Investing in Indonesia? Don’t look at the books

By Elizabeth Pisani
779 words
17 November 1990
Reuters News
(c) 1990 Reuters Limited

JAKARTA, Nov 17, Reuter – Impressive figures, say foreign investors flicking through the books of many a company in Indonesia’s booming private sector. But are they genuine?

As business blossoms, the stock market opens up, the government is getting serious about collecting taxes and accountants are snowed under with work.

But many, even within the profession, say dubious accounting principles, dodgy ethical standards and a dearth of professionalism are jeopardising growth.

"Indonesia has been asleep for so long. Now it’s rattled awake, but you can’t possibly expect professional education to keep up," said one accountant turned business consultant.

As a new breed of Western-educated businessmen takes over from company founders, accountancy is becoming more important.

"Rather than govern by instinct like the old men, the new generation want to rely on statistics. They look at the numbers and if the numbers are lying, they can’t make sensible decisions," said a senior Indonesian partner in a multinational accountancy firm.

Many local firms have for years kept basic financial data away from the prying eyes of the public and the taxman, and they are unable or unwilling to obey disclosure rules fully when they list in the newly-energetic stock market, accountants say.

"With the best will in the world, lots of firms don’t even know what a good set of books is," said one local accountant.

"I’ve had clients breaking rules that were the wrong rules in the first place, creating books that were more damaging than if they had kept proper books."

A recent scandal at Bank Duta, which revealed long-standing foreign exchange losses of 420 million dollars a few months after going public, shows how unreliable disclosure is.

There was not a mention of the losses in Duta’s prospectus, which included accounts audited by a little-known firm.

Indonesia’s President Suharto, who chairs charities which own over 70 per cent of Bank Duta’s shares, called soon after the debacle for more ethical behaviour by accountants.

"Most firms are working with principles that wouldn’t pass muster for a second elsewhere," said the local accountant. "Disclosure is all very well, but if the figures are untrue then it’s irrelevant."

Professionalism is at low ebb particularly in the smaller local firms, which are often compromised by relying on one or two big clients for huge slabs of income, industry sources say.

"If a client who provides you with 80 per cent of your income is playing acrobatics with the tax office but tells you to keep your mouth closed, you keep your mouth closed," the accountant said.

Although the Indonesian Accountants Association (IAI) has a proliferation of committees trying, so far with little result, to work out new accounting principles and tighter controls, they say the government does too little to support them.

"It’s a political question. The government has become shy about reprimanding smaller accountants and making them behave. It doesn’t invite public sympathy if you’re labelled pro-big business," said a prominent IAI member.

The industry suffers from a lack of personnel. There are some 5,000 qualified accountants in Indonesia, but only around a fifth are in private practice.

They are regularly poached by rich firms, and much-criticised government rules make them hard to replace. Jakarta does not accept credentials from private institutions, which excludes people who cannot find places in state universities.

"We understand it’s unfair, but it’s hard to change the law," said Katjep Abdoelkadir, head of the World Bank-backed Coordinating Agency for Accounting Development.

All accountants who do qualify have to do two years of government service, from which many never emerge.

Despite the deluge of work from companies that have decided to straighten up their books to pay taxes or go public, competition remains fierce, and accountants accuse one another of fee-cutting that promotes an unprofessional approach.

"We were offered a public company audit at four million rupiah (2,100 dollars). We couldn’t have done it for less than 75 million rupiah (40,000 dollars)," said the partner in the multinational firm. "The only way you can afford to take those sorts of fees is by not doing the work."

Things will improve if the industry can define and stick to up-to-date accounting principles, and if foreign investors make it clear that honest book-keeping is a prerequisite for successful joint ventures, accountants and consultants agree.

"But it says something about accountancy that Indonesian businesses have so far got along so well without it," said a foreign business consultant.

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