FM-BINUS-AA-FPU-78/V2R0

Requirement:
1. Present your answer and analysis in MS Word or PDF.
2. Please list all the sources and secondary materials that you use in the reference list.
No plagiarism.
3. No cheating between classmates or other students. Do it yourself and be ethical.

1. You are conducting an audit on your client's revenue cycle for the 2021 financial year. Your
client is a medical device distributor company. The following is what you may encounter
during the audit: (20%)
a. There are sales in large numbers from clients to customers. The sale was shipped on 27
December 2021 and only arrived at the customer's warehouse on 3 January 2022. The
client records the sale as a sale in 2021.
Question:
What audit evidence do you need to ensure cut off transactions are posted in the correct
period?
Answer:
The audit evidence to ensure cut off transactions are invoices, sales records after the
balance sheet date, accounts receivable records after the balance sheet date, funds
transfer records after the balance sheet date, cut-off documents.

b. The number of customer clients based on the customer database and accounts
receivable subsidiary ledger is not much, approximately 100 customers, consisting of
hospitals, clinics and pharmacies.
Question:
If you want to confirm an account receivable, will you use positive or negative
confirmation? Explain the reason
Answer:
I will use positive confirmation because The number of customer clients is not to much.
Another reason is more reliable evidence because the auditor can take follow-up actions
if a response is not received from the debitor.

c. One of the policies of the client is that they sell to customers on credit by providing a
payment period of 30 days. If the customer pays on time, a 3% discount is given.
Clients receive payments from customers in the form of cash payments to cashiers or
collectors, transfers to the client's company bank account, and payments via checks, and
post-dated checks. Based on this policy you perform a risk assessment.
Question:
Explain the risk of fraud or misstatement that can arise!
Answer:
The risk of fraud or misstatement that may arise is credit risk. Because credit risk is a risk that
arises because the debtor does not pay all or part of the receivables or does not pay on time and
will cause the Company's losses. The Company's credit risk is primarily attached to the
collection of sales. This can be pursued by the Company through controlling credit risk exposure
by establishing a policy whereby approval or rejection of sales contracts and compliance with
these policies are monitored by the board of directors.

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d. One of the client's customers that you confirmed did not respond. However, after
checking the subsequent payments, it was found that the accounts receivable from the
customer who did not respond had been paid in mid-January 2022. Your colleague also
turned out to have vouched for the documents and journals related to the subsequent
payment.
Question:
Do you still need other audit procedures to get confirmation from the client's customer
who did not respond? Explain why!
Answer:
If the confirmation letter is not returned according to the schedule, an alternative
procedure can be carried out, namely a follow-up to positive confirmations that are not
returned by the debtor. An alternative procedure can be carried out by examining
evidence of payment of receivables by the debtor concerned after the balance sheet
date.

2. You are an auditor working in a public accounting firm, you are assigned by a partner to
handle a transportation service company client for the financial year 31 December 2021. The
following is what you encounter in auditing the client: (20%)
a. The company reported a gain on sale of non-current assets of Rp 1 billion. Derived
from the sale of 10 units of operational cars in August 2021 for 10 cars purchased in
May 2017. The client estimates the economic life of 4 years and is depreciated using the
straight-line method, with no salvage value. The purchase price of the cars is IDR 200
million each, and the selling price is IDR 100 million each.
Question:
Would you consider this a fair or a misstatement finding? Explain your answer
Answer:
This is not a misstatement finding, because the car is sold when its useful life has expired.

b. In 2021 there will be additions in the form of a new building used as an office and
garage by the company. The value is material enough to make the ending balance of
non-current assets much larger than the previous year.
Question:
What audit procedures will you carry out, and what audit evidence is needed to ensure
that the new building does exist, and does belong to the company?
Answer:
The audit procedures substative test that will use to ensure the new building:
- Initial procedure
Aims to gain an understanding of the company's business and industry. In this
process, the auditor traces the opening balance of property, plant and equipment and
accumulated depreciation to the previous year's working papers. Do a review
activities in the fixed asset ledger accounts and fixed asset depreciation expense and
investigate journal entries. In addition, the auditor gets a schedule client-prepared
additions, withdrawals, and depreciation charges for fixed assets.
- Analytical procedures
In this test, the auditor calculates the ratios to test that the financial information to
be audited is consistent with expectations auditors.
- Testing transaction details
In this test there are three types related to fixed assets, namely: vouching for the
addition of fixed assets, vouching for the disposal of fixed assets, and review the
journal entries to repair and maintenance expenses.
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- Test of details of balance
In this test, there are two tests carried out by the auditor, namely: inspect property
and equipment and examine documents and contract rights ownership.
- Presentation and disclosure of fixed assets
In this test, we compare the presentation of the report with the standard applicable
accounting. Determine whether fixed assets and expenses, gains, and related losses
have been classified and identified with right in the financial statements.

