Time limit sought for public accounting contracts

Fitri Wulandari, The Jakarta Post, Jakarta

Public accountants auditing the books of publicly listed companies will need to limit their contract to three years if a proposed ruling is approved to prevent long-standing ties between companies and auditors from hurting the independency of the accounting industry.

"There should be a limitation set for public accounting firms when providing their auditing services to public companies," said the former finance minister and a member of the Indonesian Accounting Association's (IAI) advisory board, Mar'ie Muhammad, on Wednesday.

He said companies should get their auditing services from another public accountant after three years.

Speaking on the sidelines of IAI's 10th congress, his proposal came in support of the government's plan to restrict the contract period to four years under a new accounting bill.

The Ministry of Finance is drafting measures to tighten the independency of public auditors following a slew of accounting scandals in America that deprived employees at publicly listed companies and stock investors of billions of U.S. dollars.

Experts have blamed these scandals on auditors turning a blind eye to companies' questionable book entries over concern they might lose their lucrative contracts.

At home, reports of auditors cooking their clients' books have been scant, but regulators are moving to pull them in line with trends to improve the industry's frugality.

Nearly 70 percent of local audit and financial services are being provided by the so-called Big Five, the very same firms that dominate accounting and consulting services worldwide.

Except for Andersen Consulting, which has lost most of its clients following its role in several accounting scandals, they are PricewaterhouseCooper, Ernst & Young, KPMG and Deloitte Touche Tohmatsu.

Some 200 small and medium-sized public accounting firms are jostling for the remaining 30 percent share of the market.

Head of IAI's public accounting department, Ahmadi Hadibroto, said limiting the contract period may help avoid vested interests but warned of possible pitfalls.

"If the public wants to have a time limitation on auditing services, we'll go with it. But it should be thoroughly reviewed as it will have a wide impact on the business," Ahmadi said.

Public accountants need to become familiar with a company's finances within a limited period and then move on to learn another's, he said.

"The fee we charge our clients will certainly go up," he said.

Furthermore, Ahmadi added, the longer a public accountant stays with a company the better it knows its business and therefore may provide a much better service. It will sharpen their auditing capability."

He said many public accounting firms invest their money in educating their accountants to specialize in handling the industry, such as mining companies.

Time limitation would also take away the incentive for public accounting firms to train their auditors in a particular industry, he said. Again, the impact would be on service quality, he said.

Instead of three years, Ahmadi suggested auditors should be allowed to retain their clients between five and seven years.

Only a few details are known about the new accounting bill, but the finance ministry may ask public accounting firms to also separate their auditing services from consulting in another move to weed out vested interests.