Audit Committee in Indonesia

19 financial crisis Ika and Ghazali 2011. Initially, audit committee formation was voluntary BAPEPAM 2000. It was made mandatory to all listed companies after the issuance of BAPEPAM 2004 concerning Guidelines on Establishment and Working Implementation of audit committee. According to BAPEPAM rule 2004, audit committee membership must comprise of at least three members, one of whom shall be an independent commissioner and concurrently the chairman of the audit committee, while the others shall be external independent parties. Additionally, at least one of the audit committee shall have accounting andor finance expertise. The responsibility of the audit committee is to provide independent professional advice to the board of commissioners BOC and identifying matters that require the attention of the Board of Commissioner. Regarding National Committee on Governance 2006, the function of the Audit Committee is to assist the Board of Commissioners to ensure that: 1 Financial reports are presented appropriately in accordance with the generally accepted accounting principles. 2 Internal control structure is adequate and effective. 3 Internal and external audits are conducted in accordance with 20 applicable audit standards. 4 Audit findings are followed up by the management. The Audit Committee shall review candidates for external auditors including their remuneration, and submits its recommendation to the Board of Commissioners. Audit committee also has the responsibility to review the independence and objectivity of a public accountant, and to review the audit adequacy conducted by public accountant IDX 2004a, b. BAPEPAM 2004 rule also provides guidelines on some aspects such as the definition of independent for audit committee members, the authority of audit committee, and audit committee meetings. In terms of audit committee meetings this rules stipulates that the number of audit committee meetings held during a year should be at least the same with the minimum requirement of BOC meetings as stated in company’s article of association. In terms of Audit Committee reporting, IDX 2004a, b rule stipulates that audit committee must submit a report on its activity to the BOC periodically at least once in three months. Audit committee reports must be disclosed in the annual reports as part of company’s corporate governance disclosures BAPEPAM 2006. The disclosures should at 21 least provide information on: 1. Name, position, and short biography of audit committee member. 2. Job description and responsibility of audit committee. 3. Number of meetings held during the financial year and detail attendance of each audit committee member. Summary of the activities of audit committee in discharging its duties during a financial year. 5. Financial Report The financial report have an important role because financial reports intended to provide information regarding the financial position, performance and changes in financial position of an enterprise that benefits a large number of users in making economic decisions. According to Kieso et al 2010 states that the Financial report are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial report for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements. Financial Accounting Foundation 2010 stated that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in 22 making decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt instruments and providing or settling loans and other forms of credit Decisions by existing and potential investors about buying, selling, or holding equity and debt instruments depend on the returns that they expect from an investment in those instruments; for example, dividends, principal and interest payments, or market price increases. Similarly, decisions by existing and potential lenders and other creditors about providing or settling loans and other forms of credit depend on the principal and interest payments or other returns that they expect. Investors, lenders, and other creditors expectations about returns depend on their assessment of the amount, timing, and uncertainty of the prospects for future net cash inflows to the entity. Consequently, existing and potential investors, lenders, and other creditors need information to help them assess the prospects for future net cash inflows to an entity.

6. Timeliness

Financial statements have four qualitative characteristics to be useful for making economic decision, which are perceivable, relevance, reliable, and comparable. To meet the characteristic of relevance, financial statements should be provided in a timely basis. Timeliness of financial reporting also can be viewed as company means to be transparent Merdikawati and Arsjah 2011. According to 23 Prickett 2002, and Kulzick 2004, transparency from the perspective of financial statements users includes eight aspects as follows, accuracy, consistency, appropriateness, completeness, clarity, timeliness, convenience, and governance and enforcement. Timely release of corporate financial report has long been recognized as one of the qualitative attributes of financial reporting Accounting Principle Board, 1970; Financial Accounting Standards Board, 1980. In the capital market where corporate financial information is a primary source of information to shareholders, timely publication of the information is crucial Ika and Ghazali 2011. For investors, timely reporting reduces the uncertainty related to investment decision Ashton et al. 1989 and asymmetric dissemination of financial information among stakeholders in the capital market Jaggi and Tsui 1999. Timeliness of financial reporting has allowed the information to