TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Financial shenanigans, financial statement fraud
Financial shenanigans are actions taken by management that mislead investors about a company’s financial performance or economic health. As a result, investors are tricked into believing that the company’s earnings are stronger, its cash flow more robust and its balance sheet position more secure than they really are.
Change Size
Not your land: Jakarta Police spokesman Sr. Comr. Argo Yuwono (right) shows a fake land ownership certificate that was seized as evidence in a case of fraud at a press conference. Investment scams have continued to deceive victims despite warnings from authorities. (JP/Rafaela Chandra)
I
n early 2001, Joe Nacchio, the chief executive officer of Qwest Communications, stood onstage at a company-wide meeting and delivered a rousing speech intended to energize his team and focus it on his priorities for the company. “The most important thing we do is meet our numbers,” Nacchio declared. “It’s more important than any individual product; it’s more important than any philosophy; it’s more important than any cultural change we’re making. We stop everything else when we don’t make the numbers.”
Through his words and deeds, Joe Nacchio created a culture that resulted in US$2.5 billion of phantom earnings, landing himself in federal prison and devasting investors who saw the stock price tumble by 97 percent in the 18 months following his speech. Actually, there are still many other cases related to financial statement fraud, such as Waste Management Inc., WorldCom’s, Enron’s cases and so on.
In June 2019, the Indonesia Financial Services Authority (OJK) announced that Garuda Indonesia’s financial report was faulty and ordered the airline to pay Rp 100 million ($7,140) in fines. Each of the airline’s seven directors and five commissioners also has to pay the same amount in fines.
The Finance Ministry, in its capacity as the supervisor of public accounting practices, also slapped a one-year ban on the public accounting firm that audited Garuda’s financial report.
The financial statements are designed to provide economic information and measurement of the resources and performance of a company as a basis for decision making. Good and qualified financial reporting will provide a clear picture of the company’s performance and future prospects to the investors.
Asymmetry information arises when there is an imbalance of information acquisition between the management as a provider of information and the shareholders and stakeholders as general users of information.
Financial shenanigans are actions taken by management that mislead investors about a company’s financial performance or economic health. As a result, investors are tricked into believing that the company’s earnings are stronger, its cash flow more robust and its balance sheet position more secure than they really are.
