THE ANALYSIS OF JIWASRAYA’S CASE –

FINANCIAL REPORTING AND AUDITING

GROUP 2

• DINI RAHMADIANTI (1610532008)

• RATU SHAVIRA (1610532025)
• ZAHIRA SALSABELLA (16105330250
 CASE DESCRIPTION
PT Jiwasraya failed to pay insurance claims of IDR 12, trillion and recorded negative equity IDR 23.92 trillion. BPK
stated this problem has been started from 2006.
• 2006: the assets owned by Jiwasraya were much smaller than liabilities. So that Jiwasraya has been declared
negative equity IDR 3.29 trillion, they got unqualified opinion.
• 2007: obtained unqualified opinion. Although it has been denied by the BPK, there is no further effort by the
Government.
• 2008: the deficit widened to IDR 5.7 trillion and luckily Jiwasraya still got unqualified opinion. On this year,
Jiwasraya’s board of director is changed. The appearance of saving plan product, still being prepared, not
applicable yet.
• 2009: the deficit increased to IDR 6.9 trillion, so they did alternative byre-insurance in America. As a result,
Jiwasraya's balance sheet position became healthier than before.
• 2010-2012: Jiwasraya recorded a profit Rp. 800 billion. The reinsurance step was continued in 2010-2012. It
delivered good impact by surplus equity of IDR. 1.75 trillion. During these years, Jiwasraya obtained
unqualified opinion status again and again
• 2013: IFRS convergent financial accounting standards is implemented in Indonesia, Jiwasraya then revaluated
their assets too massive, so that the assets value after being revalued is became IDR 6.56 trillion, then
Jiwasraya recorded a profit of IDR 457.2 billion. Jiwasraya's balance sheet was even more sleek, then Jiwasraya
launched the JS Saving Plan bancassurance product that had been prepared from 2008.
• 2014: Jiwasraya reported surplus equity of IDR 2.4 trillion with a 44% growth in the company's profit to IDR
661 billion. What a foolish, the sales of this saving plan product are rotated and reinvested by Jiwasraya into
low quality stocks and mutual funds.
 CASE DESCRIPTION
• 2015-2016: the company reported surplus equity of IDR 3.4
trillion and IDR 5.4 trillion, respectively, with unqualified opinion
financial statements. But this is against BPK audit results. The BPK
revealed that Jiwasraya's management was suspected of making
overstated (exceeding reality) financial assetss and liabilities that
were understated (below their true value).
• 2017-2018: The new director of Jiwasraya (at that time),
contacted PWC who has audited of Jiwasraya financial company's
financial statements 2017 due to irregularities. Then the financial
statements are audited again and get a modified opinion due to
lack of reserve funds. BPK also revealed that Jiwasraya always
reduced its reserve funds year by year. Until November 2019,
Jiwasraya had negative equity of IDR 27.2 trillion.
 PROBLEM IDENTIFICATION
• WINDOW DRESSING THROUGH ASSET REVALUATION
In this case Jiwasraya did a window dressing by conducting a massive
asset revaluation. Asset revaluation is a revaluation of a company's
fixed assets, usually the value of a company's assets will increase from
before so that the finances look more positive. This has caused
Jiwasraya's financial investment asset report to be overstated, even
though the profit obtained is artificial because there is no cash.

• WINDOW DRESSING THROUGH PORTFOLIO’S MANIPULATION

The way is Jiwasraya will buy shares that are overpriced with the
assumption that buying shares that are strengthening will suggest that
they have held shares that are performing well, then sold at
negotiating prices (above acquisition price) to investment manager
companies and then bought again by Jiwasraya, it makes Jiwasraya’s
turnover look good.
 PROBLEM IDENTIFICATION
• WINDOW DRESSING THROUGH RESERVE FUNDS
In 2017, where Jiwasraya made a profit of IDR 2.4T and in
the report there were irregularities so that it was re-
audited and it was found that Jiwasraya performed
window dressing using reserve funds. In insurance
companies, insurance funds deposited by customers will
be rotated back to other financial instruments. To
anticipate losses, the insurance company should make a
backup of each customer's funds invested in other
financial instruments, so that if there is a loss there will be
a reserve fund that will reduce the loss.
 PROBLEM IDENTIFICATION
• The last problem is that Jiwasraya still obtained the status of
unqualified opinion until 2016, although many irregularities
were discovered from 2006. The public accountant examining
Jiwasraya's financial statements before 2017 consistently gave
these opinions even though there were indications of the
amount of assets smaller than liabilities, an increase deficit
from year to year, and reserves smaller than they should.

