Uncovering Conflicts of Interest in the Accounting and Auditing Professions, The Case of PT Garuda Indonesia

Uncovering Conflicts of Interest in the Accounting and Auditing Professions: The Case of PT Garuda Indonesia

Have you ever imagined what happens when an accountant responsible for maintaining the accuracy of financial reports has personal interests in the company they are auditing? Or when an auditor is pressured by management to "embellish" financial statements to make them more appealing to investors? 

These are not merely hypothetical scenarios---such cases have occurred and have triggered major scandals. Conflicts of interest in the accounting and auditing professions are not just matters of individual ethics but also systemic challenges that can threaten the integrity of financial markets as a whole.

According to the International Federation of Accountants (IFAC), "integrity and transparency are the cornerstones of the accounting profession, and any form of conflict of interest must be promptly identified and addressed to maintain public trust."

Conflicts of interest in accounting and auditing can manifest in various forms, including:

Financial Interests: Accountants who hold investments, such as shares, in the company they audit may have an incentive to manipulate financial reports for personal gain.

Personal Relationships: Emotional closeness or personal relationships with management of the audited company can compromise the objectivity and independence of the auditor.

Client Pressure: Auditors often face pressure from clients to issue favorable audit opinions, which can threaten the integrity and quality of audit reports and potentially influence the continuation of business contracts. The Institute of Indonesia Chartered Accountants (IAPI) emphasizes that "conflicts of interest involving accountants and auditors must be prevented through the enforcement of strict codes of ethics and continuous oversight."

Case Study: PT Garuda Indonesia

The 2019 PT Garuda Indonesia case provides a real-world example of conflicts of interest in the accounting and auditing professions. That year, Garuda Indonesia reported net profits that were influenced by the recognition of invalid revenue amounting to USD 239 million from an incomplete contract. 

A conflict of interest arose when internal accountants and auditors were allegedly pressured by management to manipulate financial statements, resulting in reported profits despite the company actually experiencing losses. The public accounting firm, Tanubrata, Sutanto, Fahmi, Bambang & Rekan, responsible for auditing the financial statements, failed to maintain their independence.