application of relevant professional knowledge and experience to the facts and
circumstances in order to reach a conclusion or make a decision
• Reliability
reliability by deciding whether the evidence is credible.
• Relevance
Relevance by assessing the relationship between the documentation and the management
assertion you’re testing.
• Independent and integrated
• Have a good communication and problem-solving skills
• Always keeping abreast with regulatory changes and industry standards
4. Provide short explaination with your own word, 5 component of internal control !
a) Control Environment
Control environment is crucial since it’s the foundation for the four other components of
internal control. Can be likened to the rules of the company, where there are standard
operating procedures that are set.
b) Risk Assessment
In this control, risk identification and assessment that might influence the organization in
achieving its objectives are carried out. Properly identifying risks will allow management to
determine how to mitigate and manage these risks. Risk factors could consist of internal
and external factors.
c) Control Activities
Control activities is an action that arises from policies and procedures and it helps ensure
that management directives are carried out. One of the most important control activities is
segregation of duties (no employee has overlapping authority).
d) Information and Communication

It used to help other internal control’s components. This is the exchange of information
within organizations. Information is necessary for the organizations to carry out internal
control responsibilities to support the achievement of its objectives.
e) Monitoring
Monitoring is the process of assessing organization's internal control performance. Top
management is responsible for monitoring all controls and to determine if the controls are
operating as they were intended. Monitoring is often done through a company’s quality
assurance or internal control departments.
5. Distinguish with your own word between negligence and fraud !

Negligence can be describe as carelessness. It is when a person doesn’t take reasonable
care and caution over a situation where a prudent person would have taken that level of care.
Their actions resulting in harm and loss for someone else, whether it involves a careless mistake
or inattention.
Whereas the opposite, fraud is an intentional concealment or misrepresentation of a mate-
rial fact that causes damage to those deceived. In an action for fraud, scienter must generally
be proved. In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive
a victim of a legal right.

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HENNY FAUSTA – 2201750295 – LE53

QUIZ FINANCIAL AUDIT I – HOMEWORK GSLC WEEK 7

1. Explain the role of financial auditor in agency concept !

3. Specify some competencies that financial auditor must have !

d) Information and Communication

5. Distinguish with your own word between negligence and fraud !

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