Bappepam tightens up accountancy rules

The Jakarta Post, Jakarta

The Capital Market Supervisory Agency (Bapepam) has issued a new regulation that bars a listed company from using the same public accountant or accounting firm for more than five years in order to help ensure the continued objectivity of audits.

Under the new ruling, set out in Bapepam Regulation No. VIII.A.2. on the independence of accountants, audit services provided by an accountant or an accounting firm in respect of a client's financial statements should be limited to three and five years respectively, the agency said in a release.

"The new ruling is aimed at making accounting firms and accountants more independent, which will eventually increase the quality of the financial statements issued by listed companies so that they become more transparent and trustworthy," the release said.

As for those affected by the regulation but already bound under a contract, Bapepam would allow the present arrangements to continue until the next fiscal year.

The ruling also forbids auditors from providing other consultancy services to the same client during the audit period. During this period, auditors would also be banned from having a business relationship, directly or indirectly, with clients, key officers of clients, or the main shareholders of clients.

The ruling comes amid mounting calls for tighter supervision of accountancy practices in the country as a way of ensuring that the lessons from a string of financial frauds in the U.S are learned.

The world was recently stunned by a series of high-profile bookkeeping scams, especially in the U.S. Major financial frauds in giant firms Merck, WorldCom and Enron were only a few of the more prominent examples.

These cases have proven contagious and have shattered investor confidence around the world, including in Indonesia.

Experts have warned that if such frauds could take place in a country like the U.S., whose control mechanisms were already quite sound, it was quite frightening to think what might be happening in Indonesia.

Therefore, tighter regulations were badly needed to prevent similar frauds from occurring here and to provide investors with better protection.