Public Sector audits

PUBLIC SECTOR ACCOUNTING

Written by:
LUTHFA ZAHRO (17312090)
SORAYA LAILI JABIN (17312108)

ACCOUNTING DEPARTMENT
INTERNATIONAL PROGRAM
FACULTY OF ECONOMICS
UNIVERSITAS ISLAM INDONESIA
2019
 Audit is a means to reduce the gap between Principals and Agents, so various theories
and Research Results mention the importance of Audit. Principal and Agent Languages are
most often talked about in the private business world, in essence there are differences in
interests between the Capital Owners (principals) and company managers (agents). With an
audit, all agent activities can be monitored by the capital owner.

What about the government sector, public sector, which acts as the principal? Which
also acts as an agent? Of course it cannot be equated copas (copy paste), but in practice the
agents are the government or executive institutions and the principal is the community. During
this time the public does not know exactly how much state money is received and how much
state money is spent, the way to monitor it is by auditing.

Definition of Public Sector audits

public sector audit is an audit conducted on the government both local and central
government as well as BUMN, and other BUMDs whose entire source of funding comes from
public taxes. This public sector audit is carried out to check the truth of reporting made in real
conditions whether a government agency has carried out its duties responsibly and in
accordance with established standards.

The definition of public sector audit according to Indra Bastian is as follows:

"Public sector auditing is an investigation service for the public of the public organizations and
politicians they have funded." (2007: 255)

While the notion of public sector audit according to I Gusti Agung Rai is as follows:
"Public sector audit is an activity aimed at entities that provide services and supply of goods
whose financing comes from tax revenues and other state revenues with the aim of comparing
the conditions found with established criteria." (2008: 29)

Public sector audits in Indonesia are known as state financial audits. This state financial
audit is regulated in Law No. 15 of 2004 concerning the Examination of Management and
Responsibility of State Finances. This law is a substitute for the provisions of the Dutch
heritage, namely Indische Comptabiliteitswet (ICW) and Instructie en verdere bepalingen voor
de Algemene Rekenkamer (IAR), which regulates audit procedures for accountability in
financial management by the government. Public sector audits are intended to provide
reasonable assurance that the audited financial statements have complied with generally
accepted accounting principles, legislation and internal control and the operations of public
sector entities are carried out efficiently, economically and effectively. In the existing
limitations, audits still need to be carried out in order to create more transparent and
accountable public accountability.

The role of public sector auditing

Public sector auditing has an important and strategic role in the realization of good
governance. Through auditing the public sector measures can be detected and prevented of
various practices of corruption, misappropriation, waste, and mistakes in the management of
public resources as well as saving state assets. Without an independent, clean, competent,
professional, and authoritative public sector audit institution, it will be damaged and fragile by
the government order. As a result, koru psi will be rampant, systemic, chronic, and entrenched.

Public sector auditing is one of the important pillars in realizing good governance. But
auditing the public sector alone is not enough because managing auditors has limited authority.
The auditor's authority is limited to conducting audits, providing opinions and conveying audit
findings in the audit report. The auditor cannot conduct an investigation, investigation and
prosecution of audit findings that indicate the occurrence of state financial losses and the
commission of criminal acts of corruption. Therefore, public sector auditing must be supported
by other law enforcement agencies such as the attorney general's office, the police and the
judiciary. Public sector auditors also do not have the authority to oversee planning because the
audit is conducted at the final stage after a program, activity, and budget is carried out and
reported. In this regard, public sector auditors must be supported by the legislative body (DPR
/ DPRD) which is authorized to carry out the oversight function of the executive from the
planning, implementation, and accountability stages. Thus to realize good governance, all state
institutions, be it executive, legislative, judicial, law enforcement, and auditors must be clean,
competent, and professional. Public sector auditing will be effective if there is good law
enforcement in the country. Conversely, if law enforcement is weak, there are still legal mafias
and other evil mafias whose public sector auditing roles cannot be optimal.
 In relation to the community, public sector auditing plays the role of attest function
holder in the form of providing auditor opinion. The function of attest is to provide an adequate
guarantee to express an opinion on the financial statements presented by management. Thus
auditing of the public sector is basically based on representing and protecting the interests of
the people and other stakeholders from obtaining false and misleading financial information.

Institutional auditing of the public sector

Professional auditors are needed in various aspects related to audits, both financial
audits and performance and compliance audits. Moreover, until now, with the application of
the principles of Good Governance, oversight of the management of state finances has
narrowed the scope for opportunities to engage in collusion and other unlawful practices.
Auditors who work for the benefit of the owner, who is tasked with conducting an audit of the
accountability report of the management of the organization, are usually appointed from an
independent institution, called an external auditor. Whereas auditors who are employed by and
for the benefit of management, because of their position are under the control of management
who assigns them, they are called internal auditors (STAN, 2007).

