Study case in Indonesia, Australia and Singapura

SA 500 audit evidence – ISA Based Audit

Ivan Kanel SE., MAk., MM., Ak., BKP., CPA., CA., CPMA., CMA., ASEAN CPA.,
CBV., CAPM., CDMS., CTA., CPRM., CPGA., CRM., CHRM., CMIS., CIBT., CPPM
 Audit Evidence
• This International Standard on Auditing (ISA) explains what constitutes audit evidence

in an audit of financial statements, and deals with the auditor’s responsibility to design

and perform audit procedures to obtain sufficient appropriate audit evidence to be able

to draw reasonable conclusions on which to base the auditor’s opinion.

• The objective of the auditor is to design and perform audit procedures in such a way as

to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw

reasonable conclusions on which to base the auditor’s opinion.

 Audit Evidence
• Accounting records – The records of initial accounting entries and supporting
records, such as checks and records of electronic fund transfers; invoices;
contracts; the general and subsidiary ledgers, journal entries and other adjustments
to the financial statements that are not reflected in journal entries; and records such
as work sheets and spreadsheets supporting cost allocations, computations,
reconciliations and disclosures.
• Appropriateness (of audit evidence) – The measure of the quality of audit evidence;
that is, its relevance and its reliability in providing support for the conclusions on
which the auditor’s opinion is based.
 Audit Evidence

• Audit evidence – Information used by the auditor in arriving at the conclusions on

which the auditor’s opinion is based. Audit evidence includes both information
contained in the accounting records underlying the financial statements and other
information.

• Sufficiency (of audit evidence) – The measure of the quantity of audit evidence. The
quantity of the audit evidence needed is affected by the auditor’s assessment of the
risks of material misstatement and also by the quality of such audit evidence.
 Sufficient Appropriate Audit Evidence
• Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and is primarily

obtained from audit procedures performed during the course of the audit. It may, however, also include

information obtained from other sources such as previous audits (provided the auditor has determined whether

changes have occurred since the previous audit that may affect its relevance to the current audit) or a firm’s

quality control procedures for client acceptance and continuance. In addition to other sources inside and outside

the entity, the entity’s accounting records are an important source of audit evidence

• Most of the auditor’s work in forming the auditor’s opinion consists of obtaining and evaluating audit evidence.

Audit procedures to obtain audit evidence can include inspection, observation, confirmation, recalculation,

reperformance, and analytical procedures, often in some combination, in addition to inquiry. Although inquiry

may provide important audit evidence, and may even produce evidence of a misstatement, inquiry alone

ordinarily does not provide sufficient audit evidence of the absence of a material misstatement at the assertion

level, nor of the operating effectiveness of controls.

 The sufficiency and appropriateness of audit
evidence
• The sufficiency and appropriateness of audit evidence are interrelated. Sufficiency is the
measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by
the auditor’s assessment of the risks of misstatement (the higher the assessed risks, the more
audit evidence is likely to be required) and also by the quality of such audit evidence (the higher
the quality, the less may be required). Obtaining more audit evidence, however, may not
compensate for its poor quality
• Appropriateness is the measure of the quality of audit evidence; that is, its relevance and its
reliability in providing support for the conclusions on which the auditor’s opinion is based. The
reliability of evidence is influenced by its source and by its nature, and is dependent on the
individual circumstances under which it is obtained.
 Audit Procedures for Obtaining Audit
Evidence
Audit evidence to draw reasonable conclusions on which to base the auditor’s
opinion is obtained by performing:
• Risk assessment procedures; and
• Further audit procedures, which comprise:
(i) Tests of controls, when required by the ISAs or when the auditor has
chosen to do so; and
(ii) Substantive procedures, including tests of details and substantive
analytical procedures.
 How to get audit evidence
Inspection

• Inspection involves examining records or documents, whether internal or external, in

paper form, electronic form, or other media, or a physical examination of an asset.
Inspection of records and documents provides audit evidence of varying degrees of
reliability, depending on their nature and source and, in the case of internal records and
documents, on the effectiveness of the controls over their production.

