Asian firms facing audit crunch

Asian firms facing audit crunch

Tom Wright, Dow Jones, Jakarta

Tighter regulations over accounting practices post-Enron are
making it increasingly difficult for Asian companies listed in
the U.S. to find American-registered accountants to review their
books.

After the scandal over now-disgraced Enron Corp. forced
auditors to draw a clearer line between accounting and advisory
work, the Big Four accounting firms are increasingly refusing to
take on jobs that might smack of conflict of interest. In many
Asian countries, the only SEC-approved auditors are the Big Four:
Deloitte Touche Tohmatsu, KPMG LLP, Ernst & Young LLP and
PricewaterhouseCoopers.

With all four busy advising governments on privatization work,
that doesn't leave enough auditors to go around, particularly for
state-owned companies that are being privatized. And that's
making it tough for some Asian companies that are listed in the
U.S. and need to hire auditors approved by the U.S. Securities &
Exchange Commission.

One company now caught in that trap is NYSE-listed
Telekomunikasi Indonesia, that country's largest telecom company.
Telkom, which is majority-owned by the government, could have its
shares delisted by the SEC because it recently hired a
nonapproved auditor to handle its 2002 accounts. Telkom says it
is having a hard time finding a suitable auditor and may miss a
July 15 SEC deadline to resubmit the accounts; if it does, it
could face de-listing from the New York Stock Exchange.

At least three of the Big Four accounting firms have recently
been advising the Indonesian government in some capacity,
auditors say. The government has hired the big firms to advise on
its plans to sell shares in Telkom to the public; it also used
them during last year's sale of a majority stake in Indonesia
Satellite Corp. to a Singapore government-linked company. Thus,
working directly for Telkom might constitute a conflict.

Other international accounting firms have affiliates in
Jakarta, but only the four major firms are registered with the
American Institute of Certified Public Accountants - a benchmark
for gaining SEC approval.

Deloitte audited Telkom's accounts until 2001, but left the
company last year after a row with the government over the audit
of another state-owned enterprise. The remaining three big
foreign firms turned down Telkom's offer to audit due to conflict
of interests, which ranged from past advisory work to carrying
out executive searches for the company.

Analysts say they don't believe Telkom's financial report for
2002 was misleading. The company posted a net profit in 2002 of
Rp 8.345 trillion (about US$1 billion), almost double the
previous year due to a boost in subscribers at its cellphone
unit.

Bacelius Ruru, head of Telkom's board of commissioners, said
this week the company hopes to hire KPMG. But it remains unclear
whether conflict of interest issues can be resolved, said
Herwidayatmo, the head of Indonesia's capital market regulator,
Bapepam. KPMG declined to comment.

Telkom's problems illustrate how a dearth of foreign auditors
could complicate efforts by other Asian companies to raise
capital in the U.S.

In the U.S. and Europe, smaller firms can take on auditing
work where the Big Four may have conflicts of interest, said
James Kallman, the managing partner with Moores Rowland
International's Indonesian affiliate.

In Asian countries, the local partners of these second-tier
firms often lack SEC approval to audit U.S.-listed companies.
That happened to Mr. Kallman's firm, PT Eddy Pianto, which
audited Telkom's 2002 results while it was a partner of Grant
Thornton LLP. The firm became affiliated to Moores Rowland
earlier this year.

Foreign auditors working in Southeast Asian countries such as
Indonesia, Thailand, and the Philippines are most likely to face
conflicts of interest because of the large amount of advisory
work they do for the governments, says Andy Xie, regional
economist for Morgan Stanley.

Auditors in Thailand, for example, say they have advised on
privatizations, which might rule them out from auditing state-
owned companies such as energy concern PTT or Thai Airways when
they come up for sale to investors.

Unlike Telkom, however, the main casualties so far of growing
caution among auditors have been privately held Asian companies
that analysts say lack financial transparency.

The Big Four are more frequently dropping Asian clients due to
the Sarbanes-Oxley Act legislation passed last year in the U.S.
that tightened accounting-industry regulations after the Enron
scandal.