MODUL-6 Financial Accounting
Full Disclosure in Financial Reporting By MUH. ARIEF EFFENDI,SE,MSI,AK,QIA
Magister Accounting Program (MAKSI) BUDI LUHUR UNIVERSITY Jakarta - Indonesia 2010
Full Disclosure in Financial Reporting After studying this topic, students should be able to: 1.
Understand the basic of Full Disclosure in Financial Reporting.
2.
Understand the Full Disclosure Principles.
3.
Understand the Objective of Financial Reporting.
4.
Understand the types of Financial Information.
5.
Understand the Financial Accounting Environment.
6.
Understand the Supply & Demand of Financial Information.
7.
Understand the Type of Transactions to be Disclosure.
8.
Identify the Agregation of Operating Segments & Reportable Segments.
9.
Understand the Required Segmented Information.
10.
Understand the Interim Reporting Requirements and the Problems of Interim Reporting.
11.
Identify the major disclosures in the Auditor’s Report Standards & Auditor’s Opinion.
12.
Understand the Management’s Report.
13.
Identify issues related to Financial Forecasts and Projections.
14.
Understand the Internet Financial Reporting.
15.
Understand the regulation of BAPEPAM-LK in Indonesia.
16.
Describe the profession’s (Independent Auditor & Internal Auditor) response to Fraudulent Financial Reporting (FFR).
Full Disclosure in Financial Reporting : The Basic Full Disclosure in Financial Reporting
Full Disclosure Principle
Increase in reporting requirements Differential disclosure
Notes to Financial Statements
Accounting policies Common notes
Disclosure Issues
Special transactions or events Post-balancesheet events Diversified companies Interim reports
Auditor’s and Management’s Report
Auditor’s report Management’s reports
Current Reporting Issues
Reporting on forecasts and projections Internet financial reporting Fraudulent financial reporting Criteria for accounting and reporting choices
Full Disclosure Principles
Full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader.
Financial disasters at Microstrategy, PharMor, WorldCom, and Global Crossing highlight the difficulty of implementing the full disclosure principle.
Requires that statements and their notes present all information that is relevant to the users’ understanding .
Objectives of Financial Reporting
Financial reporting must provide information that is useful to investors & creditors & other users in making rational investment, credit, and similar decisions. The information must be comprehensible to those who have a reasonable understanding of business and economic activities & are willing to study the information with reasonable diligence. To provide information useful in assessing cash flow prospects. To provide information about business resources, claims to those resources, and changes in them.
Types of Financial Information
Financial Accounting Environment External Users Group (Demand) of information
Suppliers (Providers) of Financial Information
Profit-oriented companies Not-for-profit Entities Households
Relevant
Financial Information
Investors Creditors Employees Labor unions Customers Suppliers Government agencies Financial intermediaries
Relevant of Financial Information
Market share Capital expenditures Market growth Earnings Cash flow by business segment Competitive landscape Revenue by product type
Relevant of Significant Informations
Quality of management Regulatory environment Customer churn rate Pricing strategy Growth strategy Significant operating costs by category Sales and marketing strategy Number of customers by type Cost per gross additional customer Strategic alliances Research & development activities Breadth of product offerings Brand equity
Supply of Financial Information
Financial information is provided primarily through financial statements and disclosure notes. 1.
Mandatory Financial statements for public firms including : balance sheet, income
statement, statement of stockholders’ equity and statement of cash flows. 2.
3.
Disclosures (mandatory and voluntary) Other forms of information: Press release and management forecasts (MD&A).
Supply of Financial Information : Disclosures
Type of Disclosures: Mandatory Disclosures: accounting policies, critical estimates, subsequent events, pension information, lease disclosures, etc. Voluntary disclosure is guided by cost/benefit considerations The following are disclosure costs : Information production cost. Competitive disadvantage. Litigation exposure. Political exposure..
What are the suppliers’ disclosure incentives? The following are disclosure benefits of supplying quality, credible, audited financial statements: Increase investors’ confidence on company’s financial information and thus, reduce the uncertainty about the quality of financial information. Enable managers to raise capital cheaply.
Type Transactions to be Disclosure Two types of post-balance sheet events must be disclosed : 1. Events that provide additional evidence about conditions that existed at the balance sheet date that require adjustments. 2. Events that arose subsequent to the balance sheet date, not requiring adjustments.
Identifying Operating Segments An operating segment is a component that: engages in business activities, is reviewed by the conglomerate’s chief operating officer; and produces discrete financial information from the internal financial reporting system.