• Window dressing practices are too far so it is against the

qualitative characteristics of useful financial information as
stated on the conceptual framework chapter 2
 PROBLEM STATEMENT
Based on the problem identification above, we identify that the
problem of Jiwasraya as follows:
1. Doing window dressing practices, in the form of:
1.1 Manipulate Financial Statements, by revaluing assets and
reserve funds that are not in accordance with applicable regulation
1.2 Manipulating portfolio performance through stock market
negotiations
2. Window dressing practices are too far which against the qualitative
characteristics of useful financial information as stated on the
conceptual framework chapter 2
3. Consistently obtained unqualified opinion status until 2016 even
there are lot of irregularities
 CASE ANALYSIS

The gains from changes in the fair value of these securities are gains from the
prices of shares and bonds owned by Jiwasrayas that have not yet been sold or
have not been realized. This can be seen in the Jiwasraya cash flow statement
that there is an investment return of IDR 1,041,970,000, so that the value of the
change in the fair value of the securities has no cash amount and the value can
be said as an assumption that Jiwasraya can sell its shares so that it can realize
the investment return.
 CASE ANALYSIS

Company shares State-owned enterprises held by Jiwasraya based on IDX

securities registration data, Jiwasraya holds shares in amounts above 5%
ownership are Semen Baturaja (SMBR) and PP property (PPRO). Based on a
closed meeting of the Jiwasrayas and parliamentary assemblies in August 2019,
bought SMBR in 2016 with an average price of IDR 1,555 and bought a PPRO at an
average price of IDR 1,000. And at the end of 2016 SMBR closed at IDR 2,790 and
PPRO closed at IDR 1,360. It is on this basis that makes Jiwasrayas book "Profits
from the Fair Value of the securities" on investment income at the end of 2016.
 CASE ANALYSIS

As for regionally owned enterprises, in 2016 Jiwasraya holds the shares of Bank
BJB (BJBR), where in the relevant year BJBR shares were closed in the position
of IDR 3,000 which was initially at IDR. 755 and this is also the reason why
Jiwasraya produced profits that have not been realized by the company and at
the end of 2016 it was recorded as "gains from the fair value of securities".

the company's investment management does not intend to realize profits from
these shares because it is impossible / difficult to realize, so the purchase of
these shares is only intended to enhance the company's financial statements in
2016.

So according to the 2017 audited financial report, Jiwasraya experienced a lack

of fund reserves amounting to IDR 7 trillion. And also found that every year,
Jiwasraya reduce the value of the company's reserve funds in the financial
statements resulting in reduced liability Jiwasraya.
 CASE ANALYSIS
From 2006 to 2016 Jiwasraya always had irregularities such as
the number of assets smaller than liabilities that made equity
negative, increasing deficits from year to year, and reserves
smaller than they should, but in fact Jiwasraya always got
unqualified opinions from public accountant’s examiner of the
Jiwasraya financial report. We consider this opinion to indicate
a fraudulent occurrence in Jiwasraya's body. Almost all sources
stated that the Jiwasraya case was also related to corruption, if
that were true, the auditor concerned had violated the
auditor's independence and competence as the basis for
maintaining the credibility of the auditor and the public
accounting firm (SA Section 220).
 SOLUTION AND RECOMMENDATION
PROPOSED
1. Debt restructuring for the failure of policy payments to
customers. Credit restructuring is an improvement effort made
in lending activities to debtors who have the potential to
experience difficulties in fulfilling their obligations. With credit
restructuring, debtors can be given relief from debt
repayments, reduced interest rates, or extended credit periods.
2. Prohibit SOE companies from revaluing assets. This is to reduce
the act of manipulation or manipulate financial performance.
On revaluation of assets of a company will look positive. With
positive financial statements, companies can easily issue debt
securities and fear that fresh funds after issuing the debt will be
used to invest in improper shares.