Time limit sought for public accounting contracts

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.