Compliance with tax and investment administration in Indonesia requires compliance with the preparation of financial statements according to the Financial Accounting Standards applicable in Indonesia. Currently there are 4 (four) Accounting Standards that are applicable in Indonesia:
- Financial Accounting Standards (SAK)
- Financial Accounting Standards for Entities Without Public Accountability (SAK ETAP)
- Financial Accounting Standards for Small and Medium-Sized Entities (SAK EMKM)
- Sharia Financial Accounting Standards (SAK Syariah)
For multinational companies and foreign direct investment, the commonly used accounting standard is the number 1 (one) mentioned above.
Businesses run by both individuals and corporations are related to the recording of their business transactions or their financial transactions. The recording of those transactions are often referred to as accounting. Accounting is the process of systematically recording a chronology of events in which the events affect the assets, debts, and capital of the business owner.
The purpose of accounting records is to provide financial information that contains financial position and business results in a reasonable manner in accordance with the Financial Accounting Standards (SAK), issued by the Indonesian Association of Accountants (IAI), which is the result of the adoption of the International Financial Reporting Standard (IFRS).
In accordance with IFRS 1 on the presentation of financial statements, the comprehensive financial report consists of: a report on the financial position at the end of a period; a report of other comprehensive profits and earnings in the course of the period; a report on changes in equity over the period; a report about cash flows over time; a record of the financial report containing significant accounting policies and other explanatory information; comparative information about the most recent previous periods; and a financial position report at the beginning of the nearest previous period, when there is an accounting policy applied retrospectively. Upon the presentation of such financial statements, the management of the company is responsible for the preparation and presentation of financial reports.
A company typically presents its financial statements for the period of 1 January to 31 December of a calendar year as a financial year, or at least annually. For tax purposes, generally, the tax year corresponds to the calendar year. However, it does not exclude the possibility that the Company has a different book year or does not start on January 1.
In accordance with the provisions of the Regulation, the financial statements presented contain at least the comparison period, i.e., the previous period. The aim is for the reader to be able to compare the performance or financial position between the previous period and the current period.
Financial statements provide information on the economic resources a company must have in its composition. The information presented in the financial statements must be relevant and represent exactly what it will represent. The usefulness of financial information can be improved if it can be compared, verified, presented in a timely manner, and understood.
An audit can be said to be a comparison between the conditions and criteria audited as well as the activities that should have taken place. An audit is a critical and systematic review by an independent party of the financial statements prepared by the management, together with the accounting records and supporting evidence, with the aim of giving an opinion on whether the financial statement has been presented reasonably according to the financial accounting standards applicable in a particular country or region.
According to Audit Standard (SA) 200, the purpose of an audit is to increase the level of confidence of users in the financial statements for which it is intended. This is achieved by stating an opinion by the auditor as to whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Auditors conducting audits must be guided by relevant codes of ethics and SA in carrying out procedures and formulating audit opinions.
The audited financial statements are owned by the company and are compiled by the management under the supervision of the parties responsible for management. Thus, the financial statements are the responsibility of the management, and the auditor is only responsible for the opinions given on the obligations of the financial report.
In carrying out the audit process of the financial statements, the auditor uses the concepts of materiality in the planning and execution of the audit as well as in the assessment of the impact of errors in presentation in the audit and errors of presentation not corrected, if any, identified on the financial statement. Thus, materiality is the threshold of whether the presentation errors in the financial statements, either individually or collectively, are reasonably expected to affect the decision of the targeted user made on the basis of the financial statement.
The consideration of materiality is made taking into account the condition of the company, the accountant’s consideration of the need for financial information, as well as the extent or nature of a presentation error. Since the auditor’s opinion relates to the financial statements as a whole, the auditor is not responsible for detecting non-substantial errors in the presentation of the financial statements as a whole.
Audit evidence is required to support the opinion and audit report. Audit evidence is cumulative and is obtained from audit procedures carried out during the audit. The sufficiency and accuracy of audit evidence are interrelated. Sufficiency is the measurement of the amount of audit evidence. The amount of audit evidence required is influenced by the auditor’s consideration of the risk of misrepresentation and the quality of such audit evidence. The higher the risk assessed, the more audit evidence is needed.
Moreover, the higher the quality of audit evidence, the less audit evidence is needed. Accuracy is a measure of the quality of audit evidence, i.e., its relevance and reliability in support of the conclusions underlying the audit opinion. The reliability of audit evidence is influenced by its source and nature and depends on the conditions at the time it was obtained.
One of the most important stages in obtaining sufficient and relevant audit evidence is the planning stage. Planning an audit involves establishing an overall audit strategy for the alliance and developing an audit plan. According to SA 300 on Planning an Audit of Financial Statements, the nature and scope of the planning activities will vary according to the size and complexity of the Company’s business as well as changes in the conditions that occur during the audit agreement.
For example, the audit planning that the auditor can carry out to identify and assess the risk of material misrepresentation is the analytical procedure applied as a risk assessment procedure, the acquisition of a general understanding of the regulatory framework of applicable legislation, the determination of materiality, the involvement of experts if necessary, and the implementation of other risk evaluation procedures.
Once the process of collecting audit evidence has been assessed to be sufficient, the auditor should give an opinion on the obligations on the financial statements. In order to formulate an audit opinion, the auditor must conclude whether the auditor has acquired sufficient confidence as to whether the financial statements as a whole are free from material presentation errors, whether caused by fraud or errors.
There are four types of audit opinions on financial statements: unqualified opinion, qualified opinion, adverse opinion, and disclaimer opinion. Financial statements shall be given an unqualified opinion when they are presented in accordance with applicable accounting standards. Financial statements are given a qualified opinion when they contain material misstatements that may affect decision-making.
An adverse opinion is given if the overall financial statements are not presented in accordance with applicable accounting standards. The last option of the auditor is to give a disclaimer opinion when there is a limitation of the scope of the audit by the management of the company, which implies that the auditor cannot ensure the reliability of the financial statements.
Based on the above description, it can be concluded that accounting is closely related to the audit process. Financial statements, which are the final product of accounting, are needed as information to evaluate the performance of the company and as a means of decision-making related to the strategy and survival of the firm.
Audit is one of the tools for management that is used to verify evidence of financial transactions. Audit is closely related to accounting, but audit is not part of accounting. The ultimate purpose of accounting is to generate relevant and reliable information that can be used for decision-making. The purpose of the audit is not to generate new information but to verify the accuracy of the information generated in the financial statements.
