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Accurate Financial Statements:
The Key to Business Growth

Accurate Financial Statement Blog Image

Cited from KONTAN (23/01/2025), an aquaculture startup is under investigation for financial fraud involving dual reporting. The case reveals inconsistencies within their financial statements. The case highlights the critical role of accurate financial statements in ensuring transparency and avoiding misleading business decisions.

Financial statements are an important element in the business world, especially for companies that want to ensure the sustainability and growth of their business. This report provides a comprehensive overview of the company’s financial condition in a certain period, so that it becomes the basis for stakeholders such as management, investors, creditors, and authorities in making strategic decisions.

Key Components of Financial Statements

Effective financial reporting aims to provide relevant and reliable information to stakeholders. In accordance with Statement of Financial Accounting Standards (Pernyataan Standar Akuntansi Keuangan / PSAK)  201, financial statements should reflect the entity’s financial position, financial performance, and cash flows.

The main components of financial statements consist of six important interrelated elements:

  1. Assets:
    Assets are resources that are controlled by the entity as a result of past events and are expected to provide economic benefits in the future. PSAK 201 classifies assets into:
    1. Current Assets:
      Assets that are expected to be realized or used in the normal operating cycle or within one year.
      Examples include cash, accounts receivable, and inventory.
    2. Non-Current Assets:
      Assets that will not be realized or used in the near future, such as property, plant, equipment, and long-term investments.
  2. Liabilities (Obligations):
    Liabilities are obligations of the entity arising from past events and their settlement is expected to result in an outflow of economic resources. PSAK 201 divides liabilities into:
    1. Short-term Liabilities:
       Obligations that must be settled within one year, such as accounts payable and accrued expenses.
    2. Long-Term Liabilities:
      Obligations that mature in more than one year, such as bonds payable and pension obligations.
  3. Equity:
    Equity reflects the residual rights to assets after deducting all liabilities. In PSAK 201, equity is divided into:
    1. Equity attributable to owners of the parent entity:
      Share capital, retained earnings, and other reserves.
    2. Non-controlling interest:
      The part of a subsidiary’s equity that is not owned by the parent entity.
  4. Revenues and Expenses:
    Revenues and expenses reflect the entity’s financial performance during a particular period. PSAK 201 states that:
    1. Revenue:
      The increase in economic benefits arising from the entity’s principal operating activities, such as the sale of goods or services.
    2. Expenses:
      A decrease in economic benefits arising during the accounting period in the form of outflows or depreciation of assets.
  5. Contributions from and Distributions to Owners:
    Contributions from owners reflect the deposit of new capital into the company, while distributions to owners take the form of dividends or other forms of return of capital. PSAK 201 emphasizes that these transactions do not affect comprehensive income but directly impact equity.
  6. Cash Flow:
    The cash flow statement presents information about cash inflows and outflows during a certain period. PSAK 207 classifies cash flows into:
    1. Operating Cash Flow:
      Cash generated from the entity’s principal activities.
    2. Investing Cash Flows:
      Cash associated with the acquisition and disposal of long-term assets.
    3. Financing Cash Flows:
      Cash associated with the company’s financing activities such as issuing shares or repaying debt.

Common Errors in Financial Statements

  1. Recording Errors
    These errors include recording transactions that either do not align with the supporting evidence or are incorrect in nominal amounts. As a result, the financial statements do not reflect the true financial condition.
  2. Incorrect Grouping:
     Errors in classifying assets or liabilities can lead to inaccurate financial statements. For instance, a building that is expected to be used for more than one year might be incorrectly listed as a short-term asset, leading to misrepresentation of the company’s liquidity and financial position.
  3. Non-Compliance for Accounting Principles:
    Not complying with applicable accounting standards can result in discrepancies in the financial statements presentation, so the information presented may not be reliable.

Avoid Errors in Financial Statement Preparation

  1. Implement an Effective Internal Control System:
    Good internal controls, such as segregation of duties and layered verification, can prevent errors in recording and reporting.
  2. Continuous Training:
    Continuous training for the finance team on the latest accounting standards and internal procedures can improve the accuracy of financial statements.
  3. Conduct Periodic Audits and Reviews with Professional Consulting Services:
    Regular checks by internal and external auditors, as well as the use of professional consulting services, can detect and correct errors before the financial statements are published.

Let Us Help You Prepare Accurate Financial Statements

Financial statements are the backbone of your business, offering a clear snapshot of your financial health and guiding strategic decisions for sustainability and growth. Common errors, such as misclassification of assets or disregarding accounting principles, can undermine your business’s credibility and decision-making processes.

Let us help you prepare financial statements that meet the highest standards, avoid errors, and reflect your company’s true financial condition—setting you up for success in today’s competitive business environment.

Discover Our Financial Statement Service

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