As noted in the 2003 Asian Development Bank (ADB) report, prior to 1994, Indonesian Accounting Standards (PSAKs) were based on the U.S. Generally Accepted Accounting Principles (GAAP) in effect as of 1965. In 1994, however, the Seventh National Congress of the Indonesian Institute of Accountants (IAI) endorsed the International Accounting Standards (IASs), now the International Financial Reporting Standards (IFRSs), as the basis for domestic financial reporting. Since 1994, the IAI, with the assistance of the Indonesian Government, the World Bank, and the ADB, has worked to harmonize PSAKs with IFRSs. However, differences still exist. Some of the PSAKs still reflect the pronouncements of the U.S. GAAP, and the adoption of IFRSs is out of step with IFRSs. In 2005, the World Bank conducted an assessment of accounting and auditing practices in Indonesia. It recommended that Indonesia improve its national accounting standards and practices by fully adopting IFRSs, issuing related guidelines, and providing necessary training for the practitioners. It was noted that the authorities were planning to fully adopt IFRSs by 2008. As far as the oversight of the profession is concerned, the World Bank pointed out its fragmented nature and suggested reorganizing and enhancing the existing system with a view to strengthening enforcement. At the time of the World Bank assessment, the Ministry of Finance had prepared a draft of the Public Accountancy Law, which was expected to address the issue of legal liability of accountants and independent public oversight system.

General Overview

In its 2003 report on Indonesia, published as part of the Diagnostic Study of Accounting and Auditing Practices series, the ADB provided a comprehensive overview of the accounting and auditing environment in Indonesia. According to the report, during the last several decades the Indonesian financial reporting requirements have "evolved substantially" (p. 6). Prior to 1974, accounting and auditing requirements were primarily specified in the Dutch-based Company Law, which did not contain detailed provisions on the reporting, requiring only "adequate accounts to be kept." In 1974, the IAI adopted a set of accounting standards based on the U.S. GAAP in effect as of 1965. Finally, in 1994, the Seventh National Congress of the IAI endorsed the International Accounting Standards (IASs) (now the International Financial Reporting Standards, or IFRSs), as the basis for formulating Indonesian Financial Accounting Standards (Pernyataan Standar Akuntansi Keuangandomestic, or PSAKs).

PSAKs consist of IFRSs and U.S. GAAP-based standards, as well as sector-specific rules. Overall, the ADB observes, this system "blends the beneficial aspects of principle-based IAS, rules-based U.S. GAAP, and sectoral guidance. Nevertheless, its structure differs from the two international benchmarks, IAS and U.S. GAAP. This potentially reduces investor confidence.... Without very significant resources being devoted to standard setting on an ongoing basis, PSAKs will tend to remain out of step with their international parents" (pp. 6-7). The 2007 Comparison of PSAKs with IFRSs prepared by Deloitte & Touche Tohmatsu discloses that, as of January 2007, there were 57 PSAKs issued, out of which 28 standards are based on IFRSs, 20 PSAKs refer to U.S. GAAP, 8 PSAKs were developed by the IAI with no reference to the international standards, and one PSAK, on shariah banking, is adopted from the accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions. The 2005 World Bank assessment of accounting and auditing practices in Indonesia, part of a joint International Monetary Fund's and World Bank's initiative on publishing the Reports on Observance of Standards and Codes, also commended Indonesia on its efforts to improve financial reporting practices in the country. However, it was noted that the differences between PSAKs and IFRSs undermine the perception of the quality of financial reporting in the country and necessitate the full adoption of IFRSs. In fact, the World Bank pointed out that "the Indonesian Financial Accounting Standards Board is intensifying its effort and is expected to make Indonesia Financial Accounting Standards consistent with IFRS by 2008, both in substance and in format" (p. 13).

Since 1973, accounting standards in Indonesia have been set by the Indonesian Financial Accounting Standards Board (DSAK) of the IAI. According to the ADB report, the DSAK has no legal status as a standard-setting body, and only the Capital Markets Law No. 8 of 1995 (CML) specifies that PSAKs established by the DSAK constitute generally accepted accounting principles in Indonesia. Nevertheless, as described by the 2005 World Bank report, the Capital Markets Supervisory Agency (Bapepam) requires listed companies to comply with PSAKs. The CML requires public companies to file audited financial statements with Bapepam and also provides for Bapepam to establish additional accounting requirements for the capital markets. Although the sanctions for non-compliance with accounting standards are not provided for in laws and regulations, in practice Bapepam applies sanctions under the CML. The Companies Law of 1995 requires limited companies to prepare their financial statements in accordance with PSAKs. The Directorate General of Taxation (DGoT) and the Bank of Indonesia (BI) also require that companies under their jurisdiction use PSAKs.

