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Quality of Accounting Profession in Indonesia

Law no. 5 in 2011

Stefani Dian

Stefani Dian Werdiningsih 08/288626/EK/17671

Chapter I Background

Public Accountant is a profession that produces assurance and non-assurance services. Assurance services are the main services used by the public as an important consideration in economic decision making. Assurance services are services to give conviction to the user for the evaluation or measurement of financial and nonfinancial information based on some criteria established. In other words, assurance services are professional services provided by an independent party, in this case, public accountants to improve the quality of information for decision makers. Non-assurance services are services provided by a public accountant in which he gives no opinion, negative convictions, and a summary of findings or convictions in another form. Assurance services are included in the audit services, examination services, review services, and agreed upon procedure. Meanwhile non-assurance services included consulting services, compilation and tax services. Thus, public accountants have an important role in improving the quality and credibility of financial statements of an entity. In Indonesia, there is no law specifically regulates the profession of Certified Public Accountants as a whole before the Law no. 5 in 2011 is authorized. Law no. 34 in 1954 about the use of accountant degree, which consists of seven chapters, have not describe the whole profession of Certified Public Accountants, and is not in accordance with the development of the profession of Certified Public Accountants nowadays. Law No.34 of 54 has not set up the basics of Certified Public Accountants profession as in Law no. 5 in 2011. House of Representatives has passed a Law on Public Accounting which is very controversial that might consider will ruin the accounting profession in Indonesia. From all of the articles in the Law no. 5 in 2011, there is one article that is surprising, an explanation of the Article 6(a) that stated: "who can get the education profession of public accountant is a person who has at least an undergraduate education (S-1), diploma IV (D -IV), or equivalent ". It is meant to be a public accountant could be not coming or graduating from accounting degree.

Respond to a variety of accounting community many have regretted this law. People from accounting background are disappointed because now the public accounting profession can graduate from anywhere, not even an undergraduate level. Accountant compares accounting profession to lawyers that have to pass a law degree; doctor must be graduated from faculty of medicine; and even professional psychologists who have a graduate degree in psychology. Government tried to open the widest door of opportunity to be a public accountant in accordance with the concern towards quantity and quality in global public accountant in Indonesia. In terms of quantity, public accountant in Indonesia is clearly left far behind the neighboring countries. Indonesia only has 920 certified public accountants and even more pathetic only about 800 people who practice, then is not practice anymore because of leave or they were getting penalized. Compare that with the Philippines and Malaysia which both have public accountant more than 4000 people. More worryingly, 64% of practicing certified public accountants in Indonesia is over 50 years of age and only 10% are aged of 30-40 years. In terms of quality of service provided, the 800-CPAs in Indonesia that spread over to 400 public accounting firms (KAP) nationwide, approximately half of them only have one partner. Meanwhile, the quality of audit services that meet international quality standards require an adequate procedures of conducting working paper, competent professional workforce, as well as "peer review". Therefore, the audit quality in Indonesia is considered poor, because from half of the public accounting firms in Indonesia are individual businesses with low capital. Many people then blame the difficult requirement as a public accountant for the low number of certified public accountants in Indonesia. To become a certified public accountant, an accounting graduate, must complete the profession education. After completing the profession education, they must pass professional certification exams to the title of CPA (Certified Public Accountant). If you want to add a license for practice, the CPA must be coupled with experience working as an auditor as much as 1000 hours in the last five years. Truthfully, opening up opportunities for those without an undergraduate accounting education into for public accountant profession is in accordance with the international practice. Surely there are higher requirements for those without formal education compared with accounting

graduates. However the bottom line of accounting profession is giving the opportunities as many as possible to anyone interested in public accounting so that the current supply of accountant to the profession is not impeded. Indonesia requires more certified public accountant to support the rapid development in every industry, in which it requires accountant to give high quality of audit.

Chapter II Issue

Crisis or Special Requests?

The big question whether the crisis of public accounting in Indonesia is more associated with the supply or demand? As of December 2010 Indonesia has 49.343 registered accountants. They are the accountants who already have an accounting degree, moreover about 6700 of them even got their accountant degree with completing the accounting profession education. Even if the number of forty-nine thousand is also included thousands of accountants who have passed away and retire, but it cannot be denied that the number of accountants in Indonesia is very large. Therefore it raised the question, why from the forty-nine thousands of accountants in Indonesia, only less than a thousand people who practiced as a certified public accountant? How it could be public accounting industry may experience a crisis when the number of accounting majors is still becoming favorite major in many university departments. Hundreds thousands of accounting student graduated each year from many universities in Indonesia. Therefore there is only one reason that cause the low numbers of certified public accountant in Indonesia, this industry is not attractive and is unable to attract an accountant graduate. If the CPA industry is attractive and promising it would be no matter how difficult the requirements are, it will be challenged by those who interested. In fact, many public accountant in Indonesia, particularly one who have practice outside Jakarta area that still need to have another profession in order to get a decent life. Public accountant firm is also complaining a lot about the small audit fee proposed by the companies in Indonesia, so it is not sufficient to achieve an adequate standard of work. Then, other complaints are about the lack of services that can be offered by public accounting firms. The junior auditor in Indonesia (except those who work in large accounting firm) may only be given in salary at the same amount of basic wage rate, the same as the factory workers who graduated from high school. Almost all junior auditors are complained about long working hours and the work pressure.

