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AUDITOR’S INTEGRITY AND THE DILEMMA

Written by : Amartya Krisna Permana

Designed by : Azzahra Amelya

Over the years, there have been numerous fraud cases involving auditors, the recent ones are Garuda and Jiwasraya. It might come as a surprise that Jiwasraya is window dressing its financial report since 2006, 13 years before it was finally uncovered. After all this fraud, we might start to think, “What went wrong?”; is it the auditors or the company? As an auditor, there are several ethics codes you must obey, one of them is having integrity. You may hear that in any job, integrity is an integral part in which a person must do “the right thing” not only that, but other people must view what your action is “the right thing”. In their work, the auditor often faces a dilemma about their code of ethics with the company they are working with. What the auditor thinks is the right thing to do doesn’t necessarily mean that’s what the company wants. Sometimes the company improves its financial statement to make it look better. This is what’s called window dressing.

Some of the Auditor’s rules regarding fraud and the detection of it are written on SAS (Statement on Auditing Standards) 53,55,61,82,99,110. There is also a rule stated by the ministry of finance (KMK) No. 359/KMK. 06/2003 to rotate the auditor to avoid collusion with the management of the company. Technically if the auditors follow all these rules, there will be significantly smaller numbers of fraud cases. In reality, there have been a few breaches of these rules resulting in the company’s fraud and the loss of ‘belief’ towards the company.

One of the few examples is Toshiba, with its financial scandal from 2008 to 2015. This was caused due to unrealistic profit targets set by the executives of the government during the 2008 financial crisis. It was made worse due to Toshiba’s culture of obedience to their superior, therefore the divisional heads think that the only way to achieve the target is by deliberately overestimating their sales. The key point is the company’s culture of obedience towards their superior, this culture makes it easy for fraud to happen. This is the very reason auditors exist, to make sure the company is doing their good corporate governance, review all of their financial journals, and suggestions on things to improve in the company. That’s why auditors must be independent, it will give them a clearer view on a problem within the company.

From the Toshiba case, we can conclude because their culture of obedience towards their superior made the auditors faced a dilemma whether to follow them or tell them the truth, in the end they choose the wrong choice. This is why companies should be honest about their audit results because an audit to a company is like a medical check-up for a person. Doing so, you will know what things are good and bad in your company. For instance, a risky investment by the company, a suspicious transaction, etc. Before it is getting worse and the company collapses, just like what happened to Toshiba. 

Reference: 

https://integrity-asia.com/blog/2017/08/25/whistleblowing-fraud-scandal-toshiba/

http://download.garuda.ristekdikti.go.id/article.php?article=1256249&val=13320&title=TANGGUNG%20JAWAB%20AUDITOR%20DAN%20APLIKASI%20STANDAR%20SAS%2082%20DALAM%20PENCEGAHAN%20%20PENDETEKSIAN%20KECURANGAN%20PELAPORAN%20KEUANGAN

https://www.aicpa.org/research/standards/auditattest/sas.html

https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-00318.pdf

https://www.oxford-review.com/how-obedience-and-loyalty-led-to-the-downfall-of-toshiba/

https://integrity-asia.com/blog/2017/08/25/whistleblowing-fraud-scandal-toshiba/