The accounting profession is defined as "the professional bodies of accountants that establish and regulate training entry standards and professional examinations, as well as ethical and technical rules and guidelines. These bodies are organized on national and international levels" (http://dictionary.bnet.com/definition/accountancy+profession.html). While the IFRS are the guidelines and rules set by the International Accounting Standards Board (IAS) that companies and organizations can follow when compiling financial statements.
Both the accounting profession and standards are necessary for consistently regulating and organizing the preparation, presentation, measurement, recognition and disclosure of the financial information and hence fairly and consistently describe financial performance through the reporting of financial companies. Without standards, users of financial statements would need to learn the accounting rules of each company, and comparisons between companies would be difficult.
The information containing in the financial reports has to be relevant so that it can give the user what he/she wants; understandable that is gearing to the abilities and knowledge of the users concerned; reliable in order to provide to the user a high degree of confidence in the information presented to him/her; complete so as to give the giver a total picture of the reporting business as far as possible; objective in that it should not be biased by the personal perception; timely so as to be up to date as possible; comparable for any one business or for any one period.
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Accounting and financial reporting systems developed differently in different countries because of the provision of finance, the existing legal system, the link between accounting and taxation and the cultural differences between societies. This is why the financial reports prepared by these nations should follow the Generally Accepted Accounting Principles (GAAP) in accordance with standards set by International Accounting Standard Board (IASB) or recently formed a body of International Financial Reporting Standard (IFRS).
This study pertains to present the status of accounting profession and accounting standards as adopted by the Republic of Indonesia which has a population of 219 million people from various different culture and religion.
The accounting standards-setting body in Indonesia is the Financial Accounting Standards Board (Dewan Standar Akuntansi Keuangan or DSAK) under the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia or IAI) which implement for both public and private companies the standards.
Up to December 2008,DSAK-IAI issued about 62 statements of financial Accounting Standards (Pernyataan Standar Akuntansi Keuangan or PSAKs), which consist of 55 PSAKs for conventional transactions and 7 PSAKs for Syari'a transactions, 8 Interpretations of Financial Accounting Standards (Interpretasi Standar Akuntansi Keuangan or ISAK), and 3 Technical Bulletins. On December 2008,the IAI issued a statement announcing their plan to have Indonesian GAAP fully converged with the IFRSs by 1 January 2012.
All the organizations, the financial institutions in the country and the government agents of Indonesia follow the standard of IAI. But it is felt that IAI does not have complete principles and regulations unlike IAS and IFRS in order to comply with international best practices of accounting.
Even though the country adopts the principles as set by IAS and IFRS, there are some differences in treatment of items in the financial reporting which will be discussed later. However a great deal of effort will be required by the country to create a demand of high quality of financial information reporting. The reporting system by various regulatory authorities in the country needs to be streamlined. Adoption of fully fledged standards as per IAS and IFRS in auditing needs to be of high priority for the country. Thus as per the plan, Indonesia will fully try to adopt the principles and standards set in accordance with IAS and IFRS by the beginning of January 2012. The status of the accounting profession and standard in Indonesia is detailed in the following discussion.
Status of accounting profession and standard in Indonesia
The accounting profession and standards in Indonesia has achieved a certain level of development but still something to deal with the difference between IAS and Indonesian GAAP. The main differences in treatment between the US GAAP, UK GAAP and the GAAP in Indonesia occur mainly due to the way they treat provision of finance in the country given the existing legal system in Indonesia. The legal system of Indonesia is quite complex which is influenced by the legacy of the Dutch law and a national legal system based on Indonesian precepts of law and justice. Another factor contributing to the differences is due to the way the country links accounting and taxation purposes. But the major difference occurs due to cultural difference between societies amongst nations which complicates the adoption of universal GAAP.
Accounting Evolution in Indonesia
Always on Time
Marked to Standard
The Dutch introduced the elements of double-entry bookkeeping to Indonesia in the 17th century. The East Indies Company-the principal commercial organization during the colonial era-had a significant and ongoing impact on Indonesian business arrangements. Colonial economic activities rapidly increased during the 1800s and early 1900s. This created demand for trained accountants and bookkeepers, which was partly met by an influx of Dutch and British accountants into the colony to help administer the vast estates, mills and industrial enterprises.
Opportunities for local accountants grew during the 1942-45 interruption of Dutch colonial rule. Dutch accounting practices remained in use during the post-independence era of the 1950s. Moreover, tertiary accounting training continued to be based on the Dutch accounting system. However, the nationalization of Dutch-owned enterprises and the expulsion of Dutch nationals in 1958 created a shortage of technical, including accounting expertise.
