Auditing bank auditors<\/p>\n
Bank Indonesia's recent regulations on procedures for
\nfinancial reporting by commercial banks put both external and
\ninternal auditors under tougher supervision. The rulings require
\nbanks to hire only from among the independent public accountants
\n(external auditors) who have been registered at the central bank.
\nThe regulations also empower the central bank to reject the
\nexternal auditors hired by a bank.<\/p>\n
Tougher still is the obligation imposed on external auditors
\nrequiring them not only to examine the financial statements of a
\nbank, but also to review the structure of the bank's internal
\naudit system. Hence, we think, the audit requirements imposed on
\nbanks are now the most stringent among those for the business
\nentities throughout the country.<\/p>\n
The rationale of the rulings is quite obvious -- the fiduciary
\nresponsibility of banks and the crucial role played by these
\nfinancial intermediaries in mobilizing private savings and
\nallocating financial resources to the various sectors.<\/p>\n
For sure, the primary objective of the rulings is to ensure
\nthe independence and integrity of the external auditors in giving
\ntheir opinions on the condition and performance of the banks they
\naudit. Past experiences show that some companies put pressure on
\ntheir external auditors to agree with their improper accounting
\ntreatment, and the auditors often failed to be strong enough to
\nresist such pressure at the risk of losing big clients.<\/p>\n
However, the central bank does realize that external auditors
\ndo not examine every document related to financial statements.
\nTherefore, even public accountants remain vulnerable to being
\nmisled by a company management which colludes with its internal
\nauditors to produce false records and books. The dilemma here is
\nthat external auditors cannot be held responsible for the
\nincorrectness of audited financial statements, if they follow the
\naccepted accounting and auditing principles and procedures in
\ntheir professional activities and are unknowingly misled by
\nfalsified documents and records. Herein, we think, lies the
\nimportance of obligating external auditors to review the
\nstructure and performance of the internal auditors of banks.<\/p>\n
The review will hopefully provide valuable input to the
\ncentral bank, which is now formulating better standards on the
\nfunction of internal auditors of banks in cooperation with the
\nIndonesian chapter of the Institute of Internal Auditors.<\/p>\n
It is too much to expect external auditors to detect fraud at
\nthe companies they audit because requiring such foolproof work
\nwould make the auditing process prohibitively expensive. But the
\nnew rulings, we think, will achieve two objectives: First, they
\nwill prevent too cozy a relationship between external auditors
\nand their bosses (bank management). That is important because
\nalthough in theory external auditors are appointed by
\nshareholders, in practice, in so far as the companies are not
\npublicly listed, they are hired and fired by the management.<\/p>\n
Second, internal auditors, who are often at the mercy of the
\nmanagement of their employer, will be encouraged to profess a
\nhigh degree of independence and integrity. A fairly independent
\ninternal control system will, therefore, be the first preventive
\nstep against misleading financial statements.<\/p>\n
All those rulings on financial reporting, which is one element
\nwithin the full disclosure requirement, will hopefully minimize
\ncollusion between either the management and internal auditors of
\na bank, or between the management of a bank and external
\nauditors. But those rulings will be effective only if they are
\nfully enforced by a central bank, which is not vulnerable to
\nlobbying, nor pressure, by politically well-connected bankers,
\nand by bank inspectors with a high degree of honesty and
\nintegrity.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/auditing-bank-auditors-1447893297",
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"sponsor": "Okusi Associates",
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