Observation

• Observation consists of looking at a process or procedure being performed by others, for

example, the auditor’s observation of inventory counting by the entity’s personnel, or of
the performance of control activities.
 How to get audit evidence
External Confirmation

• An external confirmation represents audit evidence obtained by the auditor as a direct written

response to the auditor from a third party (the confirming party), in paper form, or by electronic or

other medium.

Recalculation

• Recalculation consists of checking the mathematical accuracy of documents or records.

Recalculation may be performed manually or electronically.

Reperformance

• Reperformance involves the auditor’s independent execution of procedures or controls that were

originally performed as part of the entity’s internal control.

 How to get audit evidence
Analytical Procedures
• Analytical procedures consist of evaluations of financial information through analysis of
plausible relationships among both financial and non-financial data.
Inquiry
• Inquiry consists of seeking information of knowledgeable persons, both financial and
non-financial, within the entity or outside the entity. Inquiry is used extensively
throughout the audit in addition to other audit procedures.
 Information to Be Used as Audit Evidence
Relevance and Reliability

• The quality of all audit evidence is affected by the relevance and reliability of the information upon

which it is based.

Relevance

• Relevance deals with the logical connection with, or bearing upon, the purpose of the audit

procedure and, where appropriate, the assertion under consideration. The relevance of information

to be used as audit evidence may be affected by the direction of testing.

Reliability

• The reliability of information to be used as audit evidence, and therefore of the audit evidence itself,

is influenced by its source and its nature, and the circumstances under which it is obtained,

including the controls over its preparation and maintenance where relevant.
 Study Case in Indonesia - 1
• Vonis Denda yang dihadapi oleh Kantor Akuntan Publik EY (Ernst & Young) di
Indonesia atas hasil laporan audit laporan keuangan PT Indosat Tbk pada 2011 tidak
disertai bukti audit yang memadai sebesar USD 1 Juta

• Hasil audit perusahan telekomunikasi itu tidak menyajikan bukti audit yang memadai,
mengenai pencatatan sewa 4.000 ruang di menara telepon selular.

• PT Indosat Tbk (Indosat) juga tidak tepat dalam mencatat akuntansi penjualan 2.500
menara kepada PT Tower Bersama Infrastructure Tbk yang diikuti dengan sewa
kembali (leaseback)
 Study Case in Indonesia - 1
• Manajemen PT Indosat Tbk (Indosat) merevisi laporan keuangan 2010, 2011 serta 9 bulan pertama tahun
2012. Penyajian kembali laporan keuangan tersebut terkait dengan pencatatan akuntansi yang tepat untuk
penjualan menara dimana pada 7 Februari 2012,

• Indosat setuju untuk menjual 2.500 menara telekomunikasi dan aset lainnya kepada TBIG dan anak
perusahaannya, PT Solusi Menara Indonesia.

• PT Indosat Tbk dalam laporan keuangan triwulanan 30 September 2012 mengakui sebagian besar sewa atas
slot yang disewa kembali sebagai sewa operasi dan mengakui keuntungan awal dari penjualan sebesar
Rp.2.187.300 juta dan keuntungan yang ditangguhkan sebesar Rp68.635 juta. Dampak dari revisi laporan
keuangan triwulan per 30 September 2012 menyebabkan penurunan jumlah laba langsung yang diakui dari
Rp. 2,187 triliun jadi Rp.1,125 triliun. Selain itu terjadi peningkatan laba yang ditangguhkan dari Rp. 68,635
miliar menjadi Rp. 1,410 triliun. Laba yang ditangguhkan ini akan diamortisasi selama 10 tahun berdasarkan
periode sewa dalam laporan laba rugi konsolidasi.
 Study Case in Indonesia - 1
• PCAOB mengungkapkan, hasil audit perusahaan akuntan publik afiliasi E&Y itu malah
memberi opini wajar tanpa pengecualian. PCAOB juga mengungkapkan bahwa tak lama
sebelum memeriksa hasil audit tahun 2012, KAP Purwantono, Suherman & Surja
membuat lusinan audit baru “yang tidak semestinya”, yang menghambat penyelidikan.