In response, Indonesia turned to U.S. accounting practices. However, the introduction of U.S. accounting thought and practices blended well with Dutch accounting methods, particularly in government agencies. An increasing number of tertiary institutions, including the government-based Sekolah Tinggi Akuntansi Negara (College for State Accountancy, STAN), began to shift their accountancy programs from the Dutch to the U.S. system from 1960.
In 1975, all institutions were required to adopt the U.S. system. The accounting education should follow only US concepts. The US government provided aid and grants for technical assistance and for upgrading Indonesia's education systems, for example, through Ford Foundation grants. In addition, US accounting was transferred to Indonesia through multinational companies, international accounting ï¬rms, and textbooks which replaced the translated Dutch texts in the teaching of accounting in universities. Further, a decree issued in 1976 encouraged the establishment of foreign accounting ï¬rms in Indonesia. A Code of Ethics for public accountants was introduced in 1987, dealing with attitude, independence, professional skill, responsibility to clients, and other professional accountants. The norms embodied in the principles and standards of the Code of Ethics were taken primarily from statements of accounting norms in the US. Some were also taken from the relevant pronouncements of the Australian and Dutch professional bodies. The IAI was a member of the International Accounting Standards Committee (IASC) and currently it is a member of the International Federation of Accountants (IFAC). In 1997 a ministerial decree was issued to regulate the membership in the accounting profession in Indonesian.
The development of accounting profession goes through the rules and regulations of the standard body of accountant, how to become a member and deals also with the ethical behavior of accountants and their professional examinations. These bodies will determine the type of accounting services required by society that is more and increasingly complex. Â Degree accountant is a person with a weight of professional titles that can be equated with other occupations.Â Broadly speaking Accountant can be classified as follows:
Public Accountant (Public Accountant)
Independent public accountant is an accountant who provides his services on the basis of certain payments.Â They are working freely and generally incorporate an accountant's office. Â A public accountant may perform the examination (audit), for example on taxation services, management consulting, and service management system preparation.
Internal Accountant (Internal Accountant)
Internal accountants are accountants who work in a company or organization.Â Internal accountant is also called the company accountant.Â Of these positions can be occupied until the start of the regular staff with the Head of Accounting or Finance Director. Â Their task was to develop accounting systems, preparing financial reports to external parties, preparation of financial statements for corporate leaders, preparing budgets, handling tax matters and internal audit.
Government Accountants is an accountant who worked at government agencies, such as in the office of Finance and Development Supervisory Agency (BPKP), the Financial Supervisory Agency (BPK).
Accountant accounting educators are in charge of accounting education, research and development accounting, mangajar, accounting education curriculum in college.
What are the requirements if a person wants to obtain a degree accountant?Â Someone was entitled to a degree if they have qualified accountant, among others: Education Bachelor of Economics majoring in Accountancy from the Faculty of Higher Education which has been recognized to produce a degree of Accountants, like UI, UGM, Hasanuddin University, USU, and so forth, or a private college affiliated to one universityÂ who has the right to provide a high degree of Accountants.Â It also can follow the National Examination in Accounting (Una) held by a consortium of Higher Education in Economic Science was established by the Education Minister RI SK 1976.
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The calendar towards full convergence with IFRS in the year 2012 can be described as follows:Â
â€¢ Ending 2010 is expected that all IFRS will be adopted in Indonesian GAAP;Â
â€¢ Year 2011 will be for preparation of all supporting infrastructure to implement the GAAP that will have been adopted;
â€¢ Year 2012 will be for implementation of IFRS GAAP by companies with public accountability.Â
New GAAP issued by the IAI take into account the recording of financial transactions of Islamic banking under sharia law.Â In order to converge to IFRS, the revised GAAP framework had the following objectives:
Financial Instruments: Presentation and Disclosure
Financial Instruments: Recognition and Measurement PSAK-GAAP results of revision of 2007 is collected in a book called the Financial Accounting Standards as of 1September 2007 and became effective on January 2, 2008.
Accounting professional body
The Indonesian Institute of Accountants (IAI) is the only professional accountancy body in Indonesia acknowledged by the Ministry of Finance. The IAI is also a founder of ASEAN Federation of Accountants and a full member of the International Federation of Accountants (IFAC). As a self-funded accountants' professional body, IAI is responsible for setting up a code of ethics, accounting and auditing standards, conducting exams for certified public accountants (CPA), and running programs for professional education. Membership in IAI is strictly limited to holders of the "accountant" title. The IAI members originate from all accounting backgrounds, including auditor academics and public sector accountants. As of December 31, 2004, the IAI had 5,984 registered members, with 988 of them being public accountants. As noted from these figures, Indonesia has relatively few professional public accountants and most of them are largely concentrated in the main urban centers.
