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PAPERS

“GCG AT PT KERETA API INDONESIA"

Supporting Lecturer :

Dr. NURSANITA N, SE., Ak., ME

Arranged by :

MITA DEVI INDRIANI

11160000213

Class: Tuesdays, 3:30 PM at A205

No. Absent: 25

INDONESIA COLLEGE OF ECONOMICS

2019

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Contents
CHAPTER I..........................................................................................................................................4

INTRODUCTION ABOUT CORPORATE GOVERNANCE...........................................................4

1.1. Background to the emergence of GCG................................................................................4

1.2. Definition of GCG....................................................................................................................5

1.3. Organizations specialized in implementing GCG................................................................5

CHAPTER II........................................................................................................................................8

THEORYTICAL BASIS.......................................................................................................................8

2.1 Principles of GCG.....................................................................................................................8

2.2 Journal.......................................................................................................................................9

CHAPTER III.....................................................................................................................................17

COMPANY PROFILE & PROBLEM...............................................................................................17

3.1. History of Railways................................................................................................................17

3.2. Organizational Structure...................................................................................................18

3.3. Case........................................................................................................................................19

CHAPTER IV.....................................................................................................................................21

ANALYSIS OF CG PRINCIPLES....................................................................................................21

SOLUTIONS..................................................................................................................................21

CHAPTER V......................................................................................................................................24

CLOSING AND SUGGESTION......................................................................................................24

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CHAPTER I

INTRODUCTION ABOUT CORPORATE GOVERNANCE

1.1. Background to the emergence of GCG

Good Corporate Governance, known as Good Corporate Governance (here in after
referred to as "GCG") arises not solely because of the awareness of the importance of the
GCG concept but is motivated by the rise of corporate scandals that afflict large companies.
Joel Balkan (2002) said that companies (corporations) have now developed from something
relatively unclear to being a very dominant world economic institution. This power is
sometimes able to dictate to the government of a country, so that it becomes powerless in
the face of behavioral irregularities committed by these influential business people. All of that
happened because of unethical behavior and even crime - which was carried out by
business people who were indeed possible because of their enormous strength on the one
hand, and the powerlessness of government officials in enforcing the law and overseeing the
behavior of the business people; besides various bad corporate governance and governance
practices.
One significant impact that occurred was the economic crisis in a country, and the
emergence of practices of corruption, collusion and nepotism (KKN). As a result of poor
corporate governance by large companies which resulted in an economic crisis and a crisis
of investor confidence, as happened in America in the early 2000s and 2008 which resulted
in the collapse of several large and world-renowned companies; besides also causing a
global crisis in several parts of the world. For example, to overcome the crisis, the American
government issued the Sarbanes-Oxley Act of 2002; said law contains a restructuring of
public company accounting, corporate governance and protection of investors. Therefore,
this law became the initial reference in the translation and creation of GCG in various
countries.
The concept of GCG has recently gained public attention because GCG clarifies and
reinforces the mechanism of relations between stakeholders within an organization which
includes:
a. The rights of shareholders and their protection.
b. The role of employees and other stakeholders.
c. Accurate and timely disclosure.
d. Transparency related to the structure and operation of the company.

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e. The responsibility of the board of commissioners and directors of the company itself, to
shareholders and other interested parties.

1.2. Definition of GCG

Initially, the term "Corporate Governance" was first introduced by the Cadbury
Committee in England in 1922 which used the term referred to in its report known as the
Cadbury Report (in Sukrisno Agoes, 2006). Following are some definitions of "Corporate
Governance" from several sources, including:
1. Cadbury Committee of United Kingdom
A set of rules that define the relationship between shareholders, managers, creditors,
government, employees, and other internal and external stakeholders in respect of their
rights and responsibilities, companies are directed and controlled.
2. Forum for Corporate Governance in Indonesia (FCGI-2006)
FCGI does not make its own definitions, but adopts the Cadbury Committee of United
Kingdom definition and translates "A set of rules that regulate relations between
shareholders, managers (managers) of companies, creditors, governments, employees and
other internal and external stakeholders related to rights their rights and obligations, or in
other words a system that directs and controls the company ".

