Krisis Akuntansi dan Membangun

Kembali Kepercayaan Publik

Dr. Ratna Wardhani, SE, Ak, MSi, CA, CSRS, CSRA

What is Earnings Management?

• Arthur Levitt: “practices by which earnings reports reflect the desires

of management rather than the underlying financial performance of
the company.” 
• Earnings management (or income smoothing) is often defined as the
planned timing of revenues, expenses, gains and losses to smooth out
bumps in earnings. In most cases, earnings management is used to
increase income in the current year at the expense of income in
future years. Earnings management can also be used to decrease
current earnings in order to increase income in the future.
The Public Perception of Earnings Management

• Earnings management has a negative effect on the quality of earnings if it distorts

the information in a way that it less useful for predicting future cash flows. The
term quality of earnings refers to the credibility of the earnings number reported.
Earnings management reduces the reliability of income.
• The investing public does not necessarily view minor earnings management as
unethical, but in fact as a common and necessary practice in the everyday business
world.  It is only when the impact of earnings management is great enough to
affect the investors’ portfolio that they feel fraud has been committed.
How company smoothes earnings

• Does level discretionary cost conform to past

• Is there a drop in trend of discretionary costs as percentage of
sales
• Does cost cutting program involve significant cut in discretionary
costs
• Does cost cutting program eliminate fat?
• Do discretionary costs show fluctuations relative to sales
• Is there a sizable jump in discretionary costs?
The Impact of Earnings Management

• The practice of earnings management damages the perceived quality of

reported earnings over the entire market, resulting in the belief that
reported earnings do not reflect economic reality. This will eventually lead
to unnecessary stock price fluctuation.  This uncertainty ultimately has the
potential to undermine the efficient flow of capital thereby damaging the
markets as a whole.
Incentives to Manage Earning

A. EXTERNAL FORCES
• Analyst Forecasts –
• Debt markets and contractual obligations –
• Competition -
B. INTERNAL FACTORS
• Potential mergers -
• Management Compensation -
• Planning and budgets -
• Unlawful transactions -
C. PERSONAL FACTORS
• Personal bonuses -
• Promotions and job retention –
Financial Statement Fraud Defined

• Deliberate misstatements or omissions of amounts or

disclosures of financial statements to deceive financial
statement users, particularly investors and creditors
Defining Financial Statement Fraud

• Falsification, alteration, or manipulation of material financial records, supporting documents, or

business transactions
• Material intentional omissions or misrepresentations of events, transactions, accounts, or other
significant information from which financial statements are prepared
• Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize,
report, and disclose economic events and business transactions
• Intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting
principles and policies and related financial amounts
Costs of Financial Statement Fraud

• Loss of market capitalization to investors, employees, and pensioners

• Other fraud costs are legal costs, increased insurance costs, loss of productivity, adverse
impacts on employee morale, customers’ goodwill, suppliers’ trust, and negative stock market
reactions
Frequency of Types of Occupational Fraud and Abuse

Fraudulent
7.9%
Statements 5.1%

30.1%
Corruption
12.8%

Asset
92.7%
Misappropriation 85.7%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

2002 2004
Median Loss of Types of Occupational Fraud and Abuse

Fraudulent $1,000,000
Statements
$4,250,000
$250,000
Corruption $530,000

Asset $93,000
$80,000
Misappropriation
$- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000

2002 2004
Effects of Financial Statement Fraud

• Undermines the reliability, quality, transparency, and integrity of the financial

reporting process
• Jeopardizes the integrity and objectivity of the auditing profession, especially
auditors and auditing firms
• Diminishes the confidence of the capital markets, as well as market
participants, in the reliability of financial information
• Makes the capital markets less efficient
Effects of Financial Statement Fraud

• Adversely affects the nation’s economic growth and prosperity

• Results in huge litigation costs
• Destroys careers of individuals involved in financial statement fraud.
• Causes bankruptcy or substantial economic losses by the company engaged in
financial statement fraud
Effects of Financial Statement Fraud

• Encourages regulatory intervention

• Causes devastation in the normal operations and performance of alleged
companies
• Raises serious doubt about the efficacy of financial statement audits
• Erodes public confidence and trust in the accounting and auditing profession
Responsibility for Financial Statements

• Company management is responsible for financial statements

• Company’s board of directors and senior management set the code of conduct
• Company’s “ethic” – the standard by which all other employees will tend to conduct
themselves
Who Commits Financial Statement Fraud

• Senior management
• Mid- and lower-level employees
• Organized criminals
Why Do People Commit Financial Statement Fraud

