THE CYCLE OF THE PUBLIC SECTOR FINANCIAL AUDIT

Compiled By: Group 1

Tria Najla Prima H (1610531007)
Dini Rahmadianti (1610531008)

1. Financial Audit Planning

The audit planning phase includes procedures such as:
i. Understanding of The Public Financial Accounting System
Understanding of accounting systems is very important because current public sector audits
no longer focus on budget realization reports but also concerns to other financial reports
such as balance sheets, reports on surplus / deficit, and cash flow statements. So, the auditor
must have an adequate understanding of the public financial accounting system.
ii. Determining The Objectives and The Scope of Audit
The objectives and the scope of public sector audit is depended on the mandate of the audit
institution concerned. Audits of financial statements conducted by external auditors
generally aim to assess the fairness of financial statements (giving opinions) to public
sector organizations, while audits of the preparation of financial statements by supervisors
aim to provide recommendations for improvements in the internal control system and
correction of errors in the preparation of financial statements. In determining the objectives
and scope, the auditor must ensure that the objectives and the scope of the audit set are in
accordance with the mandate and authority of the audit institution and the supervisor
concerned. In the context of an audit of the financial statements of public sector
organizations, the supervisor is authorized to:
a. Reviewing the accounting system and internal controls also providing recommendations
to enhance the weaknesses
b. Conduct testing and correction of accounting recording errors so that financial statements
that will be produced has reliable information.
The purpose of understanding this mandate are:
- To find out the limitations that exist in the audit work
- To identify the authority held in the audit implementation
- To ensure that the supervisor has fulfilled the applicable legal requirements
- To provide assurance that the planned audit approach is in accordance with audit
established
- To ensure that the audit objectives meet the legislative needs
- To identify parties entitled to receive audit reports.
 iii. Risks Assessment
Audit activities are carried out through various tests that contains of risk of errors, so that
the assessment of control risk, inherent risk, and detection risk must be done. So, the
conclusions and opinions given by the auditor have an adequate guarantee.

iv. Arrangement of Audit Plan

Based on the stages of the audit planning activity, an audit plan must be arranged, which
generally contains a description of: the area to be audited, the period of audit, personnel
needed, and other resources needed for the audit.

2. Enactment of Financial Audit Regulations

Enactment of financial audit procedures or regulations is an important part of the audit process
because regulations are needed to provide clear direction, and as a control so that the financial
statement audit can provide the appropriate opinion.
3. Arrangement of Annual Audit Planning by Auditor Institution
The next step after enactment of rules and regulations in conducting financial audits is to prepare
an annual audit plan by the auditor's institution. Audit planning is a vital stage in the audit. An
adequate audit planning will greatly determine the success of the audit. Appropriate audit planning
is an important factor for obtaining sufficient and competent audit evidence to support the contents
of the audit report.
4. Annual Audit Plan Meetings
After the auditor institution has finished arranging the annual audit plan, then they meet with the
head or leader of the public sector organization to discuss the planned audit that has been arranged.
5. Publish the Regulation of Annual Audit Personnel and Regulation
If the plan is already appropriate, the next step is publishing regulations regarding the annual audit
team or personnel and regulation. The regulations stipulated at this stage involve teams or
personnel who will conduct audits of public sector organizations and regulations in carrying out
the audit process.
6. Regulatory Acceptance of the Organization to be Audited
After the regulation regarding the team and the annual audit regulation is published, then the
regulation will be accepted by the examining institution so that it can conduct an audit process in
the relevant public sector organization or organization.
7. Initial Survey of the Organization to be Audited
The next step on this public sector audit cycle is initial survey of the organization to be audited.
The initial survey such as survey of the auditee characteristics and so on.
8. Establishment of Audit Program
 For each area audited, the auditor must prepare the audit steps to be carried out. These steps are
contained in the audit program. An audit program will contain of:
-The audit objective for each area
-The audit procedure will be conducted
-Source of audit evidence
-Description of the error

9. Issuance of an Audit Task Letter

After the program was made by the public organization, they will issue the task letter for conduct
audit by the supreme audit agency or the auditor. The supreme audit agency itself could appoint
the auditor that could be outside of them. The auditor that appoint could be the individual or
institution.