1.3. Organizations specialized in implementing GCG

Although the provisions regarding the organ of the company have been regulated in
the Limited Liability Company Law Number 47 of 2007 and subsequently republished in the
Company's Articles of Association, in practice this organ has not been able to guarantee the
implementation of sound corporate governance.
Indara Surya and Ivan Yustiavananda (2006) state that at least four additional organs
are needed to complement the implementation of GCG, namely:
1. Independent Commissioner
2. Independent Director
3. Audit Committee
4. Corporate Secretary

1. Commissioner and Independent Director

The term independent is often interpreted as independent, free, impartial, not under
pressure from certain parties, neutral, objective, having integrity, and not in a position of

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conflict of interest. Indra Surya and Ican Yustiavandana (2006) revealed that there were two
independent meanings related to the concept of the independent commissioner and director.
First, the commissioner and independent director are someone appointed to represent
independent shareholders (minority shareholders). As stipulated in the Law, the Company,
members of the Board of Directors, and Commissioners are appointed and dismissed by the
GMS, while the decisions taken at the GMS are based on the comparison of the votes of the
shareholders. Voting rights in the GMS are not based on one vote person, but are based on
the number of shares owned by him. As a consequence, the decision to appoint and dismiss
commissioners and directors will always come from the interests of the majority
shareholders.
Secondly, commissioners and independent directors are parties appointed not in
certainty to represent any party and are solely appointed based on the background of their
knowledge, expertise and professional expertise to carry out their duties in the interests of
the company. So, the understanding here is broader than the first understanding. Komosaris
and independent directors are assigned solely because of the consideration of
"professionalism" in the interests of the company.

2. Audit Committee
The Law on Limited Liability Company Article 121 allows the Board of Commissioners
to form certain committees which are deemed necessary to assist the necessary supervisory
duties. One of the additional committees that has now emerged to assist the functions of the
Board of Commissioners is the Audit Committee. The emergence of this audit committee is
probably due to the increasing tendency of various fraud scandals and negligence by the
directors and commissioners, which indicates the inadequate oversight function.

3. Company Secretary
The duties, responsibilities, and position of the company secretary as part of the
implementation of GCG are very different from the duties, positions, and responsibilities of
an executive secretary who has been very well known. The executive secretary is usually
recruited as a special staff for the needs of top executives of a company, such as: directors,
commissioners or other top executives. The main function of the executive secretary is more
to help executing officials in question, among others: concerning arrangements for the
schedule of activities, schedule of meetings, documentation of incoming and outgoing mail,
receipt of telephone calls, arrangement of tickets and travel documents and so on.
The position of the company secretary occupies a very high and strategic position
because the person in this position serves as a liaison officer or a kind of inter-company

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public relations with parties outside the company, especially for large companies that have
registered their shares in the treasury. The main tasks of the company secretary include
storing company documents, register of shareholders, minutes of board of directors and
RUPS meetings and storing and providing other important information for the benefit of all
stakeholders.
Rules relating to this corporate secretary can be seen, among others:
1. Decision of Chairman of Bapepam Number 63 of 1996 concerning Establishment of
Corporate Secretary for Public Companies.
2. BEJ Directors Decree Number 339 of 2001 concerning Corporate Secret.

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CHAPTER II

THEORYTICAL BASIS

2.1 Principles of GCG

Besides that, in relation to BUMN governance, the Minister of State-Owned
Enterprises also issued a decree KEP-117 / M-MBU / 2002 concerning the principles of
GCG, including:
1. Fairness
The principle is that managers treat stakeholders fairly and equally, both primary
stakeholders (suppliers, customers, employees, and investors) and secondary (government,
community, and other parties). This principle raises the concept of prioritizing the interests of
stakeholders and not only shareholders.
2. Transparency
The obligation for managers to carry out the principle of openness in the decision
process and information delivery. Deeper that, the information submitted must be complete,
correct and timely to all stakeholders, there must not be certain things that are kept
confidential, hidden, covered up, and postponed for disclosure.
3. Accountability
Obligations for managers to foster effective accounting systems to produce reliable
and quality financial reports.
4. Responsibility
The obligation of managers to provide accountability for all actions in the management
of the company to stakeholders as a form of trust and authority that has been given.