Professional Education and Training
Only those who graduate in accounting (with a minimum of 144 credit units) and undertake the Professional Education Program (comprising 20-40 credit units) may earn an "accountant designation" and obtain a State Registered Accountant (SRA) Certificate. 28 Only SRA holders are eligible for the CPA exam, which is administered by the IAI twice a year. The CPA exam is mandatory to get an auditor license from the Ministry of Finance and become an auditor member in the Institute. The CPA Board of Examiners was established by the IAI, the IAI National Council appoints the Board's members. The CPA Board of Examiners has the authority to (a) set the subject and syllabus; (b) approve the papers; and (c) set the passing grade. The CPA exam is a written examination with main emphasis on testing the technical knowledge with practical skills. To enter the audit profession, a CPA should have had a minimum 1,000 hours of general audit during the last five years whereby 500 hours should be at the supervisory level. The Directorate of Accountant under the Directorate General of Financial Institutions in the Ministry of Finance will grant an audit license when requirements are met.
Most universities' curricula have subjects relating to financial accounting, international accounting standards, international auditing standards, and business and professional ethics. A university or college must be recommended by the IAI and licensed by the Ministry of Education in order to deliver the Professional Education Program. In general, the syllabus of the Professional Education Program covers all areas recommended by the IFAC educational guidelines, including financial accounting seminar, management accounting seminar, taxation seminar, practices for auditing, business and professional ethics, knowledge of capital market, and business environment. Since Indonesia has committed to the adoption of IFRS and ISA, the IAI in cooperation with the Ministry of Education should modify the curriculum syllabus for undergraduate courses, continuing professional education, and the Professional Education Program. This effort needs to be intensified and be completed within a short timeframe given the complexities of IFRS and ISA.
The IAI requires public accountants to attend a minimum 120 credit hours of continuing professional education (CPE) every three years and not less than 30 credit hours annually. Minimum 100 out of the 120 credit hours must be in the form of structured learning activities. Of those required credits, 30 percent of those credit hours can be claimed from training providers other than the IAI, but only if the IAI and/or Ministry of Finance recognize the training providers. At the beginning of every year, all public accountants receive notification about the standing of their CPE credit hours. The Indonesian Institute of Accountants requires CPE-noncompliant members to fulfill any shortfall of credit hour in the next year. On average, more than 80 percent of IAI members comply with CPE requirements. Monitoring of non-compliance and sanction measures are also set out by the Ministry of Finance and Bapepam.
Dissimilarities in compliance
Indonesian accounting pronouncements are issued by the Indonesian Accounting Standards Board (DSAK) of the Indonesian Institute of Accountants. They comprise 57 standards (PSAKs), 28 of the PSAKs were developed by reference to IASs and IFRSs, 20 were developed by reference to US GAAP pronouncements, and the remainder is locally developed.
In 2007, the Indonesian Financial Accounting Standards were moving toward converge with IFRS/IAS, and full adoption was planned in 2012.
There are many similarities and differences between IFRS and Indonesian GAAP and below is a discussion of some of the differences:
The concepts of IAS 32, financial instruments: Disclosure and Presentation, and IAS 39, Financial Instruments: Recognition and measurement, particularly in the measurement and recognition concepts of the financial statements instruments such as asset, liability and equity are not yet adopted by Indonesian GAAP.
Although Indonesian GAAP does refer to the historical cost concept, the standard still permits the recognition of asset revaluation with government's approval. IFRS/IAS refers to the historical cost as well as fair value concepts in which financial statements should be adjusted periodically to the fair value of the assets.
Indonesian GAAP permits implementation of pooling of interests for the purpose of managing transactions in business combinations. This is inconsistent with IFRS 3, Business Combinations, which prohibits the pooling of interest
According to Indonesian GAAP, the goodwill that originates from a business acquisition is to be amortized over not more than 20 years which contradicts the concept in IFRS, which states that the goodwill obtained from business combinations should be evaluated on a regular basis in order to ascertain that the value of goodwill is not impaired.
Indonesian GAAP has not yet adopted the concept of government grants accounting, as in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, because the Indonesian government does not provide grants to the private sector.
As regards to consolidation, for Indonesian GAAP investment in subsidiary should be accounted for using equity method when the parent present separate financial statements as additional information to the consolidated financial statements whereas for IFRS when an entity elects or is required by local regulations to present separately financial statements, investment in subsidiary should be accounted for either at cost or in accordance to IAS 39.
