Pathway to IFRS: Indonesia

Success and challenges on the way to convergence

By MARK SHYING
JAKARTA INDONESIA
Jakarta

In May 2011, Professor Boediono, the Vice President of the Republic of Indonesia, said in his keynote speech at the 5th IFRS Regional Policy Forum in Bali, “The convergence of Indonesian accounting standards with international accounting standards is not an easy pathway.

"IFRS convergence is not just an accounting issue. The main purpose of the convergence is to improve the quality and transparency of financial statements of companies in Indonesia.”

In early March I was asked to speak in Jakarta on “The Latest Update of IFRS and Its Impact to Business” and “Corporate Social Responsibility and Business Ethics”. I was also asked to participate in meetings with the accounting standards setter and regulator. 

In preparing for the trip, I reflected on how little I knew about Indonesia’s regulatory environments and the directions it was taking. Some quick research told me that the population of Indonesia was approximately 250 million, with about 28 million living in the Greater Jakarta metropolitan area. The capital city of Jakarta is home to about 10 million people. Inadequate infrastructure, corruption and a complex regulatory environment are among the key economic issues facing Indonesians.

The convergence of Indonesian accounting standards with international accounting standards is not an easy pathway.– Boediono, Vice President, Republic of Indonesia

Travelling by taxi to my Jakarta hotel, I wondered where Indonesia was in its move to implement IFRS. A presentation by Rosita Uli Sinaga, Chair of the Financial Accounting Standards Board of the Indonesian Institute of Accountants (DSAK IAI), provided clarity around the issue.

According to Sinaga:

•    2012 IFRS convergence has been done gradually to eliminate the significant gap between Indonesian Generally Accepted Accounting Practices (GAAP) and the version of IFRS as of 1 January 2009

•    Except for IFRS 1 First-time Adoption of International Financial Reporting Standards, IAS 41 Agriculture and IFRIC 15 Agreements for the Construction of Real Estate, DSAK IAI has issued the revised Indonesian Accounting Standards (SAK), which are substantially comparable with all IFRS, and no final decision has been made on IAS 41

•    Indonesia was working with Malaysia and India in an effort to get the IASB to reopen the topic of accounting for agriculture

 

Future challenges

One future challenge for Indonesia is its approach to IFRS beyond 2012.

Unlike when Australia and the EU adopted IFRS in 2005, the International Accounting Standards Board (IASB) has not reactivated its policy of a stable platform (or a period of calm). Consequently, with new IFRS effective from 1 January 2013 and the expected release of new standards on the fundamental topics of revenue and leases, the present narrow gap between IFRS and SAK will broaden due to the SAK being anchored to the version of IFRS as of 1 January 2009.

As the world’s fourth most populous country after China, India and the US, Indonesia has a heavy reliance on domestic consumption as the driver of economic growth. The World Bank has observed that micro, small, and medium enterprises generate 60 per cent of GDP and provide 70 per cent of all jobs in Indonesia. In contrast, there are 442 companies listed on the Indonesian stock exchange and Indonesia has 142 state-owned enterprises, which include Pertamina, the world’s largest producer and exporter of Liquefied Natural Gas. 

The DSAK IAI is acutely aware that SAK are not appropriate for micro, small and medium enterprises and for that reason has issued SAK ETAP, which is similar to IFRS for SMEs. The Australian statutory reporting regime was part of my presentation to the Joint Seminar (CPA Australia,IAI,IAMI and AFA) and there was particular interest in how, for private companies, Australia only required statutory reporting by those companies that were economically significant. 

I put to the audience that this was an approach that Indonesia might consider. I also learnt that in addition to SAK and SAK ETAP, some entities will be subject to SAK for sharia transactions and/or SAK for not-for-profit organisations, and that there are separate government accounting standards. 

The trip was an excellent learning opportunity. The people who I spoke to in Jakarta were genuinely interested in reducing the corruption that impedes change in the nation, and ethics and business governance are important concerns of theirs. 

The policy of 2012 convergence with IFRS, and the policies to be applied beyond 2012, are areas of interest to CPA Australia, and Indonesia is a place where our activities can contribute to its future direction.

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