The audit evidence including this substantive test are physical documents for the
addition of fixed assets, depreciation documents, proof of ownership of fixed assets,
land certificates, buildings, maintenance documents and issuance of fixed assets.

c. As in previous years, there were repairs to operational car vehicles. However, this year
some repair costs were not recognized as an expense in the income statement, but were
capitalized by the client. Client said that the improvements were major, and extended
the economic life.
Question:
Is the capitalization allowed? What audit evidence do you need to examine the
transaction?
Answer:
Capitalization as mentioned in the above case is allowed if the repair costs incurred the
company needs a determination capitalization policy so that expenses that add value the
benefit of the vehicle's fixed assets is more than one period can be capitalized
accordingly with the provisions contained in PSAK Number 16.
The audit evidences to exmine the transaction are maintenance invoices, vehicle
depreciation documents.

d. There is a former office building of one of the branch offices which has stopped
operating since last year. Since not in use, the building is left unattended and neglected.
Upon inspection it was found that the building had been badly damaged. The client only
calculates ordinary depreciation as in previous years, namely using the straight-line
method with an economic useful life of 20 years.
Question:
What accounting treatment should the client take regarding the recording of the badly
damaged building?
Answer:
Losses for severe damage are included in the category of extraordinary items (extra
ordinary items). In the notes to the financial statements, sufficient explanation must be
given to the cause of the occurrence of extraordinary items.
So, for company owners and company stakeholders to be able to understand fixed assets
in their business, so they can further develop the company and make appropriate
decisions.
To help the company, the company can also work with professionals who can analyze
and read the company's financial statements and can provide education to business
owners, to read the financial statements. By working with professionals, of course the
owner of the company will be helped and not go the wrong way in making company
decisions.

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3. Related to auditing liability and equity. Consider the following excerpt from the financial
statements of a public company:

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Question:

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a. From the aspect of liabilities and equity, do you think the company's finances are in
good health? When calculating the ratio, what ratio do you use to assess the health of
the company from the aspect of liabilities and equity? (10%)
Answer:
I thinks the company’s finances in good health condition.
To assess the health of company from the aspect of liabilities and equity, I am using
debt to equity ratio.
Debt to Equity Ratio = Total Debt : Equity
Year 2021 = 4.266.438.743.626 : 1.765.507.990.044 = 2,42
Year 2020 = 3.731.575.182.568 : 1.439.319.915.699 = 2,59

b. Bank loans has a material value. What audit procedures will you perform to ensure that
short-term and long-term bank loans are properly classified by the client? (10%)
Answer :
The audit procedures that using to ensure the short term and long term bank loans is test
of detail. The test of details can be applied:
- To know that shorterm and longterm bank loans are properlu classified by the cliet,
the auditors can maintain direct confirmation from borrower.
- The auditor can understanding of the business purpose of the loans made by the
president.
- The auditor can confirm the loans, including terms by direct communication or
confirmation.
- The auditor can verifying interest expense.
- The auditor can read the financial statements, including notes and loan agreements.
- The auditor can evaluating the adequacy of disclosure and compliance with
restrictions.

c. Interest expenses on bank loans has a material value. What audit procedures do you
perform to ensure that the client reports interest expense correctly? (10%)
Answer :
The audit procedure that using to ensure the reports of interest expense is test of detail.
The test of details can be applied :
- Recalculate amount of the current loan basen on the term and amount of interest
rate in appropriate.
- Ensure that interest is paid promptly and in accordance with the terms of the loan.

4. Below here is independent auditors’ report.

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 FM-BINUS-AA-FPU-78/V2R0

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 FM-BINUS-AA-FPU-78/V2R0

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Question:
a. Is this independent auditor's report included in the standard or modified type? Explain
your answer! (10%)
Answer:
Yes, this is include auditor’s report in the modified type. Because auditors when there is
great doubt regarding the entity's ability to maintain the going concern of company. The
auditor indicates the company has going concern problems include:
- the group incurred capital deficiency
- the group has postponed the payment of certain loan principal or interest at maturity
because currently, the group is in restructuring process of its loan.

b. What is the function of scope paragraph? (5%)

Answer :
The functions of scope paragraph in auditor’s report are:
- To inform that the financial statement users that the audit conducted in accordance with
generally accepted auditing standards established by the Indonesian Institute of Certified
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Public Accountant.
- To inform that the financial statement users in general terms what those standars mean.
- To inform the audit provides a reasonable basis for an opinion.

c. What kind the audit opinion given by the auditor? (5%)

Answer :
The audit opinion in this financial statement was present fairly, in all material respect.

d. What is auditor's reason to include an emphasis of matter in the report? (10%)

Answer:
The auditor’s reason to include an emphasis of matter in the report because the auditor can
describe that the financial statement at December 31, 2019 the group incurred capital deficiency
and the consolidated total current liabilities of the group exceeded its consolidated total assets.
Furthermore, the group has postponed the payment of certain loan principal or interest at
maturity because currently, the group is in restructuring process of its loan. So, this conditions
raise significant doubt about the group’s ability to continue going concern.

◆:"- GOOD LUCK -◆:"

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