This responsibility includes at least dimensions:

a. Economy
Realized in the form of providing economic benefits to stakeholders,
b. Law
Realized in the form of compliance with laws and regulations that apply,
c. Moral
Being realized in the form of such accountability can be felt thoroughly and fairly for all
stakeholders,
d. Social
Realized in the form of Corporate Social Responsibility (CSR) as a form of concern for
the welfare of society and the preservation of nature in the corporate environment,

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e. Spiritual
Realized in the form of the extent to which management actions have been able to
realize self-actualization or have been felt as part of worship in accordance with the
teachings of the religion which they believe.

5. Independence
A situation where the managers in making a decision are professional, independent,
free from conflicts of interest, free from pressure and influence from any party that
contradicts the applicable laws and the principles of sound management.
The need for ethical governance is not only good for the company's business. Recent
changes in government regulation significantly change expectations. In the era of increasing
supervision, where unethical behavior can affect the achievement of overall corporate goals,
a corporate governance system is needed that provides rules and accountability that are
appropriate for the interests of stakeholders, directors, and executives.

2.2 Journal
(Pratolo, 2008)The results of the research analysis which states that there is
a relationship between management audit, managerial commitment to the
organization, and internal control indicate that the three variables are mutually
supportive in order to influence the variable implementation of the principles of good
corporate governance and company performance. These findings are consistent with
the findings of Allen and Meyer (1990), Steers (1977), Pinder (1998). Picket (2004),
Sawyer, et.al (2003), Albrecht, et.al, (1992) COSO (1992), Cangemi & Singleton,
(2003).

The unproven influence of management audit on the application of the

principles of good corporate governance is not in accordance with the research of
Batra G.S (1997). It is suspected that this is possible because the information
generated from the management audit process has not been used optimally in the
framework of applying good corporate governance principles, which is mainly
indicated by the relatively low level of independence of SOEs compared to other
dimensions of applying good corporate governance principles.

The lack of commitment of managers in organizations to the application of the

principles of good corporate governance is not in accordance with the results of
research by Tuschke and Sanders (2003). This is possible because the commitment
of managers who are relatively high is not matched by company independence so

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that commitment is not able to support the application of the principles of good
corporate governance.

The absence of management audit and the commitment of managers in the

organization to the application of the principles of good corporate governance
allegedly related to the low independence of Indonesian SOEs. The researchers
consider it necessary to explain the occurrence of such low independence which can
be explained by theory property rights and agency theory. Internal control affects the
application of the principles of good corporate governance and company
performance both directly and indirectly. This is consistent with the results of
research by Suripto Samid (1996) and research by Hiro Tugiman (2001).
Management audits directly affect the company's performance. This is in
accordance with the results of research Batra G.S (1987). This finding shows that in
order to improve the performance of BUMN companies, management audits need to
be improved and this is also reinforced by descriptive findings that show that the
implementation of management audits and the performance of BUMN companies is
relatively not maximized so that to maximize the performance of BUMN,
management audit must also be maximized.

The application of good corporate governance principles has a direct effect on

company performance. This is consistent with the results of research by Alexander and
Weiner (1998) and Tuschke and Sanders (2003). This finding shows that in order to improve
the performance of state-owned companies, it is necessary to apply the application of
the principles of good
corporate governance that are getting better where until the time of this research,
both of these variables have not been maximally achieved.

(Rafika Pratiwi & Arief Yulianto, 2016)The results of this study which show that
independent commissioners have a positive effect on agency costs have implications
that independent commissioners in companies included in Indonesia Most Trusted
Companies have not carried out a strict supervisory function on managerial opportunistic
behavior and have not worked effectively to protect minority shareholders. Thus, the
existence of independent commissioners does not yet represent the interests of minority
shares, so the greater the number of independent commissioners will increase agency
costs.

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Corporate agency costs cannot be reduced through the company's ownership

structure. The ownership structure of the company does not affect managers' decision to
allocate resources. Independent commissioners have a positive and significant effect on
agency costs. Thus, the higher the proportion of independent commissioners from the
number of boards of commissioners, the agency costs of companies included in
Indonesia Most Tusted Companies will increase.