10. Financial Audit Examination

In conduct the audit, there are several things that should be done, such as:
a. Evaluate the Internal Control
Internal control was made by the public organization in order to avoid the fraud and thief of
the assets. There are several kinds of internal control, such as:
i. Organization
How the organization transfer the authority and responsibility to the employee. How the
organization could report all of the aspect and control.
ii. Separation of duties
In internal control, there should be separation of duties. If an employee handles the two
or more things, they could make a mistake of do the thief because he could manipulate
the data. Separation of duties will be prevent the amount of manipulate of error that
could be happen.
iii. Physical examination
The physical assets should be the place that restrict for everyone to enter. The employee
that could assess the physical assets should the employee that already has authority in
order to avoid the thief.
iv. Approval and authorization
All of the transaction should be approve and authorize by the employee that could check
the error and manipulate the data given.
v. Accounting
The check about the transaction, ending balance, reconciliation should be done for the
document.
vi. Personnel
The personnel should have correlation based on the procedure.
vii. Supervision
There should be the supervisor by the management for the daily procedure.
viii. Management
 The review beside of regular review should be conduct by the management in order to
check the daily procedure and system happen.
b. Conduct the Analytical Procedure
Analytical procedure could be checked the risk of misstatement that occur in the financial
statement. This procedure could check which area that not proper based on the trend. This
procedure itself could detect the significant misstatement. And there are six steps that should
audit done while conduct analytical procedure:
i. Identify the measurement and proportion.
ii. Expectation development
iii. Perform the measurement and proportion
iv. Data analysis
v. Investigate the significant differences from the expectation
vi. Determine the influence of differences for audit plan

11. List of Findings

After conduct audit, the auditor could make the list of findings. This finding could be the evidence
while give opinion. The evidence could be the record of transactions, observation result of auditor,
or the information from the public organizations itself.
The method that commonly used in finds the evidence such as inspection, observation, information
request, confirmation, recalculation, analytical procedure or the other technique. Should be noted
that, the method choose is based on the cost of findings and the benefit from the information.

12. Cross-Check the Findings

The list of findings will be given to the head of organization to do the cross-check. This cross-
check will invite not only the head of organization, but all of the employees that relate to the
findings.

13. Preparation of Draft Reports on Audit Results

When the cross-check did, the auditor will prepare the draft report of audit result. The draft that
made by the auditor should be same with the findings and the result of cross-check that done
before.

14. Cross-Check of Draft Reports on Audit Results

The draft report that made by the auditor will be cross-check with the head of organization in order
to make sure that everything that report suitable with the real condition. The auditor also check the
completeness of the draft before prepare as the audit report.

15. Completion of an Audit Report

After the cross-check and check the completeness, the auditor will make the draft become the
complete audit report. This audit report is the written statement that represents the conclusion of
basic information. This audit report will be analysis of the evidence that collected while conduct
audit procedure.
16. Give the Recommendation About the Improvement of Audit Report
Based on the audit report that made by the auditor, the auditor will give some advice and
recommendation about the findings to the public organization. And this recommendation could be
used in order to improve the quality of the next financial statement.
17. Publish the Audit Report
After the auditor completes the audit report, they will publish. So, the parties that need this report
could use it based on their business with the public organizations. This audit report should be open
to the public. But, there is some information that couldn’t share to public, such as the secret or
contains criminal elements.

References :
____Pemeriksaan Keuangan Negara untuk Kantor Akuntan Publik. Edisi 2014. Pusat Pendidikan
dan Pelatihan Badan Pemeriksa Keungan RI.
____Standar Pemeriksaan Keuangan Negarra. Peraturan Badan Pemeriksa Keuangan Republik
Indonesia Nomor 1 Tahun 2017.