Agregation of Operating Segments Operating segments may be aggregated if they have the same basic characteristics in: products and services rendered production process type or class of customer methods of product or service distribution regulatory environment
Reportable Segments An operating segment is identified as a reportable segment if it satisfies one or more of the following criteria: 1. revenue criterion 2. profit or loss criterion 3. identifiable assets criterion
Reportable Segments Criterion
Segment revenue
Segment profit or loss
Identifiable assets
Thresholds Is more than ten percent of the combined revenue of all operating segments Is ten percent or more of the greater of: the combined profit of all operating segments not showing a loss, or the combined loss of all operating segments reporting a loss Ten percent or more of the combined assets of all operating segments
Required Segmented Information
General information about its operating segments Segment profit and loss and related information Segment assets Reconciliation of segment revenues, profits and losses, and segment assets Information about products and services and geographical areas Major customers
Interim Reporting Requirements Two approaches: integral and discrete Most companies employ both . approaches for Reporting requirements: 1. Use of same accounting principles. 2. Period costs often charged as incurred 3. Not required to publish Balance Sheet or Statement of Cash Flows (SCF).
Problems of Interim Reporting Advertising and similar costs Expenses subject to year-end adjustments Income taxes Extraordinary items Changes in accounting principles Earnings per share
.
Auditor’s Reporting Standard states whether the financial statements are in conformity with GAAP. . identify circumstances in which GAAP have not been consistently applied. disclosures in financial statements are deemed adequate unless otherwise stated. an opinion on the financial statements, if possible.
The Auditor’s Opinion The auditor can render or provide: . A qualified opinion An unqualified opinion Reasons requiring the addition of explanatory paragraphs to the unqualified report An adverse opinion (circumstances) A disclaimer
The Management’s Report
.
Management’s Discussion and Analysis covers three aspects of an enterprise :
Liquidity Capital resources Results of operations
Identifies favorable or unfavorable trends Identifies any significant events and uncertainties that affect the three aspects
The Financial Forecasts & Projections
.
The investing public needs and wants more and better information about corporate expectations. The disclosures take one of two forms: 1. Financial forecast of an entity’s expected financial position. 2. Financial projection based on hypothetical assumptions.
The Internet Financial Reporting
.
Corporations can reach more users by the internet. Internet reporting can make traditional reports more useful: Corporations can report more timely information; They can also report disaggregated data; There is, however, concern about security on the internet (hackers).
BAPEPAM-LK Regulation
Kewajiban bagi Emiten dan Perusahaan Publik untuk menyampaikan Laporan Tahunan (annual report) : 1. Ikhtisar data keuangan penting 2. Laporan dewan komisaris 3. Laporan direksi 4. Profil perusahaan 5. Analisis dan pembahasan manajemen 6. Tata kelola perusahaan 7. Tanggung jawab direksi atas laporan keuangan 8. Laporan keuangan yang telah diaudit
BAPEPAM-LK Regulation
Peraturan BAPEPAM No. X.K.1 Lampiran Keputusan Ketua Bapepam-LK Nomor : Kep-86/PM/1996 tanggal 24 Januari 1996 tentang Keterbukaan Informasi yang Harus Segera Diumumkan kepada Publik.
BAPEPAM-LK Regulation Pedoman Penyajian dan Pengungkapan Laporan Keuangan Emiten atau Perusahaan Publik (P3LKEPP): Untuk memberikan suatu panduan penyajian dan pengungkapan yang terstandarisasi dengan mendasarkan pada prinsip-prinsip pengungkapan penuh (full disclosure), sehingga dapat memberikan kualitas penyajian dan pengungkapan yang memadai bagi pengguna informasi yang disajikan dalam pelaporan keuangan Emiten atau Perusahaan Publik. Aturan yang lebih detil sebagai acuan untuk pelaksanaan guna melaksanakan Peraturan Nomor VIII.G.7 tentang Pedoman Penyajian Laporan Keuangan. Peraturan ini menetapkan bentuk, isi, dan persyaratan dalam penyajian laporan keuangan yang harus disampaikan oleh Emiten atau Perusahaan Publik.
P3LKEPP BAPEPAM-LK : Industry Categories
Industri Manufaktur Industri Investasi Industri Rumah Sakit Industri Jalan Tol Industri Perhotelan Industri Restoran Industri Telekomunikasi
Industri Konstruksi Industri Perdagangan Industri Transportasi Industri Real Estate Industri Peternakan Industri Perkebunan Industri Pertambangan Umum Industri Minyak & Gas Bumi. Industri Perbankan.
