As both companies are burdened heavily with debt, and trading in Waskita’s shares has been stopped, a delayed clarification of suspicions could make the allegations more credible and this could further undermine the faith of the investing public and lenders in the IDX.  Particularly because such accounting fraud seems to have become a disturbing regularity.

Take for example the high-profile case of the Bakrie Brother group and three subsidiaries, all listed on the IDX, which reported in their first quarter 2010 financial statements Rp 9.05 trillion (US$1 billion) in deposits at Bank Capital, also a publicly listed bank. However, the bank’s report showed its third-party funds only totaled Rp 2.02 trillion.

After a whistleblower revealed that discrepancy, the irregularity was corrected and dismissed as a typo, and the IDX only fined the Bakrie companies Rp 500 million each. Yet more puzzling was that Bank Indonesia, then still the main micro-prudential supervisor of banks, regarded the Rp 7 trillion discrepancy simply as an error that did not impact on the bank’s financial health.

Another major scandal took place in the 2018 financial statement of publicly listed national carrier Garuda. After investigations the OJK found Garuda guilty of financial engineering and forced the company to fix and restate its 2018 financial report.

After correcting for accounting errors, the new results showed an astounding US$179 million net loss, strikingly different from the $800,000 profit stipulated in the previous report. For such a huge accounting error, Garuda and its board of directors were fined only Rp 1.25 billion by the OJK

Also in mid-2018, accounting misconduct at financial services firm PT Sunprima Nusantara Pembiayaan misled investors and creditors leading to Rp 1.8 trillion in losses to banks and investors. Then there was fraud relating to the financial reports of several other public companies such as PT Kimia Farma, PT Indofarma and PT Hanson International.

The Attorney General’s Office (AGO) in mid-2020 named 13 fund-management firms, an OJK executive in charge of capital market monitoring and the directors of two publicly listed companies as suspects in the fraud case at insurer Jiwasraya.

Even more discouraging is that the penalties imposed on those implicated in the accounting malpractices and financial shenanigans are so lenient that they do not provide an effective deterrence for overly greedy finance managers or majority shareholders intending to deceive tax officials, creditors or retail investors.

Credible audited financial reports are key to the integrity of the financial services industry, the first requisite for good corporate governance and the primary guide for investors. The fact that such extensive window dressing took place at publicly traded companies, which are subject to stringent disclosure requirements and audits by independent public accountancy firms, has raised great concern among the investing public about the credibility and reliability of  companies’ financial reports, OJK oversight and the quality of governance by the IDX management.          

Good corporate governance (GCG) is a key component of the environmental, social and governance (ESG) principles, which are now used as the main measurements to assess the long-term sustainability of businesses. GCG is also the foundation of the market economy. It embodies the rules and practices that govern the relationship between the managers and shareholders of corporations, as well as stakeholders like employees, pensioners and local communities and ensures transparency, fairness and accountability.

GCG is a prerequisite for the integrity and credibility of market institutions. By building confidence and trust, good governance allows corporations to have access to external finance and to make reliable commitments to creditors, employees and shareholders. It is this contract that underpins economic growth in a market economy.

The recent spate of financial scandals and breakdowns in truthful accounting and internal control at publicly listed companies could damage public trust in financial reporting, corporate leadership and the integrity of the market. When this trust is lost, lenders and investors lose their appetite for risk, and the investing public, notably retail investors, offload their equity, resulting in lost value and reduced availability of capital.