AN ANALYSIS OF PROFIT MANAGEMENT IMPLICATION FOR PUBLIC’S PERCEPTION A CASE STUDY OF STATE-OWNED ENTERPRISES

Assagaf, Aminullah (2015) AN ANALYSIS OF PROFIT MANAGEMENT IMPLICATION FOR PUBLIC’S PERCEPTION A CASE STUDY OF STATE-OWNED ENTERPRISES. In: International Seminary, DR. Soetomo University Surabaya.

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Abstract

Profit management is policy which is done to affect the level of profitability of the company,or a form of management intervention in presenting the financial statements that can flatten, raise and lower the profit statement (loss). Technical implementation is done by taking advantage of opportunities, making accounting estimates, changing themethod ofaccounting, shifting he cost and revenue period so that the company's profit can be malleror largeras expected. Factors motivating earning management among others are bonus plan, long term debt contract or debt covenant, political and taxation motivations, and thereplacement of company’s management. Case study of State-Owned Enterprises(SOEs) in this case the State-owned Electricity Company(PLN), showed its undergoing lossesdue to lower electricity rates compared to the basic cost of supply so that the government provides financial aid or subsidies through the state budget subsidies through the state budget which amount is very material, for examplein 2012 and 2013 respectively IDR 103.3 trillionand IDR 101.2trillion. Accounting records on the financial aid can be carried out by the following alternatives(a) asoperatingincomeand (b)as additional togovernment’s shares subscription. The second alternative depends on interpretation, the definition used, accounting estimation opportunity and expected financial reporting objectives. Recordingas operatingin comeas it is conducted so far in which PLN gained the profit in the amount of IDR 3.2 trillion in 2012 and had loss in the amount of IDR 29.52013 trillionin 2013. If the financial aid is recorded as additional togovernment’s shares subscription, the PLN suffered IDR 100. 1 trillion material losses in 2012 and IDR 130.7 trillion in 2013. Seen from earning management point of view, the recording of subsidies as operating income provides a positive perception that SOEs or PLN has been successfully managing the company in a better financial performance. On the contrary, if the recording ofsubsidies is consider as an addition to share subscription, the perception that wouldappearis that PLN is in unhealthy financial performance and management fails to manage the company. These conditions provide a challenge or management impetus to seek for more realistic efforts to improve financial performance, instead of expecting state budget subsidies. In addition, tariff adjustment effort will be easier to disseminate to consumers because the burden of the loss was verymaterial. For comparison, inother countries such as TNBandPetronas of Malaysia, in the statement ofincome (loss) not found the recording of subsidies on operating revenues is not recorded. Alternatives that are used in recording the financial aid or subsidies of thestate budget must be based on policy using a definition that does not violate applicable accounting standards. What matters are its implications for public perceptions having an impact on decision-making relating to the public interest, the interests of the company's internal matters, and responses of the parties that are lackof full understanding of the information related to the financial statements. It needs a formulation of policy of state-owned enterprises on earning management having eligible reliability and relevance so that the financial statements can be presented fairly and beneficial to both internal and external parties of the company Keyword : Earning management, agency theory, positive accounting theory

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