Fraudulent Financial Reporting (FFR) : Definition Arens (2005) : Fraudulent financial reporting (FFR) is an intentional misstatement or omission of amounts or disclosure with the intent to deceive users. Most cases of FFR involve the intentional misstatement of amounts not disclosures. For example, Worldcom is reported to have capitalized as fixed asset, billions dollars that should have been expensed. Omission of amounts are less common, but a company can overstate income by omitting account payable and other liabilities. Although less frequent, several notable cases of FFR involved adequate disclosure. For example, a central issue in the Enron case was whether the company had adequately disclosed obligations to affiliates known as specialm purpose entities.
Fraudulent Financial Reporting (FFR) : Definition Defined as “intentional or reckless conduct, whether act or omission, that results in materially misleading financial statements.” Could be gross and deliberate distortions. Could be misapplication of accounting principles or failure to properly disclose material items.
Fraudulent Financial Reporting (FFR)
Fraudulent financial reporting adalah perilaku yang disengaja atau ceroboh,baik dengan tindakan atau penghapusan,yang menghasilkan laporan keuangan yang menyesatkan (bias). Fraudulent financial reporting yang terjadi disuatu perusahaan memerlukan perhatian khusus dari auditor independen & internal auditor.
Fraudulent Financial Reporting (FFR) : Categories
1. Manipulasi, falsifikasi, alterasi atas catatan akuntansi dan dokumen pendukung atas laporan keuangan yang disajikan. 2. Salah penyajian (misrepresentation) atau kesalahan informasi yang signifikan dalam laporan keuangan. 3. Salah penerapan (misapplication) dari prinsip akuntansi yang berhubungan dengan jumlah, klasifikasi, penyajian (presentation) dan pengungkapan (disclosure).
Fraudulent Financial Reporting (FFR) : Causes
Impacted by internal and external environments. Opportunities increase in certain situations: 1. 2. 3. 4. 5.
Weak board of directors or audit committee. Weak internal controls. Unusual or complex transactions. Accounting issues requiring significant subjective judgments. Ineffective internal audit function.
Fraudulent Financial Reporting (FFR) : COSO Research Penelitian COSO (1999) yang berjudul “Fraudulent Financial Reporting : 1987 – 1997, An Analysis of U.S. PublicCompany”, bahwa dari hasil analisa perusahaan yang listing di Securities Exchange Commission (SEC) selama periode Januari 1987 s.d. Desember 1997 ( 11 tahun) : Teridentifikasi sejumlah 300 perusahaan yang terdapat fraudulent financial reporting yang memiliki karakteristik yaitu memiliki permasalahan bidang keuangan (experiencing financial distress), lax oversight dan terdapat fraud dengan jumah uang yang besar (Ongoing, large-dollar frauds). Contoh kasus Fraudulent Financial Reporting antara lain Enron, Tyco, Adelphia dan WorldCom.
Fraudulent Financial Reporting (FFR) : Prevention & Detection The National Commission On Fraudulent Financial Reporting (The Treadway Commission) merekomendasikan 4 (empat) tindakan untuk mengurangi kemungkinan terjadinya fraudulent financial reporting : 1. Membentuk lingkungan organisasi yang memberikan kontribusi terhadap integritas proses pelaporan keuangan(financial reporting). 2. Mengidentifikasi dan memahami faktor- faktor yang mengarah ke fraudulent financial reporting. 3. Menilai resiko fraudulent financial reporting di dalam perusahaan. 4. Mendisain dan mengimplementasikan internal control yang memadai untuk financial reporting.
Fraudulent Financial Reporting (FFR) : Prevention & Detection Mulfrod & Comiskey (2002) “The Financial Numbers Game : Detecting Creative Accounting Practices” Difokuskan bagi para investor sebagai pembelajaran untuk mengetahui secara cepat adanya fraudulent accounting. Tiga 1. 2. 3.
(3) atribut untuk mendeteksi adanya risiko fraudulent financial reporting : terdapat kelemahan dalam internal control. perusahaan tidak memiliki komite audit. terdapat family relationship antara Director dengan karyawan perusahaan.