• To conceal true business performance

• To preserve personal status/control
• To maintain personal income/wealth
Why Senior Management Will Overstate Business
Performance
• To meet or exceed the earnings or revenue growth expectations of stock
market analysts
• To comply with loan covenants
• To increase the amount of financing available from asset-based loans
• To meet a lender’s criteria for granting/extending loan facilities
• To meet corporate performance criteria set by the parent company
Why Senior Management Will Overstate Business
Performance
• To meet personal performance criteria
• To trigger performance-related compensation or earn-out payments
• To support the stock price in anticipation of a merger, acquisition, or sale of
personal stockholding
• To show a pattern of growth to support a planned securities offering or sale of
the business
Why Senior Management Will Understate Business
Performance
• To defer “surplus” earnings to the next accounting period.
• To take all possible write-offs in one “big bath” now so future earnings will be consistently
higher.
• To reduce expectations now so future growth will be better perceived and rewarded.
• To preserve a trend of consistent growth, avoiding volatile results.
• To reduce the value of an owner-managed business for purposes of a divorce ­settlement.
• To reduce the value of a corporate unit whose management is planning a buyout
How Do People Commit Financial Statement Fraud

• Playing the accounting system

• Beating the accounting system
• Going outside the accounting system
Methods of Financial Statement Fraud

• Fictitious revenues
• Timing differences
• Improper asset valuations
• Concealed liabilities and expenses
• Improper disclosures
Weaknesses of accounting as a supplier of information

• Accounting standards provide options that can be used by the Company to maximize its
utility, so that the Company can choose accounting policies that are in accordance with its
objectives.
• Accounting standards are principal based, enabling management to use judgment in its
implementation. This can open up opportunities for management to maximize profits or
minimize profits by using their judgment.
• Accounting uses several measurement approaches that can be used differently between asset
groups.
Deterrence of Financial Statement Fraud

 Reduce pressures to commit

financial statement fraud
 Reduce the opportunity to commit
financial statement fraud
 Reduce rationalization of financial
statement fraud
Reduce Pressures to Commit Financial Statement Fraud

• Establish effective board oversight of the “tone at the top” created by management.
• Avoid setting unachievable financial goals.
• Avoid applying excessive pressure on employees to achieve goals.
• Change goals if changed market conditions require it
• Ensure compensation systems are fair and do not create too much incentive to commit fraud.
• Discourage excessive external expectations of future corporate performance.
• Remove operational obstacles blocking effective performance.
Reduce the Opportunity to Commit Financial Statement Fraud

• Maintain accurate and complete internal accounting records.

• Carefully monitor the business transactions and interpersonal relationships of suppliers, buyers, purchasing agents,
sales representatives, and others who interface in the transactions between financial units.
• Establish a physical security system to secure company assets, including finished goods, cash, capital equipment,
tools, and other valuable items.
• Maintain accurate personnel records including background checks on new employees.
• Encourage strong supervisory and leadership relationships within groups to ensure enforcement of accounting
procedures.
• Establish clear and uniform accounting procedures with no exception clauses.
Reduce Rationalization of Financial Statement Fraud

• Promote strong values, based on integrity, throughout the organization.

• Have policies that clearly define prohibited behavior with respect to
accounting and financial statement fraud.
• Provide regular training to all employees communicating prohibited behavior.
Reduce Rationalization of Financial Statement Fraud

• Have confidential advice and reporting mechanisms to communicate inappropriate behavior.

• Have senior executives communicate to employees that integrity takes priority and that goals
must never be achieved through fraud.
• Ensure management practices what it preaches and sets an example by promoting honesty in
the accounting area.
• The consequences of violating the rules and the punishment of violators should be clearly
communicated
Alternatives to conventional accounting and criticism of
conventional accounting
• Criticism of accounting:
• Relevancy of accounting information
• Earnings number are not realible
• Alternative of conventional accounting information:
• Syariah Accounting
• Non Financial Reporting
• Sustainability report
• Integrated report
Contoh-contoh kasus di Indonesia
Reformasi akuntansi dan membangun kepercayaan publik

• Standar- standar akuntansi yang mensyaratkan pengungkapan yang lebih detail dan kompleks
yang mengharuskan perusahaan menjadi lebih transparan dan prudence.
• Integrasi antara financial dan non-financial information
• Diperlukan monitoring yang lebih intensif dari lembaga pengawas pasar modal atas kualitas
LK
• Pengawasan yang lebih intensif atas profesi akuntan dan auditor
• Improvement atas implementasi Tata Kelola Perusahaan dan Kode Etik Perusahaan
• Improvement of transparency
Thank You
Any Question?

[email protected]
081808159111