T

he Supreme Court'€™s investigative audit of the government-funded Hambalang sports center project in West Java found strong indications of '€œwindow dressing'€ in the financial statements of publicly traded PT Adhi Karya and PT Wijaya Karya, related to questionable payments by the two state construction companies.

The investigative audit was conducted at the request of the House of Representatives in light of the alleged corruption in the construction of the US$210 million project.

The big question then is how such publicly traded companies, which are subject to strict disclosure requirements and high accounting standards, could have buried the millions of dollars worth of payments the two companies made between September 2009 and December 2010 in their financial statements without alerting their auditors as to the shady nature of the transactions.

Earlier in May, London-listed Bumi plc stated that a review of the books of one of its Indonesian units, PT Berau Coal Energy, also traded on the Jakarta stock exchange, had revealed about $201 million of spending in 2011 and 2012 for what it considered inappropriate business purposes.

A similarly puzzling question is how such huge questionable expenditure by a publicly listed company could have escaped the scrutiny of the auditors. Yet more mindboggling is that the stock market oversight body, now called the Financial Services Authority (OJK) seemed ignorant about the dubious transactions.

Equally astonishing is that the accounting irregularities were simply resolved through an agreement that the director responsible for the questionable spending return $173 million in cash and assets.

Earlier in July 2010 the Indonesian Stock Exchange (IDX) management punished PT Bakrie Brothers and two of its subsidiaries with a Rp 500 million ($52,000) fine each for what it merely described as erroneous entries amounting to $780 million in their first quarter, 2010 financial statements. The IDX management became aware of the huge discrepancies only because of a tip from a whistle-blower earlier in June.

However, the manner in which the IDX management and the stock exchange watchdog resolved the problems still left serious questions as to how such publicly listed companies had been so careless about their accounts involving hundreds of millions of dollars in discrepancies.

Questionable and unreliable financial statements could damage investor trust because financial reports, accountability to the investing public and shareholders, greatly influence the value of shares on the stock market.

It is therefore most urgent and imperative for the OJK, as the watchdog responsible for enforcing the laws and regulations of the stock market, to probe into the roots of the lingering concerns over the audited financial statements of companies implicated in corruption cases.

Certainly the investigations and the findings should be credible, otherwise investor confidence and trust in the stock market will be severely damaged and the latest wave of bearish sentiment on Indonesia'€™s economy could escalate.