• EY sendiri dalam pernyataannya mengakui bahwa perilaku dalam permasalahan

tersebut telah melanggar kode etik global. “Sejak peristiwa ini, kami terus memperketat
proses audit dan kebijakan kami.
 Study Case in Indonesia - 2
• Laporan Keuangan Garuda Indonesia menuai polemic dengan penolakan dua komisaris Garuda
Indonesia, Chairal Tanjung dan Dony Oskaria untuk mendatangani persetujuan atas hasil laporan
keuangan 2018

• Keduanya memiliki perbedaan pendapat terkait pencatatan transaksi dengan Mahata senilai
US$239,94 juta pada pos pendapatan. Tetapi belum ada pembayaran yang masuk dari Mahata
hingga akhir 2018.

• Sekretaris Jenderal Kemenkeu Hadiyanto merinci kelima kelalaian yang dilakukan. Pertama, AP
bersangkutan belum secara tepat menilai substansi transaksi untuk kegiatan perlakuan akuntansi
pengakuan pendapatan piutang dan pendapatan lain-lain. Sebab, AP ini sudah mengakui
pendapatan piutang meski secara nominal belum diterima oleh perusahaan. Kedua, akuntan publik
belum sepenuhnya mendapatkan bukti audit yang cukup untuk menilai perlakuan akuntansi sesuai
dengan substansi perjanjian transaksi tersebut. Ini disebutnya melanggar SA 500.
 Study Case in Indonesia - 2
• Kemenkeu menjatuhkan dua sanksi kepada Akuntan Publik (AP) Kasner
Sirumapea dan Kantor Akuntan Publik (KAP) Tanubrata, Sutanto, Fahmi,
Bambang Rekan terkait dengan polemik laporan keuangan PT Garuda Indonesia
(Persero) Tbk untuk tahun buku 2018.
• Maskapai Garuda Indonesia Group memutus kontrak dengan Mahata Aero
Teknologi untuk penyediaan hiburan dalam penerbangan (inflight entertainment)
senilai USD 239 juta atau Rp2,98 triliun dalam kurun waktu 15 tahun
 Study Case in Indonesia - 3
• Otoritas Jasa Keuangan (OJK) mengenakan sanksi kepada kantor akuntan publik
partner dari Ernst and Young (EY) karena dinilai tak teliti dalam penyajian laporan
keuangan PT Hanson International Tbk (MYRX). Atas kesalahan ini OJK memberikan
sanksi membekukan Surat Tanda Terdaftar (STTD) selama satu tahun.
• Deputi Komisioner Pengawas Pasar Modal I Djustini Septiana dalam suratnya
mengatakan Sherly Jokom dari Kantor Akuntan Publik (KAP) Purwantono, Sungkoro dan
Surja terbukti melanggar udang-undang pasar modal dan kode etik profesi akuntan
publik dari Institut Akuntan Publik Indonesia (IAPI).
 Study Case in Indonesia - 3
• Kesalahan yang dilakukan perusahaan adalah tak profesional dalam pelaksanaan prosedur

audit terkait apakah laporan keuangan tahunan perusahaan milik Benny Tjokro mengandung

kesalahan material yang memerlukan perubahan atau tidak atas fakta yang diketahui oleh

auditor setelah laporan keuangan diterbitkan. Kesalahan yang dimaksud OJK adalah adanya

kesalahan penyajian (overstatement) dengan nilai mencapai Rp 613 miliar karena adanya

pengakuan pendapatan dengan metode akrual penuh (full acrual method) atas transaksi

dengan nilai gross Rp 732 miliar.

• Selain itu, dalam laporan keuangan tersebut juga tak mengungkapkan adanya Perjanjian

Pengikatan Jual Beli (PPJB) atas kavling siap bangun (KASIBA) tertanggal 14 Juli 2019 yang

dilakukan oleh Hanson International sebagai penjual.

 Study Case in Indonesia - 4
• PT Sunprima Nusantara Pembiayaan (SNP Finance) ditetapkan sebagai tersangka
kasus pembobolan kredit 14 bank dengan nilai kerugian mencapai Rp 14 triliun.