Institutions tasked with conducting audits in public sector organizations in Indonesia

can be categorized as follows Internal Audit, consisting of
 Financial and Development Supervisory Agency (BPKP)
 Inspectorate General (Inspector General) in departments or ministries and state
institutions
 Provincial / Regency / City Inspectorate (Regional Supervisory Agency)
 Internal Oversight Unit at BUMN / BHMN / BUMD

External audits consist of:

• The Indonesian financial inspection body (BPK)

• Independent external auditors working for and on behalf of BPK

Characteristics of Public Sector Audit

 Judging from the process (methodology) and audit techniques, there is no fundamental
difference between auditing the public sector and the private sector. However, because the
characteristics of public sector management are closely related to policy and political
considerations and statutory provisions, public sector auditors must pay adequate attention to
these matters. The difference between a private sector audit and a public sector audit is as
follows:

Difference Between Private Sector Audit and Public Sector Audit in Indonesia

Uraian Audit Sektor Private Audit Sektor Publik

Audit Public Accounting Government audit institutions and KAPs are
implementation Firm (KAP) appointed by government audit institutions
Entities, programs, activities, and functions
Private company / related to the implementation of management and
Audit Object
entity financial responsibility of the state, in accordance
with statutory regulations
Public Accountant
Audit standards State Financial Audit Standards (SPKN) issued
Professional Standards
used by the BPK
(SPAP) issued by IAI
Is a dominant factor because activities in the
Compliance with Not too dominant in the
public sector are strongly influenced by
laws and regulations audit
regulations and legislation

(I Gusti Agung Rai, 2008:30)

Reviewed by the auditors, the private sector audit process is entrusted to professional
institutions in the form of Public Accounting Firms (KAP) while the government audit
institutions and also the KAPs are appointed by government audit institutions. Another
fundamental difference is the auditing standard used, the private sector uses the Public
Accountant Professional Standards (SPAP) issued by IAI while the public sector uses the State
Financial Audit Standards (SPKN) issued by the BPK.

Types of public sector audits

There are several types of audits in public sector organizations, namely:
a. Financial audit
b. Performance audit
c. Audit with specific objectives
d. Forensic Audit

In addition to the four types of audits there are still many other types of audits but are
rarely conducted in public sector organizations, such as information systems auditing. Besides
audits, there are also reviews of financial statements conducted by internal auditors. The review
of financial statements is conducted before the financial statements are submitted to external
auditors for financial audits.

A. Financial Audit

The purpose of the audit of financial statements is to assess the reasonableness or the
feasibility of presenting financial statements made by the company. The appropriateness and
fairness refer to generally accepted accounting principles and subsequently the assessment will
be reflected in the audit opinion. There are four types of audit opinion in financial statements:

a. Fair without exception (Unqualified Opinion), meaning that the financial statements
are presented in accordance with applicable accounting standards

b. Fair With Exceptions (Qualified Opinion), meaning that financial statements can be
relied upon but there are still some problems or items that are excluded so as not to
make mistakes in making decisions

c. Not fair (Adversed), meaning that the financial statements are not presented in
accordance with accounting standards or there are material errors in the financial
statements
 d. Do not provide income (Disclaimer), meaning that the financial statements have
material errors and management limits the scope of the audit so that the auditor does
not find sufficient evidence.

Audit Stages of Financial Statements

As explained above, an audit is a systematic activity so to conduct an audit, there are stages
that need to be carried out. The stages of the financial statement audit are as follows:

a. Acceptance of the Audit Engagement

b. Audit Process Planning
c. Implementation of Audit Testing
d. Audit Reporting

B. Performance Audit

In addition to financial audits, performance audits are also conducted at public sector
organizations. Other terms of performance audit are audit value for money, 3E audit, and
comprehensive audit Performance audit is a systematic process to obtain and evaluate evidence
objectively on the performance of an organization, program, function, or activity / activity
Evaluation is carried out at the economic level, efficiency, and effectiveness in achieving the
targets set and compliance with the required policies and regulations, then comparing them
between the performance produced with the established criteria and communicating the results
to the parties concerned

Performance audits on public sector organizations are audits of the management of state
finances which consist of audits of economic, efficiency and effectiveness aspects.
Performance audits can be carried out by BPK as an external auditor and by the Government
Internal Examination Apparatus (APIP). The report on the results of the inspection of the
performance contains findings, conclusions, and recommendations. Performance audits are
conducted to complete financial audits and compliance audits of financial statements. Financial
audits are conducted to check the reasonableness of the financial statements. Meanwhile,
economic issues, efficiency, and effectiveness in managing state finances are not the focus of
financial audit attention. The outcomes, benefits, and impacts of managing state finances are
not examined in financial audits. Therefore, in addition to financial audits, performance audits
are needed that are focused on examining work results to test the economic level, efficiency,
and effectiveness of a program, activity, function, or organization in using state finances.
Performance audits are useful for checking whether state finances have been obtained and are
used economically, efficiently, and effectively; there is no waste, leakage, misallocation, and
wrong targets and have reached the goal. Performance audits function to determine whether
the use of state finances in order to achieve targets and objectives has met the principles of
economy, efficiency, and effectiveness, not violating the provisions of the law, legislation, and
management policies. Performance audits are also useful for providing recommendations on
how to improve the economy, efficiency, and effectiveness of managing state finances.