(Halimatusadiah & Gunwan, 2014)

Based on the results of research and discussion that has been stated, a number of
conclusions can be drawn as follows:

1. Implementation of Good Corporate Governance at PT. POS INDONESIA

(Persero) has been implemented adequately, this is reviewed from the following
dimensions:
a. Elements of Good Corporate Governance PT. POS INDONESIA (Persero)
has adequate elements of Good Corporate Governance, because it has been
able to implement transparency in the form of financial reports published,
especially in the internet media. Accountability after being audited by an
internal audit every quarter and by professional auditors at the end of the year
or at the end of December, can be accounted to all shareholders who have
saved their capital in PT. POS INDONESIA (Persero). PT. POS INDONESIA
(Persero) proved independent without interference from any party. And the
reasonableness of the financial statements made by PT. POS INDONESIA
(Persero) unqualified (fair without conditions).
b. The stages of implementing Good Corporate Governance of PT. POS
INDONESIA (Persero) has carried out stages in the implementation of Good
Corporate Governance adequately, which has been able to carry out
preparatory stages such as Awareness Building which is the first step to build
awareness of the importance of Good Corporate Governance based on the
Decree of the Minister of State-Owned Enterprises. Good Corporate
Governance Assessment has been carried out based on KEPMEN BUMN No.
117 of 2002. Good Corporate Governance Building Manual which is an
activity of preparing manuals or guidelines for GCG implementation which is
assisted by independent experts from outside. Has carried out the
implementation phase well such as socialization, implementation, and
internalization. And finally the evaluation phase which is carried out routinely
by PT. POS INDONESIA (Persero) in order to measure the extent to which

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the effectiveness of GCG implementation has been carried out by asking an

independent party to conduct an implementation audit. '

(Agustina, Yuniarta, & Kadek, 2015)Based on the results of hypothesis testing that has
been done, the results are obtained that intual capital, CSR and GCG have a joint effect
on the company's financial performance. The results of this study are in line with the
theory stated by Hastuti (2005) that company performance is influenced by several
factors, including concentrated or unconcentrated ownership, earnings manipulation, and
financial statement disclosure. A company with a management that implements a good
management system will provide protection and guarantee of rights to its stakeholders.
Therefore, management is obliged to provide accurate information about the company's
actual condition. (Sawarjuwono, 2003) The prosperity of a company will depend on
creating a transformation and capitalization of the company's knowledge itself or
commonly known as intual capital. Finch (2005) in Raufah (2008) states that the reason
companies use the sustainability reporting framework (in this case to disclose CSR) is to
communicate management performance to achieve the company's long-term benefits to
stakeholders, such as improving financial performance, increasing competitive
advantage, increasing profits, and the company's long-term development.

(Fauziah & Rahman, 2012) The implementation of GCG is very influential on the
performance of PT Riau Airline. All the principles in GCG were responded positively
by the company's management. Starting from the principle of Tranparancy
(Information Openness) has a very significant effect on PT RAL. PT RAL does not
provide access to timely, adequate, clear, accurate and comparable information and
is delivered proportionally to shareholders in accordance with their rights.
Accountability has a very significant effect on PT RAL. PT RAL lacks clear job
descriptions, responsibilities and qualifications for all employees, has an effective
internal control system, performance indicators for all Board members and
employees, and has a Code of Conduct. Responsibility has a very significant effect
on PT RAL.

All sections in PT RAL are not careful in making decisions and in every step taken,
ensuring compliance with applicable laws and regulations, the articles of association and
have sensitivity to environmental conditions and social interests of the community around
the company location. Independency has a very significant effect on PT RAL. Each part
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of PT RAL does not avoid the domination of other parties, is not influenced by certain
interests, is free from conflicts of interest, and is free from influence or pressure, so that
the decisions made can be accounted objectively for the interests of the Company.
Fairness (Equality and Fairness) has a very significant effect on PT RAL. PT RAL does
not provide an opportunity for shareholders to provide input and provide access to
company information in accordance with the principle of transparency.

(Fatchan & Trisnawati, 2018) Based on the results of hypothesis testing conducted
by researchers, it can be concluded that the first hypothesis (H1) is accepted where
the sustainability report (SR) variable has a significant effect on firm value. The
second hypothesis (H2) is rejected where the good corporate governance (GCG)
variable does not affect the firm's value. The third hypothesis (H3) is rejected that the
interaction variable between good corporate governance and sustainability report (SR
* GCG) has no effect on firm value. The results of the coefficient of determination
test, showed that adjusted R2 was 0.267. This means that 26.7% of the variation in
firm value variables can be explained by the variables SR, GCG and SR * GCG,
while the remaining 73.3% is explained by other factors outside the regression model
(variable) studied.