By law, banks must submit audited financial statements to the BI. Listed banks are also required to submit their financial statements in accordance with the CML. The Law on Insurance Business stipulates that insurance companies must submit their reports to the Ministry of Finance (Departemen Keuangan, or MoF). The following types of companies must submit their audited financial statements to the Ministry of Trade: (1) public companies; (2) companies that obtain funds from public; (3) companies that issue debt securities; (4) companies which assets exceed Rp 25 billion; (5) companies that are debtors; (6) foreign companies that conduct business in Indonesia; and (7) state-owned enterprises.

According to the 2005 World Bank report, oversight responsibilities are shared among the MoF, BI, Bapepam, Ministry of Trade, and the IAI. While the MoF is responsible for licensing the profession and for setting and enforcing professional standards, Bapepam and BI register and supervise accountants and accounting firms for audits of the securities and banking sectors, respectively. The IAI engages in establishing accounting, auditing, and ethics standards; certification; and education. The World Bank points out the fragmented nature of the public oversight system and suggests reorganizing and enhancing the existing system with a view to strengthen enforcement. At the time of the World Bank assessment, the MoF had prepared a draft of the Public Accountancy Law which was expected to address the issue of legal liability of accountants and independent public oversight system.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

There is insufficient publicly available information as to Indonesia's compliance with this principle.

IFRS 2: Share-based Payment (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 53 (1998) Accounting for Stock-Based Compensation is based on the Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation issued by the Financial Accounting Standards Board (FASB). The requirements of PSAK 53 differ from those of IFRS 2.

IFRS 3: Business Combinations (effective 2004)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 22 (1994), Accounting for Business Combinations is based on IAS 22 (revised 1993), which was later superseded by IFRS 3. The 2003 ADB report informs that PSAK 22 was issued on September 7, 1994 and has been effective since January 1, 1995. The report points out a number of differences between IFRS 3 and PSAK 22, including differences in the accounting method applied, measurement of the acquired assets and liabilities, and treatment of goodwill.

IFRS 4: Insurance Contracts (effective 2006)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 36 (1996), Accounting for Life Insurance is based on SFASs 60, 81, 91, 97, 113, and 120 issued by the FASB. PSAK 28 (revised 1996), Accounting for Casualty Insurance is based on SFASs 60, 91, 97, 113, and 120. The scope of the PSAKs is much narrower than that of IFRS 4.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

NC

The 2003 ADB report informs that PSAK 58: Discontinuing Operations was issued on November 3, 2000 and has been effective since January 11, 2002. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 58 (revised 2003) is based upon IAS 35 Discontinuing Operations (1998), which was superseded by IFRS 5. The Deloitte report examines the differences between PSAK 58 and IFRS 5 in accounting for discontinued operations.

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 29 (1994) Accounting for Oil and Gas Industry is based on the SFASs 19, 25, and 69 issued by the FASB, as well as the regulations for oil and gas in Indonesia. PSAK 33 (1994), Accounting for General Mining Industry is based on the relevant regulations for general mining in Indonesia. The scope of the Indonesian standards differs from that of IFRS 6.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 31 (revised 2000), Accounting for Banking Industry is based on IAS 30 (1990), rules of the Bank for International Settlement, and the regulations for banking in Indonesia. However, IAS 30 was superseded with IFRS 7, and there is insufficient publicly available information as to Indonesia's compliance with this principle.

IAS 1: Presentation of Financial Statements (effective 2007)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 1 (revised 1998) is based on IAS 1 (revised 1997). The 2003 ADB report notes that PSAK 1 was issued on September 4, 1998 and has been effective since January 1, 1999. The International Accounting Standards Board (IASB) revised IAS 1 in December 2003. According to the Deloitte and Touche comparison, there are a number of differences between PSAK 1 and IAS 1 effective for the periods commencing on January 1, 2005.

