Cases of Fraudulent Corporate Financial Statements in Indonesia Management Assignment Help

Assignment Task

Background of the problem
Cases of fraudulent corporate financial statements in Indonesia are still rife. Worse yet, many of these frauds were carried out in state-owned enterprises (BUMN). PT. Garuda Indonesia, PT Asuransi Jiwasraya, PT. Asabri, and most recently PT. Krakatoa Steel. PT. Garuda Indonesia, the disclosure of fraudulent financial statements began with the results of the 2018 financial statements, where the Garuda Indonesia Group posted a net profit of USD 809.85 thousand or equivalent to Rp. 11.33 billion assuming an exchange rate of Rp. 14,000 US dollars. This net profit increased sharply compared to 2017 which suffered a loss of USD 216.5 million, so the financial report caused a polemic, because the two commissioners of Garuda Indonesia at that time, Chairul Tanjung and Dony Oskaria, who are currently no longer in office, consider the 2018 financial statements Garuda Indonesia does not comply with the Statement of Financial Accounting Standards (PSAK). The reason is, Garuda Indonesia includes the profits of PT. Mahata Aero Technology which still has debts to Garuda Indonesia. (economy.okezone.com, 2019). For cases of fraud at PT. Asuransi Jiwasraya (Persero), started from an investigation conducted by the Supreme Audit Agency (BPK) which conducted two investigations during 2010 to 2019. The results of the examination showed that Jiwasraya had modified its financial statements in 2006. The bookkeeping that should have been considered a loss was recorded at such modification by Jiwasraya, so that the company’s financial statements appear profitable. After being traced, the reason is the liquidity pressure at Jiwasraya that has been going on for a long time. The chairman of the BPK stated that Jiwasraya had done accounting engineering (window dressing), where in fact the company had suffered losses. BPK also assessed that there were irregularities in the net profit bookkeeping conducted by Jiwasraya in 2017. The net profit recorded was Rp. 360.3 billion was assessed by BPK that there was a shortage of reserves of IDR 7.7 trillion, so that if the reserves were carried out according to the provisions, the company should suffer losses.

Then in 2018 Jiwasraya reported a loss in its financial statements (unaudited) of Rp. 15.3 trillion and until the end of September 2019 an estimated loss of Rp. 13.7 trillion. (economy, okezone.com, 2020).The Association of Certified Fraud Examiners (ACFE) in its Report to the Nations on Occupational Fraud and Abuse in 2020 found around 93% of cases of financial statement fraud for the Asia Pacific region. The sad thing is that Indonesia ranks highest in cases of fraudulent financial statements from 16 countries in Asia Pacific and shows that there are 36 cases out of 198 cases. The ACFE report further worsened Indonesia’s image, and the report increasingly indicated that there were many indications of fraud in the financial statements of both state and private companies. The cases of Garuda Indonesia, Jiwasraya are examples of cases of fraudulent financial statements in state companies. Private companies listed on the Indonesia Stock Exchange are also indicated to have fraudulent financial statements. For example PT. Tiga Pilar Sejahtera Tbk (AISA) was found to have falsified the 2016 and 2017 financial statements by “marking up” the value of receivables, to suggest an increase in sales, so that the company’s performance was considered good. As a result of his fraud, in 2018 AISA’s shares were suspended (suspension) by the Indonesia Stock Exchange.

Fraudulent company financial statements certainly result in a bad image, reduce the value of the company and make the company lose the trust of interested parties (stakeholders). Auditors, in this case have a very important role to control various fraudulent financial statements by detecting all possible fraud that will occur in the company. The American Institute of Certified Public Accounts (AICPA) issued Statement of Auditing Standards (SAS) No. 99 concerning the Consideration of Fraud in a Financial Statement Audit in 2002. The purpose of the issuance of the AICPA is to increase the effectiveness of auditors in detecting fraudulent financial statements. Donald Cressey, in 1953 had discovered a theory of fraud known as the “Fraud Triangle” (Vanakkeren, 2021). The theory of Fraud Tiangle explains that there are three conditions that make a person commit a crime (cheating), namely “Pressure” (Pressure), “Opportunity” (Opportunity), and “Rationalization” (Rationalization). Many previous researchers have also conducted research on the Fraud Triangle such as ADDIN CSL_CITATION {“citationItems”:[{“id”:”ITEM-1″,”itemData”:{“abstract”:”This study aims to detect financial statement fraud based on the fraud triangle analysis.