(Sukamulja, 2004) The purpose of this study is to determine whether disclosure of

GCG implementation through the company's Annual Report will have a significant
effect on market value, measured by Tobin's Q. GCG parameters are very important
aspects to protect the interests of shareholders and stakeholders.

The implementation of GCG is believed to form a cycle to increase the value of the
company, especially in the eyes of public investors. With the existence of GCG,
public investors get a guarantee that the funds invested in the company will be well
managed and the interests of public investors will be safe. Public investor trust in
company management benefits companies in the form of reducing the cost of capital.

This study took a sample of 52 companies listed on the JSE, especially in the
financial sector, which did not give satisfactory results. From the results of empirical
analysis, the implementation of GCG does not have an important role in determining
the company's market value in terms of profitability, company age and company size.
The financial sector consists of bank companies and other financial institutions.
Banking is a type of industry which in its operational activities is strongly suppressed
by regulations from various government agencies. The pressure pushed this sector to

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implement GCG. The achievements of banks in implementing GCG are relatively

better compared to other companies in different types of industries.

The macroeconomic situation in Indonesia itself in 2002 tended to be very volatile.

The performance of the Indonesian Government's Economic Team, which had begun
to show results in early 2002, showed a decline in mid-2002. At the end of 2002,
Indonesia was rocked by the Bali bombings and worsened Indonesia's economic
conditions. Global political pressure through the threat of the United States attacking
Iraq, fluctuating oil prices. Pressure from within and from abroad made the
Composite Stock Price Index (CSPI) even worse, even reaching its lowest point in
the history of the JSX.

This research was conducted using the company's Annual Report. The purpose of
using Annual Report is to find out the implementation of GCG in the company. Annual
Reports are considered as the only source of information for complete public
investors, disclosed by the company through publication of reports to the public.
Through this publication, information received by investors will be uniform, both for
investors with large financial capabilities and with limited financial capabilities.

It was realized that there were certain things in the implementation of GCG that might
have been carried out well by management, but it was hampered by the disclosure
problem. Therefore, it is necessary to find other ways to assess the implementation
of GCG more effectively and objectively.

Further research can be carried out by including all fields of industry to see the effect
of industrial factors (industry effect) on the implementation of GCG, bearing in mind
that each industry sector has different characteristics and affects the implementation
of corporate GCG.

GCG is needed in various sectors, especially in the financial sector. Companies that
are managed through good GCG principles will be able to last a long time so that the
long-term interests of shareholders are met. Sustainable growth, sustainable growth
will encourage investment in a company and then at a macro level will support
sustainable development in a country. GCG will provide strong economic resilience in
the face of economic changes that occur. Weak application in a company or a
country due to violations of the characteristics required in the application of GCG,

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namely corporate discipline, transparency, independence, accountability,

responsibility, fairness, and social responsibility.

GCG is a process and is not the responsibility of the board of commissioners but the
responsibility of all of us, shareholders, management, board of directors, and other
stakeholders such as: employees / employees; creditor; financial bodies; and other
related communities such as the tax office, government and the community. All
parties involved, especially those who have structural functions, to exercise control.
The functioning of all parts will increase the value of the company, increase profits,
sales growth, and reduce costs.

(Nuswandari, 2009) This study aims to investigate the influence of corporate

governance with firm performance. The samples used in this study were 101 samples
which were pooled data from 2001 to 2005. The test results for the regression model
with return on equity as the dependent variable showed that the CGPI variable
significantly affected operating performance. Only one control variable that statistically
significantly influences ROE, which is the company size variable while the asset
composition variable and the opportunity growth variable have no statistically influence
on operating performance. Thus it can be concluded that the first research hypothesis is
supported, namely that corporate governance affects the company's operating
performance.

(Anugerah, 2014) In general, the term fraud is defined as cheating. Based on the Fraud
Tree there are 3 (three) large groups of fraud namely; corruption, asset misappropriation
and fraudulent statements with some of their branches. Why do people commit fraud?
Fraud can occur if it is filled with three internal elements

Fraud triangle namely; there are opportunities, motives and rationalization.

The results of previous studies indicate that the three types of fraud occur because the
mechanism of good corporate governance does not work. To prevent / explain fraud, it is
necessary to understand the structure, mechanism, principles and functions of corporate
governance.

