Internal Control System

Corporate Governance
Anggota Kelompok:
Naddzwa S.A (142220305)
Agus Kurnia Setiawan (142210156)
Dandy Wilson Gusdeka P (142230064)
Internal Control System Key Point
The definition of Internal Control System
Purpose and Importance of Internal Control System
Components of Internal Control (Control Environtment, Risk
Assessment, Control Act, Information and Communication,
Monitoring)
Limitation of Internal Control System
Causes of Failure in Internal Control Implementation
Reporting Of Internal Control
Internal Control
Internal control is a process implemented by the board of
directors and commissioners, management and other
human resources in an entity, designed to provide
reasonable assurance regarding the effectiveness and
efficiency of operations, the reliability of financial
reporting, and compliance with applicable laws and
regulations.
How Importance Internal Control to Implementation?
the scope and size of business entities are increasingly large and
complex
Protection against human weakness
It can reduce the audit costs
Auditor will gain understanding of the structure internal control to
assesss control risk
COSO Framework
COSO integrated internal control framework components and principles
No Components Principles
Demonstrate commitment to integrity and ethical

Control values
1
Environment Exercises oversight responsibility
Establishes structure, authority, and responsibility
Specifies suitable objectives

2 Risk Assesment Identifies and analyzes risk
Assesses fraud risk
COSO Framework
Select and develops control activities

Select and develops general controls on
3 Control Activites
technology
Deploys through policies and procedures
Uses relevant information

Information and
4 Communication internally
Communication
Communication externally
Conducts ongoing and/ or separate

Monitoring
5 evaluations
Activities
Evaluates and communicates deficiencies
LIMITATIONS OF INTERNAL CONTROL
- Error in decision (judgment)

- Breakdown
- Collusion
- Management override
- Costs versus benefits
CAUSES OF FAILURE IN INTERNAL CONTROL
IMPLEMENTATION
Internal control is ignored
Saturation or boredom
The internal controls implemented are too complex or
cumbersome
Poor internal communication
Too much/often changed or modified
Frontal rejection
Reporting on the Effectiveness of Internal Control
The internal control effectiveness report must include, among
other things:
The internal control objectives to be achieved, such as the
reliability of financial reporting
A statement of the limitations of the internal control system
A statement of the existence of a system mechanism to
monitor and respond to deficiencies in identified controls
Guidelines for reporting on control
Study Case of PT Garuda Indonesia
In 2019, PT Garuda Indonesia faced a significant accounting scandal involving the
improper recognition of revenue, which led to inaccurate financial reporting. The issue
centered around a questionable transaction where Garuda recognized US$239 million in
revenue from a contract with Mahata Aero Teknologi for Wi-Fi services, despite the fact
that the payment had not been received or fully realizable within the reporting period.
Key Details of the Case:
1. Misstated Financial Reports: Garuda Indonesia included the revenue in its 2018
financial statements, which inflated the company's profits. The financial report
showed a profit of US$809,846, while without the revenue recognition, the company
should have reported a loss of approximately US$175 million.
Study Case of PT Garuda Indonesia
2. Investigation and Sanctions: Indonesia’s Financial Services Authority (OJK) and the Indonesia Stock
Exchange (IDX) investigated the case. The findings revealed that the revenue was recorded prematurely,
violating accounting standards. As a result, both Garuda’s directors and auditors faced sanctions for their
role in approving the financial reports.
3. Board of Directors’ Accountability: Two commissioners of Garuda refused to sign the financial statements,
citing irregularities, which led to their dismissal. However, the public outcry and regulatory intervention led to
increased scrutiny of corporate governance practices within the company.
4. Consequences: Garuda Indonesia was fined IDR 100 million (approx. US$7,000) for its financial
misreporting, and the company was required to restate its financial statements. The scandal damaged the
company’s reputation and led to further discussions on improving corporate governance and internal
controls in Indonesia.
Conclusion of the Case
The 2019 case revealed significant weaknesses in internal control systems at Garuda, particularly in
financial oversight and governance. The scandal resulted in regulatory actions, reputational damage,
and a reevaluation of how Garuda managed its financial reporting and governance.
So the management of PT Garuda Indonesia showed a lack of action due to eror in decison and
management override.
Eror In Decision example : The commissioners of PT Garuda, except for Chairal Tanjung, did not
raise any complaints about the accounting irregularities in the company's report.
Management Override: The findings revealed that the revenue was recorded prematurely, violating
accounting standards.
See you around!

Internal Control System

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Internal Control System

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Corporate Governance

Demonstrate commitment to integrity and ethical

Specifies suitable objectives

Select and develops control activities

Uses relevant information

Conducts ongoing and/ or separate

- Error in decision (judgment)

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