Improving accountability<\/p>\n
The cloud thrown over the Indonesian banking industry by the US$436
\nmillion loan scandal at the state-owned Development Bank of Indonesia
\n(Bapindo) may have a silver lining after all; Thursday, the central bank
\n(Bank Indonesia) signed two cooperation agreements aimed at improving
\nthe accountability and internal auditing of banks.<\/p>\n
The first agreement with the Indonesian Accountants Association calls
\nfor higher standards of accounting and financial reporting at banks and
\ncompanies traded on the stock exchanges. The second, developed by the
\nIndonesian chapter of the Institute of Internal Auditors, will develop
\nstandards for the conduct of internal auditors at banks.<\/p>\n
It seems obvious that the two cooperation programs were prompted, at
\nleast in part, by the bitter lessons taught by the Bapindo scandal. The
\nfraud, which occurred between 1989 and 1993, remained undetected by the
\ngovernment auditors from the finance ministry and supervisors from the
\ncentral bank until last year.<\/p>\n
The inability of Bapindo's internal auditors to discover the fraud
\nfor almost a year after it occurred, let alone during the four years
\nthat it was taking place, provides clear evidence that bank auditing is
\na problem that has to be given a high priority by banking regulators.<\/p>\n
It is a pity, however, that it took three major scandals to prompt
\nthe central bank to act.<\/p>\n
The most recent, in August of 1990, was Bank Duta. Bank Duta, which
\nwas controlled by three foundations which were chaired by President
\nSoeharto, reported total losses of almost US$420 million in a foreign
\nexchange scandal the previous year. Ironically, the private bank got a
\nclean financial bill of health from a public accountant and an approval
\nto list shares on the Jakarta stock exchange in June of that same year,
\njust a short time before the scandal broke. Again, the central bank was
\ntoo late to uncover gross violations of almost all prudential rulings at
\nBank Summa in 1992. The private bank was closed later that year with
\ntotal debts of nearly $800 million.<\/p>\n
The cooperation programs are designed to improve the quality and the
\nreliability of the financial information reported by banks and public
\ncompanies. Hopefully, they will also provide clearer working standards
\nfor accountants to enhance their role in ensuring the soundness of
\nlisted companies and to improve the accountability of management at
\nbanks and public firms.<\/p>\n
One may argue that accounting standards or principles are only a tool
\nfor accountants and auditors to determine whether a financial report is
\nfair and not misleading. Even high standards would not be enough to
\nprevent fraud if accountants applied the principles mechanically. But we
\nthink good standards are still helpful because they are the necessary
\nfirst step in the multi-stage process to assure quality accounting and
\nauditing. Clear standards of accounting and financial reporting would
\nminimize the chances for management to massage their reports or to
\nfalsify documents. They also impose broad financial disclosures.<\/p>\n
However, clear standards of accounting and financial reporting will
\nnot be enough. They should be applied by accountants who possess not
\nonly technical competence but also a high sense of integrity and ethics.
\nThe system of accountability can only improve if the internal auditors
\nat banks also possess a high degree of independence and integrity. That
\nis what is expected from the cooperation agreement with the Institute of
\nInternal Auditors; the development high standards for those conducting
\ninternal audits. Hence, the objectives of the two cooperation agreements
\nactually are inter-related.<\/p>\n
The ultimate goal is to protect the depositors and investors by
\nestablishing greater transparency and creating an effective mechanism to
\nprevent fraud or, at least, detect it at the earliest opportunity.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/improving-accountability-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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