The structure of corporate governance recognizes 2 (two) governance

mechanisms, namely internal governance and external governance. Each internal and
external governance has elements that if all elements of external and internal

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governance can function properly, then fraud can be prevented or reduced. Besides the
corporate governance mechanism, there are also the principles and functions of
corporate governance. Five corporate governance principles that must be adhered to in
the implementation of good corporate governance by companies include; transparency,
accountability, respect, independence, and fairness.

Furthermore, corporate governance also has 7 functions, including the

supervisory function, managerial function, internal audit function, legal and financial
advisory function, external audit function and monitoring function. The existence of an
audit committee as an extension of the commissioners can prevent fraud because the
audit committee has important responsibilities in three areas including the fields;
corporate governance, financial reporting and corporate supervision. To realize good
corporate governance in companies / organizations, and to prevent fraud, a combination
of internal and external governance mechanisms is needed that is carried out
simultaneously.

(Wulandari, 2006) Based on the discussion of the results of research on 91 public

companies in Indonesia which are listed on the Jakarta Stock Exchange, it can be
concluded that together the variable number of directors, the proportion of independent
commissioners, debt to equity, and institutional ownership have a significant effect
(0,000) on performance to with a confidence level of 1%, while partially with a
confidence level of 5%, the significance value of the board of directors was 0.961, the
proportion of the independent board of commissioners was 0.221 Debt to equity of
0,000 and the institutional ownerships were 0.373. So it can be concluded that of the
four indicator variables of corporate governance mechanism, only debt to equity
significantly influences the company's performance positively.

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CHAPTER III

COMPANY PROFILE & PROBLEM

3.1. History of Railways

The history of railways in Indonesia began when the first embankment of the
Semarang-Vorstenlanden (Solo-Yogyakarta) railroad in Kemijen Village by the Governor-
General of the Dutch East Indies Mr. L.A.J Baron Sloet van de Beele dated June 17, 1864.
The construction was carried out by a private company Naamlooze Venootschap
Nederlansch Indische Spoorweg Maatschappij (NV. NISM) using a 1435 mm sepur width.
Meanwhile, the Dutch East Indies government built the state railroad through the
Staatssporwegen (SS) on April 8, 1875. The first SS route included Surabaya-Pasuruan-
Malang. The success of NISM and SS encouraged private investors to build railroad lines
such as Semarang Joana Stoomtram Maatschappij (SJS), Semarang Cheribon Stoomtram
Maatschappij (SCS), Serajoedal Stoomtram Maatschappij (SDS), Oost Java Stoomtram
Maatschappij (OJS), Pasoeroean Stoomtram Maatschappij (Ps.SM ), Kediri Stoomtram
Maatschappij (KSM), Probolinggo Stoomtram Maatschappij (Pb. SM), Modjokerto
Stoomtram Maatschappij (MSM), Malang Stoomtram Maatschappij (MS), Madoera
Stoomtram Maatschappij (Mad.SM), Deli Spoorweg Maatschappij (DSM).
Apart from Java, the construction of railway lines was carried out in Aceh (1876), North
Sumatra (1889), West Sumatra (1891), South Sumatra (1914), and Sulawesi (1922).
Meanwhile in Kalimantan, Bali and Lombok only studies were carried out on the possibility of
installing railways, not yet until the construction stage. Until the end of 1928, the length of
railroad and tramways in Indonesia reached 7,464 km with the details of government-owned
railways totaling 4,089 km and the private sector along 3,375 km.
In 1942 the Dutch East Indies government surrendered unconditionally to Japan. Since
then, Indonesian railways have been taken over by Japan and changed their name to Rikuyu
Sokyuku (Railroad Service). During Japanese rule, the operation of the railroad was only
prioritized for war purposes. One of the developments in the Japanese era was the crossing
of Saketi-Bayah and Muaro-Pekanbaru for the transportation of coal mines to run their war
machines. However, Japan also demolished the 473 km rail which was transported to Burma
for the construction of the railway there.
After Indonesia proclaimed independence on August 17, 1945, a few days later a
takeover of the station and head office of the Japanese-controlled railway. The peak was the
takeover of the Bandung Railroad Headquarters on September 28, 1945 (now

