They issued an unqualified opinion, even though the financial statements did not comply with accounting standards. As the Financial Reporting Council (FRC) states, "successful auditing relies on a strong commitment to independence that protects public interest and market integrity."
Consequences of the Conflict of Interest
Sanctions from the Financial Services Authority (OJK) and Indonesia Stock Exchange (IDX): Garuda Indonesia was fined by the OJK for violations of accounting standards in revenue recognition, including penalties for the CEO and board of directors.
Reputational Damage: The reputations of both Garuda and the public accounting firm involved were tarnished due to allegations of violating accounting principles and lacking transparency.
Loss of Investor Confidence: The manipulation of financial reports led investors to question the reliability of the company's information, negatively affecting Garuda's stock price and financial stability.
Solutions for Addressing Conflicts of Interest
Implementation of Stricter Accounting Standards: Garuda Indonesia must rigorously adhere to the Financial Accounting Standards (SAK) and International Financial Reporting Standards (IFRS). Revenue should only be recognized when it is actually realized, and the recognition of uncertain income must be avoided.
Enhanced Oversight by Regulators: The OJK and IDX should increase their scrutiny of company financial statements by conducting periodic independent audits. This measure will help identify potential manipulations and improve accountability.
Ethical Commitment from Accountants and Auditors: Professionals in the accounting and auditing fields must have a strong commitment to independence and integrity. They must be able to resist management pressure and adhere to high ethical standards in carrying out their duties.
The PT Garuda Indonesia case highlights the dangers of conflicts of interest that arise when weak internal controls meet strong external pressures. Accountants and auditors, who are supposed to serve as independent overseers, failed to maintain their objectivity in this case. This demonstrates the need to strengthen both internal and external oversight systems to prevent similar incidents in the future.
From an economic perspective, the manipulation of financial statements can distort the market, where stock prices and company valuations do not reflect the actual financial condition. Furthermore, ethical violations involving accounting and auditing professionals risk eroding public trust in the profession, underscoring the need for stricter regulations and better ethics training and education.
