Kelompok 2 Audit

Ziola Ayunda Helena Meita Gunawan

Ramayanti Ekasari Ika Prihadiyan
Made Tjanmesya Rifki Ananda
Benny Partogi
 Question 1
What is auditor independence and what is its
significance to the audit profession?
What is the difference between independence
in appearance and independence in fact?
The second general standard of generally accepted auditing standards (GAAS) is, “In all
matters relating to the assignment, an independence in mental attitude is to be maintained
by the auditor or auditors.”
If the auditor is not independent, the financial statements are considered unaudited for all
practical purposes. In case where the SEC has found that a CPA firm was not independent, it
has required that the financial statements be re-audited by another firm.
A lack of independence can result in disciplinary action by regulators and/or professional
organizations and litigation by those who relied on the financial statements (e.g., clients and
investors).
The profession, as a whole, depends on the value of independence in that the auditor’s
opinion on the financial statements loses its value if the auditor is not considered to be
substantially independent from the management of the firm.
 Question 2
Consider that both KRC and FOF, including its
NRFA, were audited by Arthur Andersen. In
addition, Arthur Andersen audited King’s
personal accounts.
Do you believe these relationships impair the
independence of Arthur Andersen?
Why or why not?
While it may be possible for the Arthur Andersen auditors to remain objective and
unbiased (unless the auditor was auditing his/her own work), the
interrelationships among the entities would make it very difficult to do so.
Indeed, while the AICPA Code of Professional Conduct does not specifically
preclude auditors from performing audit services for clients that are interrelated,
it is absolutely essential that auditors perform all of their duties in an objective,
unbiased manner.
In this case, the public may perceive the interdependency of KRC and FOF (since
essentially NRFA’s financial statements rely upon information generated from
KRC) as a violation of independence in appearance.
This is particularly true since the partner and manager assigned to the KRC audit
also had the same responsibilities on the NRFA audit.
The bottom line is that students need to consider whether the interrelationship
would possibly impair the professional judgments of the partner and/or manager.
 Question 3
Would your answer be any different if the fact
pattern changed so that different partners were
assigned to both the KRC audit and the NRFA audit?
Please assume that both audit teams were
completely different.
Why or why not would your answer be different?
The answer might be different.
As stated previously, the relationships do not explicitly violate independence in fact
(unless the auditor was auditing his/her own work). However, there is still a question
as to whether independence in appearance has been violated.
The fact that there would now be completely different audit teams does help to
mitigate the possible independence in appearance concern. However, the
dependency of NRFA’s financial statements on the information presented by KRC still
poses a potential issue of concern.
It is certainly possible that the investing public would still believe that this
interdependency might impair Arthur Andersen’s ability to be objective and unbiased
in performing its duties.
The bottom line, again, is that students must consider whether the interdependency
would impair the professional judgments of the auditors.
 Question 4
Consult Paragraphs #32–35 of PCAOB Auditing
Standard No. 2.
Based on the case information, do you believe
that Arthur Andersen violated any of the four
basic principles of auditor independence
described?
Why or why not?
Yes , based on Paragraph # 32–35 of PCAOB Audit Standard No. 2 that:
Require management to make a statement explaining and evaluating the SPI of
the Company.
Current public company annual reports must include:
1. Statement that management is responsible for internal control over
financial reporting
2. A statement that identifies the framework used by management to evaluate
internal controls
3. Assessment of internal control and disclosure of material deficiencies
4. A statement that KAP has issued an attestation report on management's
assessment of internal control
 Question 5
Refer to Sections 201, 203, and 206 of SOX.
Based on your understanding of the FOF audit,
do you believe these sections were needed?
Why or why not?
Be specific
Section 201 says that “it shall be unlawful for a registered public accounting firm
to provide any non-audit service to an issuer contemporaneously with the audit,
including: (1) bookkeeping or other services related to the accounting records or
financial statements of the audit client; (2) financial information systems design
and implementation; (3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports; (4) actuarial services; (5) internal audit outsourcing
services; (6) management functions or human resources; (7) broker or dealer,
investment adviser, or investment banking services; (8) legal services and expert
services unrelated to the audit; (9) any other service that the Board determines,
by regulation, is impermissible.”