IAS 2: Inventories (effective 2005)

NC

The 2003 ADB report states that PSAK 14 (1994) Inventories was issued on September 7, 1994 and has been effective since January 1, 1995. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 14 is based on IAS 2 Inventories (Revised 1993). The IASB revised IAS 2 in December 2003. The Deloitte report finds a number of differences between IAS 2 and the Indonesian standard.

IAS 7: Cash Flow Statements (effective 1994)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 2 (1994) is based on IAS 7 (revised 1992), and the method used in preparation of cash flow statements is similar to that of IFRS. Under IFRS, extraordinary items are prohibited, but under Indonesian GAAP, cash flow related to extraordinary items are "classified as cash flows from operating, investing or financing activities as appropriate, and separately disclosed" (p. 002.1). The 2003 ADB report states that this standard was issued on September 7, 1994 and has been effective since January 1, 1995.

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 25 (1994), Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies is based on IAS 8 (revised 1993). The 2003 ADB report informs that this standard was issued on September 7, 1994 and has been effective since January 1, 1995. The IASB revised IAS 8 in December 2003, and, as indicated in the Deloitte report, there are a number of differences between IAS 8 and the Indonesian standard.

IAS 10: Events after the Reporting Period (effective 2005)

NC

The 2003 ADB report states that PSAK 8 (revised 2003) has been applicable for financial statements covering periods beginning on or after January 1, 2003. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 8 is based on IAS 10 (1978). However, the IASB revised IAS 10 in December 2003, and there is no indication that the changes made to IAS 10 were incorporated into relevant PSAK.

IAS 11: Construction Contracts (effective 1995)

II

There is insufficient publicly available information as to Indonesia's compliance with this principle. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 34 (1994), Accounting for Construction Contracts is based on IAS 11 (1993). The 2003 ADB report states that this standard was issued on September 7, 1994 and has been effective since January 1, 1995.

IAS 12: Income Taxes (effective 2001)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, although PSAK 46 (1997), Accounting for Income Taxes is based on IAS 12 (1996), there are a number of differences between the two standards. The 2003 ADB report adds that this standard was issued on December 23, 1997 and has been effective since January 1, 1999 for listed companies and since January 1, 2001 for unlisted companies.

IAS 14: Segment Reporting (effective 1998)

II

The 2003 ADB report states that PSAK 5 (revised 2000), Segment Reporting is effective for periods beginning on or after January 1, 2002. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 5 is based on IAS 14 (revised 1997). However, there is insufficient information publicly available as to the extent of compliance of PSAK 5 with IAS 14.

IAS 16: Property, Plant and Equipment (effective 2005)

ID

As stated in the April 2007 issue of the Deloitte IAS Plus Newsletter, at the time of the publication, the Exposure Draft (ED) of PSAK 16, Fixed Assets (revised 2004) was still pending. PSAK 16 (revised 2004) was issued in September 2004 and, according to the newsletter, "DSAK referred to IAS 16, Property, Plant and Equipment" (p. 21). The Deloitte 2007 comparison of IFRSs and Indonesian standards notes that "ED PSAK No. 16 (2004) complies with IAS 16" (p. 016. 1). The 2003 ADB report adds that PSAK 16: Fixed Assets and Other Assets was issued on September 7, 1994 and has been effective since January 1, 1995. At the time of issuance, it was based on IAS 16 (1993).

IAS 17: Leases (effective 2005)

ID

As stated in the April 2007 issue of the Deloitte IAS Plus Newsletter, at the time of the publication, the ED of PSAK 30, Leases was still pending. PSAK 30 (revised 2006) is expected to supersede PSAK 30, Accounting for Leases (1994). The newsletter notes that "this standard was developed based on IAS 17, Leases." (p. 21). The Deloitte 2007 comparison of IFRSs and Indonesian standards points out that "ED PSAK No. 30 (2006) complies with IAS 17" (p. 030. 1). According to the same report, the previous standard, PSAK 30 (1994), Accounting for Leases, was based on SFAS 13 (1976), Accounting for Leases and Indonesian Leasing Regulations. The 2003 ADB report adds that PSAK 30 (1994) was issued on September 7, 1994 and had been effective since January 1, 1991.

IAS 18: Revenue (effective 1995)

NC

The 2003 ADB report informs that PSAK 23 was issued on September 7, 1994 and has been effective since January 1, 1995. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 23 (1994), Revenue is based on IAS 18 (1993), and "in general, revenue recognition is similar to IFRS. Certain industry-specific revenue recognition guidance may result in some measurement differences" (p. 023.1).