• Temuan OJK, SNP memberikan informasi yang tidak benar sehingga merugikan
kreditor. "Setelah diperiksa laporan keuangannya, ternyata hasilnya tidak seindah
aslinya," kata Deputi Komisioner Pengawas IKNB II Mochammad Ihsanudin. OJK
lantas membekukan operasional SNP Finance sejak 14 Mei 2018.
 Study Case in Indonesia - 4
• Manajemen SNP Finance melakukan pemalsuan data dan manipulasi laporan keuangan. Manajemen SNP

Finance membuat piutang fiktif melalui penjualan fiktif. Piutang itulah yang dijaminkan kepada para

krediturnya, sebagai alasan bahwa nanti ketika piutang tersebut ditagih uangnya akan digunakan untuk

membayar utang kepada kreditor. Untuk mendukung aksinya tersebut, SNP Finance memberikan dokumen

fiktif yang berisi data customer Columbia.

• Kasus ini juga menyeret akuntan publik yang mengaudit SNP. Sebab, problem dalam laporan keuangan SNP

seharusnya ditemukan dalam proses audit oleh akuntan publik. Menteri Keuangan Sri Mulyani sudah

menjatuhkan sanksi administratif kepada kantor akuntan publik yang diketahui melakukan audit atas laporan

keuangan SNP tahun buku 2012 hingga 2016.

• Mereka adalah Akuntan Publik Marlinna, Akuntan Publik Merliyana Syamsul, dan Kantor Akuntan Publik (KAP)

Satrio Bing, Eny & Rekan (Deloitte Indonesia). Sanksi administrasi diberikan setelah Pusat Pembinaan Profesi

Penunjang Keuangan (PPPPK) Kementerian Keuangan memperoleh laporan pengaduan dari OJK.
 Study Case in Australia - 1
• Harris Scarfe audit scandals

• A major audit issue arising in this case was related to the lack of independence of auditors. The
auditing committee of the company comprised of a majority of senior management of the
company making the committee incapable of taking independent decisions. The composition of
the audit committee at Harris Scarfe was made up of a majority of non-independent directors.

• In the case of Harris Scarfe, the records were presented in a fraudulent manner to create a
wrong expression to all stakeholders. The information given was false and misleading acting as
an offence

• There was a continuous disclosure obligation as the false entries made and approved by the
auditors’ results in lifting the apparent level of profits in the consolidated accounts of the
company thereby affecting the figures of profits in the monthly financial reports presented to the
board
 Study Case in Australia - 1
• In the year 1998, PricewaterhouseCoopers tool the position and replaced Ernst & Young as the auditors of
Harris Scarfe. Later in the year 2000, it was reported that PricewaterCoopers received $120,000 for the audit
activities at the company and $211,284 for the non-audit work

• These amounts remained unexplained in the financial statements and considered under “other services” raising
questions about the ethical duty of auditors in providing only auditing services that are in best interest of
shareholders. They should not perform any kind of non-audit services for the client

• Had the auditors performance in a responsible manner while being careful in displaying only ordinary
competence, there were high possibility that the fraud would have been timely identified and disclosed to the
board of directors of the Company thereby avoiding the damages faced by stakeholders due to inflation of the
asset value and showing a reducing in expenses thereby lifting up the profits of the group by millions of dollars
every year.
 Study Case in Australia - 2
• Dick smith holdings was an Australian retail store that deals in the business of selling consumer components

relating to electronic and electronic project kits. The company started its business in 1968, Sydney by Dick

Smith and it later sold more than half of the shares (60%) to Woolworths in 1980 and hold (40%) of the shares

and later on 2016 they ceased the operation of the business. The company was suspended for trading in the

Australian stock market by the Australian securities exchange on sixth of January 2016.

• The management of the company give more focus to earn more profit by adopting unfair means. The

management fails to maintain all the compliances that are required to list the company in the securities market.