C. Audits with objectives

An audit with a specific purpose is an examination that is carried out with a special purpose
outside the financial examination and performance inspection. Included in this purpose-
specific audit is the examination of other matters relating to the financial and investigative
audits of the KPK, BPKP or other internal auditors as well as a task force formed specifically
to conduct audits with specific objectives. Report on the results of examinations with specific
objectives Audits with specific objectives or investigative audits can be carried out by the BPK,
containing conclusions. Reports on the results of examinations with specific objectives are
submitted to the DPR / DPD / DPRD in accordance with their authority. Investigative audits
are more in-depth and specialized than general audits. An investigative audit is carried out in
connection with a particular case, for example, to reveal a case of corruption and is intended
for legal purposes. The findings in an investigative audit set forth in the audit conclusion will
be evidence used in legal proceedings through the court, judicial review, administrative review
or other means. Investigative audit is basically one part of the forensic accounting (audit)
services.

D. Forensic Audit

Forensic Audit consists of two words, namely audit and forensic. Audit is an action to
compare the suitability between conditions and criteria. While forensics is anything that can be
debated before the law / court. Thus, Forensic Audit can be defined as the act of analyzing and
comparing conditions on the ground with criteria, to produce quantitative information or
evidence that can be used before a court of law. Because of the nature of the forensic audit that
serves to provide evidence before the court, the main function of the forensic audit is to conduct
an investigative audit of criminal acts and to provide expert witness testimony (litigation
support) in court.

Forensic audits can be proactive or reactive. Proactive means that forensic audits are used
to detect possible risks of fraud or fraud. Meanwhile, reactive means an audit will be conducted
when there is an indication (evidence) of the beginning of fraud. The audit will produce a "red
flag" or signal for irregularities. In this case, a more in-depth and investigative forensic audit
will be conducted.

The purpose of a forensic audit is to detect or prevent various types of fraud. The use of
auditors to carry out forensic audits has grown rapidly.
To support the process of identifying evidence in a relatively fast time, in order to calculate the
estimated potential impacts caused by criminal behavior committed by criminals against their
victims, as well as expressing the reasons and motivations of these actions while looking for
relevant parties involved directly or indirectly involved with the intended unpleasant action.

Review of financial statements

Before an audit of the financial statements by an external auditor is conducted before a review
of the financial statements by the internal auditor. Review of Government Financial Statements
is a procedure of tracking numbers, requests for information and analytical which must be an
adequate basis for the Inspectorate to provide limited confidence in the financial statements
that there is no material modification that must be made to the financial statements so that the
financial statements are presented based on the Internal Control System (SPI) which is
adequate and in accordance with Government Accounting Standards (SAP). At the local
government level, the legal basis for the implementation of local government financial
statement review is Permendagri No. 04 of 2008 concerning Guidelines for Reviewing
Implementation of Regional Government Financial Statements. The purpose of reviewing
financial statements is to provide limited confidence that the financial statements of local
governments are prepared based on an adequate internal control system (SPI) and have been
presented in accordance with government accounting standards (SAP) Review of Regional
Government Financial Reports is conducted to provide confidence in the quality of financial
statements local government. The review does not provide a basis for expressing an opinion or
opinion on the financial statements. Therefore, the review has a lower level of confidence
compared to auditing. Review of the financial statements of the Regional Government
Financial Reports is carried out by the regional inspectorate (regional oversight body) as an
internal auditor.

Public Sector Audit Standards

In carrying out an audit, standards are needed to be used to assess the quality of the
audit work performed. These standards contain the minimum requirements that must be met
by an auditor in carrying out their duties. In Indonesia
Auditing standards in the public sector are the State Financial Audit Standards (SPKN) issued
by the Supreme Audit Board (BPK). The standards that guide the performance audit according
to the SPKN are as follows:

1. General Standards
2. Performance Audit Standards
3. Performance Audit Reporting Standards

The audit report is submitted to the representative body, the entity being audited, the party
that has the authority to regulate the entity being audited, the party responsible for following
up on the audit results, and to other parties authorized to receive the audit report according to
the provisions of the legislation. - valid invitation.

Conclusion
Based on the text above, I conclude that an audit of the public sector is needed because
government agencies are vulnerable to problems of corruption, collusion, and the low level of
efficiency and effectiveness that can be demonstrated by the government. Audits of the public
sector must have clear and strict standards for compliance with government agencies.
Supervision of the implementation of public sector audits must be increased to obtain
improvements in the quality of audits of the public sector and this certainly increases the quality
of government financial reporting that is more responsible.

REFERENCES

Bastian, I., & Krista. (2007). Audit sektor publik. Jakarta: Salemba Empat.

Mahmudi, 2011. Akuntansi Sektor Publik. Cetakan pertama. Yogyakarta: UII Press

Mardiasmo, 2018. Akuntansi Sektor Publik. Edisi terbaru. Yogyakarta

Rai, I. G. A. (2008). Audit kinerja pada sektor publik: konsep, praktik, studi kasus. Jagakarsa,
Jakarta: Salemba Empat.