IAS 19: Employee Benefits (effective 2006)

II

The October 2004 Update on the Deloitte IAS Plus website informs that in July 2004, the DSAK finalized and issued the revised PSAK 24 (revised 2004) Employee Benefits which replaces PSAK 24 Accounting for Retirement Benefit Cost and covers not only accounting for retirement benefit costs, but also other employee benefits. It was further noted that in the preparation of this revision, DSAK referred to IAS 19 Employee Benefits. However, no further information as to the extent of compliance of PSAK 24 with IAS 19 is publicly available.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

NC

According to the 2003 ADB report, at the time of the assessment, there was no PSAK issued that is equivalent to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 10 Transactions in Foreign Currencies, PSAK 11 Translation of Financial Statements in Foreign Currencies, and PSAK 52 (1998) Accounting for Reporting Currencies contain the requirements of IAS 21 (1993). Both PSAK 10 and PSAK 11 are based on IAS 21, while PSAK 52 is based on SFAS 52, Foreign Currency Transactions. The report further notes that there are differences between Indonesian and international requirements for accounting for the changes in foreign exchange rates. According to the 2003 ADB report, PSAK 10 and PSAK 11 were issued on July 7, 1994 and have been effective since January 1, 1995. PSAK 52 was issued in 1998 and has been effective since 2000.

IAS 23: Borrowing Costs (effective 1995)

EN

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 26 (revised 1997), Borrowing Costs is based on IAS 23 (revised 1993), with the only difference identified by Deloitte being that under Indonesian GAAP only one of the alternative treatments provided for in IAS 23 is used. The 2003 ADB report states that PSAK 26 was issued on January 14, 1997 and has been effective since January 11, 1997.

IAS 24: Related Party Disclosures (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 7 (1994) is based on IAS 24 (1984). However, the IASB revised IAS 24 in December 2003, and there are a number of differences between the international and local requirements. The 2003 ADB report states that PSAK 7 was issued on September 7, 1994 and has been effective since January 1, 1995.

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

II

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 18: Accounting by Pension Plans is based on IAS 26 (1987), Accounting and Reporting by Retirement Benefit Plans and on Regulations for Pension Plans in Indonesia (especially No. 11 of 1992). The 2003 ADB report states that PSAK 18 was issued on September 7, 1994 and has been effective since January 1, 1995. No further information as to Indonesia's compliance with this standard is publicly available.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 4 (1994) is based on IAS 27 (1989). However, there are a number of differences listed in the report between the international and local requirements. As stated in the 2003 ADB report, the standard was issued on September 7, 1994 and has been effective since January 1, 1995.

IAS 28: Investments in Associates (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 15 (1994), Accounting for Investments in Associates is based on IAS 28 (revised 1989). The IASB subsequently revised IAS 28, and, according to Deloitte, there are differences between the international and local requirements. As stated in the 2003 ADB report, PSAK 15 was issued on September 7, 1994 and has been effective since January 1, 1995.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

NC

The 2003 ADB report states that as of the time of the assessment, there was no equivalent PSAK for IAS 29 Financial Reporting in Hyperinflationary Economies.

IAS 31: Interests in Joint Ventures (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 12 (1994) Financial Reporting of Interests in Jointly Controlled Operations and Assets is based on IAS 31 (1990), Financial Reporting of Interests in Joint Ventures. As stated in the 2003 ADB report, PSAK 12 was issued on September 7, 1994 and has been effective since January 1, 1995. IAS 31 (1990), Financial Reporting of Interests in Joint Ventures, on which PSAK 12 is based, was superseded by revised IAS 31 (2000). IAS 31 was further revised in December 2003. The revised standard has been effective for the periods commencing on January 1, 2005. The Deloitte and Touche report discloses that there are a number of differences between the two standards.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

ID

As stated in the April 2007 issue of the Deloitte IAS Plus Newsletter, at the time of the publication, the ED of PSAK 50, Financial Instruments: Presentation and Disclosure was still pending. PSAK 50 (revised 2006) is expected to supersede PSAK 50 (1998), Accounting for Investment in Certain Securities. The newsletter notes that "In the preparation of this exposure draft, DSAK referred to IAS 32, Financial Instrument: Disclosure and Presentation" (p. 22). The 2007 Deloitte comparison of IFRSs and PSAKs states that the ED PSAK No. 50 (2006) complies with IAS 32. PSAK 50 (1998), is based on SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, and differs from IAS 32.