The decision of the management to list the shares in the market is to raise fund from the market and invest in

the business. The company started to buy more inventory without making proper research of the market

demand. This leads to the situation that most of the inventories of the company become obsolete and the

organisation fails to realise the minimum amount to cover the loss that they have incur due to over buying of

inferior products.
 Study Case in Australia - 2
• Due to the mismanagement of the inventory, the company have to face the problems like
high debt, high volume of inventory, failure to utilise the surplus earnings and unable to
generate sufficient sales margin to sustain in the competitive market of electronic sector.

• The company’s inability to get conducive credit terms affected on the process of operation
and storing of the obsolete items. The level of obsolete items increased day by day, which
forced the company to sale goods at lower or at no profit margins. Due to the declining sales
figures, the company failed to get credit from the suppliers and the banks also refused to give
them any fresh loan
 Study Case in Australia - 2
• The unreliable accounting policy that has been adopted by dick smith has led to the downfall of
the company. The management of Dick Smith started to manipulate the sales figure and the
inventory position. To get loan from the market the company started to over value the
inventories and confused the lenders about the real position of the business
• Deloitte, the auditor of dick smith, has also stated that the adoption of the real activity
management system of recording the transactions has led to the failure of the company.
Deloitte in its report stated that dick smith intentional overvalued their inventory and inflated
the sales figures by recording the discounts availed from the suppliers as actual sales
 Study Case in Australia - 2
• The company’s auditors, Deloitte questioned these rebates as far back as September
2015, and by October Dick Smith needed to write down inventory by $60 million because
they carried too much in obsolete stock. Their share price was always going to suffer from
this, which made it even more likely that Dick Smith would breach their debt covenants
with the banks.
• While Deloitte realised that inventory was over-valued, how did they (and Dick Smith
directors) justify their decision to value the company as a “going concern”?
 Study Case in Australia - 3
• One.Tel’s provide creative accounting practices, which allowed the company to turn a $7 million
loss into a $25 million profit in 1999 and to conceal expenses of at least $173 million up to April
2000.
• The $14.2 million bonuses paid to Jodee Rich and Brad Keeling between July 1999 and February
2000 were not debited to the profit-and-loss account at the time they were paid. Instead, they were
treated as assets of the company - like property and equipment - so the cost could be spread. This
device boosted One.Tel's profit in 1999 by $3 million and reduced the company's loss for the first
half of 2000 by about $8 million.
• Deferring the expense gave One.Tel an excuse for not disclosing the bonuses to shareholders until
15 months after the first tranche was paid.
 Study Case in Australia - 3
• One.Tel's auditor, Steven La Greca, of BDO Nelson Parkhill, also thought it was a bit of a
stretch, but gave it the thumbs up all the same. But by the end of December 1999 he was
raising doubts in writing.

• He and BDO were ultimately reprimanded and fined $10,000 each by the Institute of
Chartered Accountants of Australia.
Study Case in Singapura - 1
• KPMG has audited Hyflux since 2008. Hyflux slipped into the red for the first time in
2017 since it was listed in 2001. Two months later, it filed for bankruptcy protection.
• Interestingly, Hyflux recorded the S$500 million perpetual securities it issued as
equity instead of debt in its books, which could have given auditors an impression of
recovery as it possibly improved the organisation’s debt-to-equity ratios. It is curious
that KPMG did not seem to investigate this more deeply, especially since Hyflux had
been generating negative cashflow for consecutive years. Ordinary shareholders
and creditors could have chosen to get out of Hyflux earlier if the audit firm had
given an adverse opinion.
Study Case in Singapura - 1
• Anger against Hyflux has been mounting, especially after the Salim-Medco rescue
deal fell through with no assurances of another such deal. The Indonesian
consortium was touted to be a “white knight” and the only hope for the retail
investors of Hyflux who have been left high and dry.
• About 34,000 perpetual securities and preference shareholders who invested in
Hyflux are owed a total of S$900 million, but only stand to receive a recovery rate of
10.7 per cent comprising of 3 per cent in cash and 7 per cent in equity.
Study Case in Singapura - 2
• Collapsed oil trader Hin Leong Trading, which owes creditors more than US$3.5 billion (S$4.6

billion), is suing Deloitte & Touche, alleging the auditing firm failed to detect "serious

irregularities" in its financial statements for more than a decade.

