Towards more faith in our accountants

Towards more faith in our accountants

Y.R. Agandhi, School of Economics, University of Tarumanagara,
Jakarta

Accountants in Indonesia are among those still grappling with
the effects of the greatest bankruptcy case in the United States,
involving the energy firm, Enron, and also one of the largest
accounting companies, Arthur Andersen.

Public accountants provide assurance services, defined by some
experts as independent professional services, which improve the
quality of information for decision makers. One type of assurance
service is an audit of historical financial statements. Audit
services form the highest level of assurance given by public
accountants. In other words, assurance services deal with public
trust where public interest must be protected.

There are three types of professional governance, namely self-
regulated, direct and mixed approaches.

In the self-regulated model, the accountancy profession is
given the authority to regulate members and create a code and
standards, including the enforcement of discipline. The direct
model places authority in the government to regulate the
profession starting from certification, examination, licensing,
sanctioning and law enforcement.

The third model is a mix of both. Indonesia applies the mixed
model but leans to a self-regulated model. Licensing and
sanctioning is done by the Ministry of Finance. Apparently, law
infrastructures and professional maturity are enough to support
current conditions.

Law No. 34/1954 is the only legislation ruling the profession.
Despite the fact that many banks -- which were checked by public
accountants -- have gone bankrupt, we have never heard of
lawsuits against members of the profession. We lack experience in
resolving client-auditor disputes.

The Indonesian Institute of Accountants has created its own
code and standards but the bankruptcy of many banks suggests a
considerable degree of tolerance of deviation from such internal
codes.

Transparency and neutrality are still a problem in the
profession. Transparency needs to involve not only accountants
and the government but also public participation in terms of
publicly available regulations, public awareness and public
protection in acquiring financial information.

Long-term relationships between the auditor and its client,
poor legal infrastructure and enforcement are major obstacles
faced by the accountancy profession and society. One solution is
to review, amend or even overhaul the law regarding the
profession.

Meanwhile, regulations must be drawn up to overcome current
conditions and to bridge expected future conditions. One such
needed rule is on a mandatory rotation of auditors every five
years, especially when dealing with publicly listed companies and
financial companies pooling public funds.

In some countries a mandatory auditor rotation is on the top
of the list of necessary measures taken to break up long-term
relationships between auditors and their clients. South Korea,
India, Italy and Austria, have reportedly imposed audit rotation
for banks and publicly listed companies.

Singapore has just imposed auditor rotation for bank-related
companies. Hong Kong is considering the need. Expressions of
resistance refer to costs and the trouble of new auditors in
understanding the client's business practices.

Another solution is joint audits, already applied in the
pension industry. A pension fund's financial statements have to
be audited by an accounting firm and investment assets of the
pension funds have also to be audited by another accounting firm.

"Enrongate" created losses of around US$68 billion and pension
funds of millions of people. Bankruptcies of banks in Indonesia
have cost the government at least Rp 650 trillion -- which may
have been contributed in part by public accountants.