Public accounting bill must be fair to all

Public accounting bill must be fair to all

M. Sauri Hasibuan, Managing Partner, FORTECH CONSULTING
Jakarta

The current crisis in confidence over corporate financial
reports raises questions that go well beyond a company's
financial sustainability. The incidence of business failures
provides a vivid reminder of how fundamentally corporate activity
affects the lives and livelihoods of people and communities
worldwide.

As shareholders, institutional investors and policy makers
take stock of the social repercussions of the Enron and WorldCom
affairs; with the controversial reports issued by Bank Lippo and
involving one of the big five accounting firms still fresh in our
minds, it is time for the government to address the limit of
financial reporting.

The current draft of the proposed public accounting law
designed by the Ministry of Finance has stirred debate among
those in the accounting profession.

The proposed draft contains tougher measures for local
accountants compared with their overseas counterparts.

There is suspicion that the government is trying to meet
demands of the International Monetary Fund, which are to
liberalize the financial service sector in the widest sense
possible.

Highly trained individuals of the IMF naturally see the world
through the eyes of the financial community. The decisions of any
institution reflect the perspectives and interests of those who
make the decisions. Not surprisingly, the policies of the
international economic institutions are all too often closely
aligned with the commercial and financial interests of those in
the advanced industrial countries. These interests include those
of financial consultants, public accountants, engineering
planners and a host of other professions.

By most assessments, there are two main elements underlying
the events that have prompted widespread calls for a higher ethic
of corporate responsibility. The first is the failure of
accounting systems. The second is the breakdown of corporate
governance.

The collapse of businesses in recent months was in part
attributable to poor audits of required information. But equally
important, they resulted from a fundamental reality of financial
reporting: Even sound numbers that comply fully with required
standards do not deliver all that shareholders and others need to
know in order to assess the true health of a corporation.

As they currently stand, financial reports meet certain narrow
technical requirements and provide a glimpse of past performance,
such as last year's revenue.

But what about the future? Where is the information on the
firm's capacity to innovate, train and enrich its human capital,
enhance its reputation, strengthen brands, alliances and
partnerships? And what about measures of public trust and the
quality of governance? These are basic questions that public
accountants have little information with which to provide
answers.

Blaming the public accountant for an inability to assess these
intangible assets, if reported at all, appears to be unfair and
inconsistent. Again, who gave a clean bill of health to those
large companies in Indonesia during times of high and stable
growth when the country was praised blindly by many as a newly
emerging tiger? Foreign accounting firms certainly played a role
through their assessments and for that they deserve the
authority's scrutiny too.

The Ministry of Finance was blamed for not including the
Indonesian Accountants Association when composing the draft. This
is pathetic, as there are many experts and practitioners in the
association who could have been referred to.

The long-term sustainability of corporations rests on a
complex balance of factors. While financial viability is clearly
vital, so too are elements such as the ability to adapt in a
changing market, to maintain official and public trust, to
attract and inspire a workforce and to retain and expand the
support of local communities and the client base.

In constructing the draft, the Ministry of Finance may adopt,
depending on the local context, the concept of "triple-bottom-
line" reporting, such as that offered by the Global Reporting
Initiative.

This is basically an assessment of a corporation's performance
in relation to profit, people and the planet; it is increasingly
welcomed by financial analysts and investors because it helps
them make better judgments about the true value and prospects of
a company across a broader range of assets.

Moreover, it enables management to anticipate and exploit
opportunities to strengthen the firm's market competitiveness and
boost company transparency.

The Ministry of Finance can conduct hearings with various
stakeholders concerning the possibility of adopting this system
as part of required company disclosure. Whether firms like it or
not, a company's nonfinancial performance can directly affect its
financial health too.

The link between human rights or environment and share value
is already well documented. Three of the world's major stock
markets -- New York, London and Hong Kong -- have implemented or
are proposing changes to disclosure rules that will require
information on corporate governance, environment liabilities and
human capital issues, from basic working conditions to policies
on child labor.

This development signals a growing recognition that
nonfinancial information linked to sustainability performance is
an essential ingredient in forecasting and securing a company's
financial prospects.

The level of public trust in corporations and state-owned
enterprises is at an all-time low. The conflict at the aircraft
firm PT Dirgantara Indonesia has resulted in disruption and
losses to workers and investors. Creating a fair draft for the
supervision of the work of public accountants will be a major
task for the Ministry of Finance.

Recent corporate failures have taken a severe toll on
economies and societies. Not only is there a clear sense that
corporations have a responsibility to provide a full and more
accurate account of their financial situation, but they must also
make more earnest efforts toward sustainability if they are to
win public support.