• Deloitte audited the books of Hin Leong Trading for at least 16 years before the firm collapsed

last year when founding tycoon Lim Oon Kuin admitted trading losses of US$808 million were

not reflected in the firm's financial statements, according to a court filing.

• "Deloitte failed to detect the irregularities and the material misstatements" in Hin Leong's

financial affairs, a March 5 lawsuit filed with the High Court of Singapore alleges. "Deloitte

acted in breach of the terms of its engagement with the plaintiff."

Study Case in Singapura - 2
• According to the suit, Deloitte audited and issued "unqualified opinions" for Hin Leong's financial statements

for each of the fiscal years from 2014 through 2019. The firm had in fact been insolvent since at least 2012,

and the assets were overstated, the suit claims.

• "The material misstatements in the plaintiff's audited financial statements led to various banks and financial

institutions being grossly misled as to the financial health and state of affairs," Hin Leong claimed in the suit.

"Deloitte knew or ought to have known that these banks and financial institutions were intended users of the

plaintiff's audited financial statements and would have relied on the same to extend financing.“

• "Had Deloitte carried out the audits of the plaintiff's financial statements properly, Deloitte would have

detected the material misstatements," and would not have issued unqualified audit opinions, the lawsuit

alleges. As a result, "the fraudulent trading and unlawful actions by the directors and former managing

director" of Hin Leong would have been discovered much earlier.

 Study Case in Singapura - 3
• Noble Group Ltd. — a commodities trading company from Singapore founded back in 1984. At its peak in 2011, it was

valued at USD 14bn. However in 2015, it was accused by independent research platform Iceberg of using accounting

loopholes similar to those at Enron.

• What did they do?

• If you are a so-called parent company — you likely have some subsidiaries in your books. These subsidiaries can be

either qualified as an entity with majority stake and control (100% — 50% ownership), an Associate with significant

control (50–20%) or as a long-term investment (20% — 0%).

• For instance, Noble Group held a 13% stake in a listed Australian coal miner named Yancoal. It classified the company

as an “Associate” on its balance sheet despite failing to meet the 20% ownership threshold. Noble Group defended

itself by stating it has significant influence over its subsidiary and can therefore lawfully denote the investment as such.

However, with 77% of the remaining Yancoal stocks in the hands of Chinese state-owned company Yankuang with no

clear management or supply chain connections — this becomes a rather questionable assumption.
 Study Case in Singapura - 3
• As such, Noble Group falsely treated the value of Yancoal under a self-estimated cost-basis rather than the

fair market value.

• In Noble Group’s books, the self-estimated carrying value of Yancoal was $614m 2014 at a lousy 38x

earnings multiple. The 13% stake in ASX-listed Yancoal had a market value of only $11m. This meant that the

carrying value is 55x the market cap of the 13% stake Yancoal, and 7x more than the total market cap of

Yancoal.

• What about the Auditors? Did Ernst and Young allow this?

• “At initial recognition, the investment in Yancoal was measured at fair value estimated based on a discounted

cash flow model. Determining the value for this investment required the Group to make certain estimates and

assumptions on expected sales and production volume, future sale prices, expected future costs and

expenses. Actual outcomes could differ from these estimates and assumptions.”
 Study Case in Singapura - 3
• What about the Auditors? Did Ernst and Young allow this?
• In the 2013 annual report, EY wrote that there was a $577m “accounting
adjustment” between the carrying value and “the group’s share of net assets of the
associate.”
• There was indeed more to be seen. Iceberg found USD 212m of mistreated
operational improvements in Noble’s subsidiary Agri with key drivers being an
unexplained increase in deferred tax assets, an unexplained decrease in
depreciation, holding subsidised selling, administrative and operating expenses
(“SAO”) and a questionable decrease in financing costs.
 Study case in Indonesia, Australia and Singapura

SA 500 audit evidence – ISA Based Audit

Any Question?