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commemorated as the Indonesian Railroad Day). This also marks the founding of Djawatan
Kereta Api Indonesia Republic of Indonesia (DKARI). When the Dutch returned to Indonesia
in 1946, the Dutch reshaped the railway in Indonesia called the Staatssporwegen /
Verenigde Spoorwegbedrif (SS / VS), a joint SS and all private railway companies (except
DSM).
Based on the peace agreement, the December 1949 Round Table Conference (KMB)
was held to take over the assets of the Dutch East Indies government. The transfer in the
form of a merger between DKARI and SS / VS became the Djawatan Kereta Api (DKA) in
1950. On May 25, DKA changed to the State Railroad Company (PNKA). In that year the
symbol of Wahana Daya Pertiwi was introduced which reflected the transformation of
Indonesian Railways as a reliable means of transportation to realize the welfare of the
nation's nation. Subsequently the government changed the structure of PNKA to become a
Railroad Service Company (PJKA) in 1971. In order to improve transportation services,
PJKA changed its form to a Public Railroad Company (Perumka) in 1991. Perumka turned
into a Limited Liability Company, PT. Kereta Api Indonesia (Persero) in 1998.
At present, PT Kereta Api Indonesia (Persero) has seven subsidiaries / business
groups namely PT Reska Multi Usaha (2003), PT Railink (2006), PT Kereta Commuter
Indonesia (2008), PT Kereta Api Pariwisata (2009), PT Kereta Api Logistik (2009), PT Kereta
Api Properti Management (2009), PT Pilar Sinergi BUMN Indonesia (2015).

3.2. Organizational Structure

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3.3. Case
CASE DISCUSSION PT. INDONESIA TRAIN

Suspected of data manipulation in PT KAI's 2005 financial statements, the state-owned company was
recorded to have a profit of Rp 6.9 billion. However, if examined and studied in more detail, the
company should suffer a loss of Rp 63 billion. Commissioner of PT. KAI, Hekinus Manao who is also
the Director of Information and Accounting of the Directorate General of the State Treasury, said that
the financial statements had been audited by S. Manan Public Accountant Office. Audit of PT. KAI for
2003 and previous years was carried out by the Financial Inspection Board (BPK), for 2004 it was
audited by the BPK and public accountants.

The audit results were then submitted by the directors of PT. KAI to be approved before it is
submitted at the general meeting of shareholders, and the commissioner of PT. KAI namely Hekinus
Manao refused to approve the financial statements of PT. KAI in 2005 which was audited by a public
accountant. After the audit results were carefully examined, it was found that there were
irregularities in the financial statements of PT. KAI in 2005. Third-party tax has not been collected in
three years, but in the financial statements it was included as PT KAI's revenue during 2005. PT's
obligations. KAI to pay the tax assessment letter (SKP) of value added tax (VAT) of Rp. 95.2 billion

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issued by the Directorate General of Taxes at the end of 2003 is presented in the financial statements
as receivables or invoices to some customers who should bear the tax burden. Whereas based on
Accounting Standards, third-party taxes that have never been collected cannot be included as assets.
At PT. KAI was mistaken by the directors in recording the company's revenue during 2005.

The decrease in the value of spare parts and equipment inventory amounting to Rp 24 billion which
was known at the time of the 2002 inventory was recognized by PT KAI's management as a gradual
loss over five years. At the end of 2005 there was still an impairment balance that had not been
charged as a loss of Rp 6 billion, which should have been fully charged in 2005.
Unassigned government assistance with total cumulative capital of Rp 674.5 billion and state capital
investment of Rp 70 billion by PT KAI's management are presented in the balance sheet as of
December 31, 2005 as part of debt. However, according to Hekinus, government assistance and
equity participation must be presented as part of the company's capital.

Management of PT. KAI has not provided any allowance for losses on the possibility of uncollectible
tax obligations that should have been charged to customers when the transportation services were
provided by PT KAI from 1998 to 2003.

Differences of opinion on the financial statements between the commissioners and auditors of public
accountants occur because PT. KAI does not have good corporate governance. The lack of good
governance also makes the audit committee (commissioner) of PT. KAI can only be opened access to
financial statements after being audited by a public accountant. Public accountants who have
audited PT KAI's 2005 financial statements were immediately examined by the Public Accountants
Professional Judiciary Board. If proven guilty, the public accountant was sanctioned with a reprimand
or revocation of a license for practice.