Several laws and minister decree actually have regulations that a company with a number of specific assets to be audited by public accountants, but in fact is very surprising that the number of audit engagement in Indonesia under 18.000 only. Based on BPS 2006 economic census the number of medium and large enterprises in Indonesia amounted to 166.400. Compared to 2011 there are more than 200.000 medium and large enterprises. The fact that only 18.000 audit engagement in Indonesia indicates that the demand for audit services in Indonesia is still very minimal, especially for other accounting services such as review. Audit services still dominate the services rendered by public accounting firm by 70%, so it is could be predicted that the World Bank, government institution, and chartered accountant institution suggests public accounting firm in Indonesia to give more services related to accounting other than audit services focused only. The lack of demand and also together with high pressure of the low fee of audit services from companies in Indonesia causing the profession of Certified Public Accountant being unfavorable among other job in accounting field. The low fee for audit services is much complained of by the public accountant that practice outside Jakarta and Surabaya. Companies generally offer the lowest fee possible for audit services, but often generous to pay tax consulting services at high prices. Most company prefer to have tax consultation in order to avoid tax rather than audit their financial report, especially for private company which has no requirement to disclose their financial report to public. Public Accounting Firm who clung to the quality of audit work is generally reject if the audit fee offered was too low, but there was always a desperate public accounting firm or fake public accounting firm willing to accept the job. A phenomenon of fake public accounting firm in Indonesia is not a surprising news since there are only small number of certified public accountant and yet so many of company gets audited. Fake public accounting firm is also degrading the accounting profession in Indonesia. Public accountant keeps complaining of hardship to make their client willing to pay a decent amount of audit fee for the services so they can provide quality, while the company also complained that the audit services provided by public accountant is not significantly adding value to the improvement of the company so that eventually they bid low. Company requires

more services as a package such as review and other assurance services; however the public accounting firm is reluctant to do so since the fee is too low.

The Importance of Accounting Profession Image

The lack of role models in this industry has made the young accountant and junior auditors are not interested to continue in depth. Role model is very important to make the profession attractive. Instead the opposite happens the partners in the public accounting firm or the finance director complained that their children are not interested to work as an accountant, especially after they watched their parents who often come home late at night, especially at the end of the month and year-end. To be a Certified Public Accountants, accounting graduates must compete with other graduates from non-accounting major, this was requirement by the government to increase the number of public accountants in Indonesia. However in my opinion, what government do is not an appropriate way to increase number of certified public accountant in Indonesia, or more CPA that open their own public accounting firm. Other graduates from non-accounting major will have hard time to pass CPA exam and they are lack of basic understanding about what accounting itself. Even though if the partners in public accounting firm being re-tested, they will not be easily to pass the CPA exam. The partner who holds a public accounting firm is generally earned their knowledge and experience from the previous audit engagement. Article 7 paragraph 1 of the Act public accountant stating: "Foreign Public Accounting Firm license may apply to the Minister if there has been mutual recognition agreement between the governments of Indonesia and the government of the Foreign Public Accounting Firm is originated." This means that with the passing of Law no 5 in 2011 on December 3 May 2011, foreign Public accountant and Public Accountant Office shifted their status becomes invalid or illegal because there is no mutual recognition agreement between the Indonesian government and the government's country of origin of foreign accountants.

Increased Demand of Certified Public Accountant

Government should take a special attention about strengthening public accounting industry because the industry can be used as a strong state of infrastructure to enhance transparency and accountability of companys financial reporting and financial information in Indonesia. Many laws and regulations that require companies to be audited, then again it could not work since governments poor enforcement makes the companies easily violate the law. Regulation from Minister of Industry and Trade No. 121/2002 requires companies with assets above Rp. 25 billion to report audited financial statements. However every year there only 2000 companies at most that reported their audited financial report. Law No. 40/2007 obliges Limited Liability Company with assets above Rp 50 billion to be audited, but again it is unclear who supervise and impose sanctions if there is a violation of that Law. Cooperatives and Small Medium Enterprises Ministerial Decision No. 91/2004 also requires that Sharia financial cooperatives with total assets above Rp 1 billion to be audited, but enforcement of this regulation is also unclear. Practically only Indonesia Capital Market Supervisory Agency (Bapepam LK) and Bank of Indonesia are consistently monitor the company in terms of supervision in the financial statements audited.

Chapter III Conclusion

In Indonesia, an accountant is needed in various professional fields of work. In every line of society and government, labor specialization can be said about accountants. Collectively accounting profession is needed, like the housing if there is no security guard, the possibility of thieves and robbers will prevail. The accounting profession is a relatively prospective in eyeglasses business and government, because the details of its interests in the realm of the world of work and become an important choice of employment. However, to be a certified public accountant is required to understand the true nature of accounting. Although Law No. 5 in 2011 do not meet the wishes of the stakeholders in the profession of Certified Public Accountants, however, with the passing of this law we ought to be thankful for given the opportunity of loose requirements to be accountant. Indonesia needs more certified public accountant as the rapid growth of the industry in the country. The Law of Certified Public Accountants have loaded the rules that protect the interests of Certified Public Accountants and the public accounting profession, but the Public Accounting Act passed by the House of Representatives is still far from what we expect, due to not meet the principles of good governance and consistent with other laws exist in the republic. The regulations that stated non-accounting graduates can be certified public accountant is considered to be a rash decision by the government since the non-accounting graduates might not know the nature and basic of accounting, but managed to pass the CPA exam. If so, Indonesia will be oversupplied by the number of certified public accountant but somehow lack of skill and knowledge. In my opinion quality is still better than quantity. Then, to attract young accountant to be a certified public accountant, Government should encourage them with more approachable ways, such as subside for accounting profession education and establish the minimum audit fee for audit engagement, so the accountant will

not feel underpay. The fee for public accounting firm other than big 4, especially outside Jakarta and Surabaya is considered to be very low, compared to the effort and workforce that accountant should give up during audit work conducted. The low fee also became the important factor of accountant being reluctant to be Certified Public Accountant, the cost is surpass the benefit.

References
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