IAS 33: Earnings per Share (effective 2005)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 56 (1999), Earnings per Share is based on IAS 33 (1997). The report points out the following differences between the international and Indonesian requirements in this area: "Retrospective adjustments [are] similar to IFRS, except that basic and diluted EPS should also be adjusted, and accounted retrospectively, for the effects of a business combination which is a pooling of interest" (p. 056.1). As stated in the 2003 ADB report, the standard has been effective for periods beginning on or after December 31, 2000.

IAS 34: Interim Financial Reporting (effective 1999)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 3 (1994) is based on the U.S. Accounting Principles Board (APB) Opinion No. 28 (1973), Interim Financial Statements. The 2003 ADB report states that the standard was issued on September 7, 1994 and has been effective since January 1, 1995. IAS 34 was issued in 1998. The ADB report adds that there are only minor differences between IAS 34 and APB 28. To achieve full compliance with IAS 34, the ADB report calls for the replacement of PSAK 3 with IAS 34.

IAS 36: Impairment of Assets (effective 2004)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 48: Impairment of Assets is based on IAS 36 (1998). The 2003 ADB report states that this standard was issued on July 15, 1998 and has been effective since January 1, 2000. Both reports point out differences between the requirements of IAS 36 and its Indonesian equivalent.

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

NC

According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 57 (2000), Provisions, Contingent Liabilities, and Contingent Assets is based on IAS 37 (1998), however PSAK 57 does not contain specific guidance on measurement of decommissioning provisions. The 2003 ADB report states that PSAK 57 was issued on November 3, 2000 and has been effective since January 1, 2001.

IAS 38: Intangible Assets (effective 2004)

NC

The 2003 ADB report states that PSAK 19 (revised 2000), Intangible Assets has been effective for periods beginning on or after January 1, 2001. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 19 is based on IAS 38 (1998). Both reports point out to a number of differences between IAS 38 and PSAK 19.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

ID

As stated in the April 2007 issue of the Deloitte IAS Plus Newsletter, at the time of the publication, the ED of PSAK 55, Financial Instruments: Recognition and Measurement (revised 2006) was still pending. PSAK 55 (revised 2006) is expected to supersede PSAK 55: Accounting for Derivative Instruments and Hedging Activities. The newsletter notes that the proposed standard "will address the accounting treatment related to recognition and measurement of financial instruments, including derivative instruments and hedging. In the preparation of this exposure draft, DSAK referred to IAS 39, Financial Instrument: Recognition and Measurement" (p. 22). The 2007 Deloitte comparison of IFRSs and PSAKs states that ED PSAK No. 55 (2006) is compliant with IAS 39. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 55 (revised 1999), Accounting for Derivative Instruments and Hedging Activities is based on SFAS 133 Accounting for Derivative Instruments and Hedging Activities. As stated in the 2003 ADB report, PSAK 55 was issued on September 10, 1999 and has been effective since January 1, 2001.

IAS 40: Investment Property (effective 2005)

ID

As stated in the April 2007 issue of the Deloitte IAS Plus Newsletter, at the time of the publication, the ED of PSAK 13, Investment Property (revised 2006) was outstanding. PSAK 13, Investment Property (revised 2006) is expected to supersede PSAK 13, Investment (1994). The newsletter notes that "in the preparation of this exposure draft, DSAK referred to IAS 40, Investment Property" (p. 21). The 2007 Deloitte comparison of IFRSs and PSAKs states that ED PSAK No. 13 is compliant with IAS 40. The comparison also notes that PSAK 13 (1994) is based on IAS 25 (1986), which was later superseded by IAS 40.

IAS 41: Agriculture (effective 2003)

NC

As stated in the 2003 ADB report, at the time of the assessment there was no equivalent PSAK in Indonesia to IAS 41, Agriculture. According to Deloitte and Touche's 2007 IFRS/GAAP comparison, PSAK 32 (1994) Accounting for Forestry Industry is based on the Regulations for forestry in Indonesia. The report further notes that PSAK 32 applies only to enterprises engaging in forest concession, and there is no further guidance for other types of agricultural activities.