Legal Basis for Audit Scope of BPK

4.1.1 Legal Basis for Audit Scope of BPK

Since audit reform in 2001, the BPK ‘s auditing scope has been stipulated by the third amendment of the 1945 Constitution. After this, the government provided new policies related to the audit scope of BPK, namely: Article 2 the Law on State Finances

(GOI 2003b) 26 , the Audit Law (GOI 2004b), and the Law on BPK (GOI 2006b). The scope includes all state finances, which are defined as all state rights and obligations that may be

appraised against a monetary value 27 , wherever the resources are and for whatever purposes they are used. State finance audits not only examine state and regional

government revenues and expenditure budgets, but also a range of other entities. These includestate-owned enterprises (SOEs); regional-owned enterprises (ROEs); foundations; pension funds and companies that provide official services; and private social institutions that receive government funds, foreign aid, and other government assistance.

Moreover, the Audit Law (GOI 2004b) emphasises the role of BPK in auditing all state finances for three types of auditing: financial, performance and specific purpose audits. The Law on BPK (GOI 2006b) also stipulates the duty and authority of BPK to audit the management and accountability of public sector agencies, including government organisations, the Central Bank of Indonesia (Bank Indonesia –BI), SOEs, ROEs, public services agencies and other agencies that use state money.

26 ―State‘s right to collect tax, to expend and to distribute money, and to make loans‖; ―State‘s obligation to organise public service tasks of the state governance and to pay the third party‘s claim‖; ―State revenues‖;

―State expenditure‖; ―Regional revenues‖; ―Regional expenditure‖; ―State properties/regional properties which are managed by themselves or other parties in the form of money, commercial papers, receivable, goods as well

as other right, which may be appraised by money including property separated at the state-owned enterprises

(SOEs) 26 or regional-owned enterprises (ROEs) ‖; ―Other parties‘ properties, which are possessed by the government in the frame of organising the government task and/or public interest.

As well as everything that is in the form of money and goods which may become state property in respect of the implementation of rights and obligations, including all state revenues and expenditure.

The Law on BPK (GOI 2006b) and audit standards (BPK RI 2007g: 13) stipulates the objectives and different audit scopes. For this purpose, auditors are required to consider the users‘ needs and apply their knowledge, skills and experience. Different

methodologies, level of analysis and evaluation can be employed for determining the scope of an audit. BPK audit standards provideinformation about the purpose and scope of auditing that is stipulated in Paragraph 8 of the SPKN (BPK RI 2007g: 83).

The responsibility of auditors to describe the scope and methodology of auditing in performance audit reports was stipulated in Paragraph 9 (BPK RI 2007g: 84). The auditors are required to explain any audit problems in the reports and to avoid misunderstanding by stating the audit objectives that are not covered in audit reports. These legal bases for audit objectives, scope and methodology legitimize BPK to conduct its functions in enhancing the reliability of reported financial and performance information in public sector organisations. In addition, since the Law on BPK (2006) was enacted, BPK can set its own priorities for its auditees, audit methods and procedures, and audit scope and policies, which enables BPK to be more independent in providing its audit opinions and recommendations.

In addition, the responsibility of auditors to audit the compliance of auditees with the provisions of laws and regulations to measureaccountability of auditees to the public is stipulated in SPKN 2007. The focus of compliance auditing is actually to encourage the public sector to comply with regulations.