For the related party disclosure, the required disclosures in Indonesian GAAP are substantially similar to IFRS expect that: analysis by type of management compensation is not required, the amount or proportion of outstanding balances can be disclosed and no specific requirement to disclose the expense recognized for the period in respect of bad debts due from related parties (required for public companies).
Initial measurement for investment property under Indonesian GAAP is recognized at cost when acquired but Indonesian GAAP does not clarify components of cost, whereas under IAS it is at cost but with clarifications of cost components and what should not be included in the cost.
Indonesian GAAP does not comply with IAS on the subsequent measurement of investment property where the measurement is based on fair value model and cost model and for Indonesian GAAP investment classified as long - term assets are carried at cost, adjusted for significant reductions or permanent decline in value.
LIFO as a cost formula for inventories is prohibited under IAS whereas Indonesian GAAP accepts it.
On inventories disclosures, it is a requirement to disclose the carrying amount of inventories carried at net realizable value, in contradiction to IAS where this requirement is eliminated.
The subsequent measurement for property, plant and equipment in IAS is based on the cost model and revaluation model, for Indonesian GAAP the cost method applies but the revaluation is not permitted unless allowed by government regulation.
The depreciation method and useful life under IAS should be reviewed at least at each financial year-end and under Indonesian GAAP, should be reviewed periodically.
Indonesian GAAP complies with IAS on the initial recognition of an intangible asset which is recognized at cost.
Indonesian GAAP does not comply with IAS in such that it prohibits the revaluation of intangible assets which under IAS only if an active market exists.
As far as the amortization of goodwill is concerned, Indonesian GAAP does not comply with IFRS in such that under IFRS goodwill should not be amortized but should be tested for impairment annually, whereas according to Indonesian GAAP, goodwill should be amortized over its useful life, a period that should not exceed five years except that a longer period, but not exceeding twenty years, can be used when there is a justifiable basis.
Negative goodwill under Indonesian GAAP is recognized as deferred income and recognized as income over a period of not less than 20 years, whereas under IAS, it is recognized as a gain in the income statement immediately
Under Indonesian GAAP, revenue recognition measurement is in general similar to IFRS, except that certain industry-specific revenue recognition guidance may result in some measurement differences.
When it comes to the accounting policy changes and errors, Indonesian GAAP does not comply with IFRS in such that it considers change in depreciation method as change in accounting policy whereas IFRS considers it as change in estimates.
As regards the recognition of borrowing costs, IFRS allows that one may choose from the benchmark or the allowed alternative method but Indonesian GAAP only allows the alternative method of IFRS.
For the recognition of impairment of assets Indonesian GAAP is similar to IFRS but does not provide any specific guidance for assets held for disposal.
As far as the sale and leaseback transactions are concerned, under Indonesian GAAP any profit or loss on sale is deferred and amortized in proportion to the amortization of the leased asset if capital lease and in proportion to the amortization of the lease expense if operating lease, whereas under IFRS the profit or loss on sale is amortized over the lease term.
For the consolidated financial statements, Indonesian GAAP does not provide exemptions such as under IFRS, it requires the preparation of consolidated financial statements by a parent entity that includes all qualified subsidiaries.
For the numbering system, the Indonesian PSAK are differently numbered as compared to the IFRS but will fully incorporate their content.
In order to fully converge to the IFRS, the Indonesian accounting professional body will have to align the above dissimilarities before the planned period of January 2012.
The accounting profession and standards worldwide differ from a country to another due to different causes mainly the provision of finance, existing legal system, link between accounting and taxation and cultural differences. Basing of the findings from the case of Indonesia, accounting profession and standards has reached at a certain level of development although some differences between Indonesian GAAP and International Financial Reporting Standards (IFRS).
The current status of accounting profession and standards in Indonesia, the Dewan Standar Akuntansi Keuangan or DSAK-IAI which is the Board of Indonesian Accountants Institute (IAI), has issued 62 Statements of Financial Accounting Standards with a target to fully adopt the IFRS by the end of 2010 and implementation of all IFRS in Indonesian GAAP by the beginning of 2012..
However, the main factors which influence these differences in Indonesia are basically resulting from the complexity of the Indonesian legal system because of legacy of Dutch law mixed with the national legal system based on Indonesian precepts of law and justice. But the major factor is the complication of universal GAAP due to cultural differences between societies. Moreover, comparing the Indonesian GAAP to the other developed systems worldwide in the same industry such as US GAAP and UK GAAP, there are still main differences in treatment of IFRS which will be solved by harmonization of standards in the accounting profession and standards.