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Matakuliah
Tahun
: Manajemen Kinerja Sistem Komputer
: Feb - 2010
07. Informing Outsiders:
Management Assertions and
Independent Certification
Pertemuan 13-14
07. Informing Outsiders: Management Assertions and Independent
Certification
01. Informing Outsiders through Voluntary
Assertions
Management's ability to benefit from
information disclosure to outsiders is limited
by three factors
• The need for a language or measurement rules to
express information relevant to others.
• Management's interest in the subject matter of the
information that they assert is properly displayed,
• Laws, regulations, and competitive disadvantages
regarding information disclosure.
Independent Assurers and Certifiable
Assertions.
• Measurement criteria
– GAAP -based financial statements are one type of criterion and
a certifiable set of assertions that can add value for
management.
• Figure 7.1 lists several types of assertion that
management can make voluntarily to better information
outsiders.
• Management as information resources
– Management as the source of information leads to concern by
outside decision makers that management has been lazy or
careless in applying measurement methods to prepare
information.
Laws, regulations, and Competitive
Disadvantage of Disclosure
• Assurance professionals can assist
management in determining value-adding
disclosures that comply with regulation such as
SEC rules.
•
Figure 7.2 shows Linda Jo's belief about Tim's assessment of misstatement in un-audited earnings on the far
right.
Figure 7.3 A full-page advertisement in the wall street journal announced two responses to
assure travelers of the "validity and integrity" of US Air's operating standards
02. What Do Financial Statement Audits Require of Management and
Auditors?
An engagement letter for the audit of LJ Appliances, Inc., is reproduces as figure 7.4
Auditor's Responsibilities.
•
In the engagement letter, Alex and Louis, CPA's, agrees to conduct an
audit of LJ's GAAP-based financial statement in accordance with Generally
Accepted Auditing Standards (GAAS).
Management's Responsibilities.
•
Management is responsible for internal control, compliance with applicable
laws and regulations, and making all financial records and related
information available to the auditor.
Management Judgments
(and Discretion)
• In addition to maintenance of basic records of
transactions and allocations, management also
is responsible for making financial statement
estimates and judgments.
Figure 7.5 Illustrative Representation Letter.
03. What Does the Financial Statement
Auditor Do?
Auditors' Reports on Financial Statements.
• An auditor's report on financial statements is based on
the auditor's risk assessments and auditing procedures
and expresses the auditor's opinion about compliance of
the financial statement with GAAP measurement
criteria.
Figure 7.6 presents a basic, generic "standard report" of the external auditor for LJ
Appliance, Inc.
Materiality and Reasonable Assurance
• Materiality Defined
– According to US GAAS, financial statements are materially misstated
"when they contain errors or irregularities whose effect, individually or
in the aggregate, is important enough to cause them not to be
presented in conformity with GAAP."
• Materiality in Practice
– In practice, materiality standars are determined by what is " generally
accepted".
• Reasonable Assurance in Practice
– As with materiality, reasonable assurance doesn't have a mathematical
expression.
04. What's in It for the Auditor?
What does an audit firm get from being the
financial statement auditor for a client ?
• One benefit is a substantial (and continuing) annual audit fee.
• Auditors also establish contact with CEOs, CFOs, and prominent
directors of major corporations, and the nature of GAAP-based
financial statements exposes auditors to the entire range of
opportunities and risks faced by a business as well as its
performance.
05. The Engagement Risk Approach
The engagement risk model has three
components :
• Audit Risk (Au R)
– Au R is the risk that the auditor will unknowingly certify that
financial statements are free of material misstatement when, in
fact , they are materially misstated.
• Client Business Risk (CBR)
– CBR is the risk of loss to the auditor because of the auditor's
client experiences declining performance in the future.
• Auditor's Business Risk (ABR)
– ABR is the risk that the auditor will suffer damage to his or her
reputation or pocketbook because of association with the client.
Figure 7.7
• The three risks are partially overlapping , as
diagrammed in figure 7.7.
• But, as figure 7.7 shows, some portion of CBR and ABR
are not covered by GGAP ands GAAS --- they would
exist even if the audited financial statement fully comply
with GAAP and GAAS.
Figure 7.8
Engagement Risk Approach to Financial Statement Audits.
Figure 7.9 Five common conditions Accompanying Management Misrepresentation Fraud.