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CHAPTER IV

ANALYSIS OF CG PRINCIPLES

SOLUTIONS
The purpose of making financial statements is in addition to management accountability
tools as well as supporting considerations in decision making, but in this case management
has manipulated the financial statements, so that the financial statements produced do not
show the actual performance of the company. In the case above, there are many
irregularities in the financial statements that are the result of the work of the public
accountant. The case of PT. KAI leads to differences in views between Management and
Commissioners, especially Commissioners who are concurrently Chair of the Audit
Committee where the Commissioner refuses to approve and sign the financial statements
that have been audited by an External Auditor. And the commissioner asks to be re-audited
so that the financial statements can be presented transparently and in accordance with the
facts.

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From the case above, if related to ethical theory, there are several theories that have been
violated, namely:
1) Ethical egoism. Management manipulates the company's financial statements in order to
advance itself to be seen that he has successfully managed the company. Management has
misused the power given to it. His actions are not only detrimental to himself that he might
be fired from the company but also to the company and others. For the company, it has an
impact on decreasing the trust of investors and potential investors and damaging the
company's image. Consequently, the company is experiencing a lack of capital due to the
decreasing number of investors willing to invest in the company.
2) Utilitarianism. The purpose of financial statements is not only as a management
accountability tool but also as a tool for decision making. With the manipulation of financial
statements by management, the decisions taken will not be right and can be detrimental to
many people (people concerned).
3) Deontology. Management does not carry out its obligations as a company management
as it should. A manager who has a high position in the company provides a good example
for subordinates to carry out their obligations in the company in accordance with the ethics
that are applied.
4) Rights. This ethical theory is related to deontology theory. In the principles of professional
ethics a person is required to be professional in his profession. In this case management has
harmed the rights and interests of others such as employees and investors. Ie like
employees and investors have the right to find out information about company performance
5) Primacy. Priority attitude required in the business world is like honesty. In this case
management is not being honest in compiling financial statements. Management performs
some manipulations such as data regarding income, debt and allowance for losses of
receivables. Whereas a manager must have an honest attitude because, honesty is ethical a
manager must have.
financial reports by PT KAI, there has been an erning management with an Income
Maximization pattern, with the aim of reporting high net income for the purpose of greater
bonuses. With bonus planning based on accounting data encourage managers to
manipulate the accounting data in order to increase profits to increase annual bonus
payments. There is a conflict between the interests of management (Agent) and the audit
committee (principal) arising because each party is trying to achieve or consider the level of
prosperity it wants.
3) In agency theory it is assumed that each individual is solely motivated by his own
interests, causing a conflict of interest between the principal and agent. From this case the
management (agent) has more information both about the capacity of the self, the work

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environment, and the company as a whole, so that management has more opportunities in
manipulating the financial statements it generates, and conflicts of interest are increasing,
especially because the principal cannot monitor management activities everyday to ensure
that management works in accordance with the wishes of shareholders.

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CHAPTER V

CLOSING AND SUGGESTION

Conclusion
Good corporate governance (GCG) is a system that regulates and controls companies
to create added value for all stakeholders. This concept emphasizes two things, first, the
importance of the right of shareholders to obtain information correctly and in a timely manner
and, second, the obligation of companies to carry out disclosure (disclosure) accurately,
timely, transparently to all information on company performance, ownership, and
stakeholders.
There are four main components needed in the concept of Good Corporate
Governance, namely fairness, transparency, accountability, and responsibility. The four
components are important because the application of the principles of Good Corporate
Governance is consistently proven to be able to improve the quality of financial statements
and can also be a barrier to performance engineering activities which results in financial
statements not describing the company's fundamental values.
From the various results of independent institutions research shows that the
implementation of Corporate Governance in Indonesia is still very low, this is mainly due to
the fact that companies in Indonesia do not fully have Corporate Culture as the core of
Corporate Governance. This understanding opens the horizon that our corporation has not
been managed properly, or in other words, our company has not yet implemented
governance.

Suggestion
To be able to obtain good corporate governance, we need to understand more about
Good Corporate Governance which can help us to form a good company in accordance with
the objectives set by the company beforehand. Therefore, this discussion can help readers
to become references that refer to good corporate governance.

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CHAPTER VI

BIBLIOGRAPHY

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