Klasifikasi dari Creative Accounting Practices : 1. Recognizing Premature or Ficticious Revenue. 2. Aggressive Capitalization & Extended Amortization Policies). 3. Misreported Assets and Liabilities. 4. Creative with the Income Statement. 5. Problems with Cash-flow Reporting.
Fraudulent Financial Reporting (FFR) : Prevention & Detection Menurut The National Commission on Fraudulent Financial Reporting, pencegahan dan pendeteksian awal atas fraudulent financial reporting harus dimulai pada saat penyiapan laporan keuangan. Rezaee (2002) dalam bukunya “Financial Statement Fraud: Prevention and Detection” membahas cukup mendalam tentang teknik untuk mencegah dan mendeteksi adanya fraud dalam laporan keuangan . Dalam buku tersebut dijelaskan kasus kolapsnya Enron di Amerika Serikat (USA), yang menghebohkan kalangan dunia usaha secara jelas dan lengkap, termasuk adanya praktek kolusi.
Fraudulent Financial Reporting (FFR) : Independent Auditor’s Responsibility Statements on Auditing Standards No. 99 (Consideration of Fraud in a Financial Statement Audit). Revisi dari SAS No. 82, diberlakukan efektif untuk audit laporan keuangan setelah tgl 15 Desember 2002. Auditor bertanggungjawab untuk merencanakan dan melaksanakan audit guna mendapatkan reasonable assurance bahwa laporan keuangan bebas dari salah saji material, baik yang disebabkan oleh kekeliruan error maupun fraud. Terdapat perubahan penting terhadap prosedur audit serta dokumentasi yang harus dilakukan oleh auditor Menegaskan agar auditor independen memiliki integritas serta menggunakan professional skepticism melalui critical assessment terhadap audit evidence yang dikumpulkan.
Fraudulent Financial Reporting (FFR) : Independent Auditor’s Responsibility Standar Profesional Akuntan Publik (SPAP) Standar Auditing Seksi 110 : “Tanggung Jawab dan Fungsi Auditor Independen”
Pada paragraf 2, auditor bertanggung jawab untuk merencanakan dan melaksanakan audit untuk memperoleh keyakinan memadai tentang apakah laporan keuangan bebas dari salah saji material, baik yang disebabkan oleh kekeliruan atau kecurangan.
Oleh karena sifat bukti audit dan karakteristik kecurangan, auditor dapat memperoleh keyakinan memadai, namun bukan mutlak, bahwa salah saji material terdeteksi.
Auditor tidak bertanggung jawab untuk merencanakan dan melaksanakan audit guna memperoleh keyakinan bahwa salah saji terdeteksi, baik yang disebabkan oleh kekeliruan atau kecurangan, yang tidak material terhadap laporan keuangan.
Fraudulent Financial Reporting (FFR) : Internal Auditor’s Responsibility
Statement on Internal Auditing Standards (SIAS) No. 3, tentang Deterrence, Detection, Investigation, and Reporting of Fraud (1985), memberikan pedoman bagi auditor internal tentang bagaimana auditor internal melakukan pencegahan, pendeteksian dan penginvestigasian terhadap fraud. SIAS No. 3 tersebut juga menegaskan tanggung jawab auditor internal untuk membuat suatu laporan audit tentang fraud.
REFERENCES
1. American Institute of Certified Public Accountants (AICPA) , http://www.aicpa.org 2. Arens, Alvin A, Randal J. Elder & Mark S. Beasley, Auditing and Assurance Services : An Integrated Approach, Pearson Education, 10th Edition, 2005. 3. Financial Accounting Standard Board (FASB), http://www.fasb.org 4. Http://www.bapepam.go.id 5. Indonesian Institute of Accountants (IIA), Dewan Standard Akuntansi Keuangan (DSAK), http://www.iaiglobal.or.id 6. International Accounting Standard Board (IASB), http://www.iasb.org 7. International Financial Reporting Standard (IFRS), http://www.ifrs.org 8. Kieso, Donald E., Jerry J. Weygandt & Terry D. Warfield, Intermediate Accounting, John Wiley & Sons, Inc, 13th Ed, 2009. 9. Mulford, Charles W. & Comiskey , Eugene E. The Financial Numbers Game : Detecting Creative Accounting Practices. John Wiley & Sons. January 2002. 10. Rezaee, Zabihollah. Financial Statement Fraud : Prevention and Detection. John Wiley & Sons, August 2002. 11. Warren, Carl S., James M. Reeve & Philip E. Fess, Accounting, South-Western College Publishing, 21th Ed, 2004.
