The Indonesian Institute of Accountants (IAI) has been committed to raising professional standards to international levels. Most Public Accountants Professional Standards (SPAPs) issued by the IAI are based on the U.S. Statements on Auditing Standards and some International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board. According to the 2005 World Bank assessment of the accounting and auditing practices in Indonesia, the IAI decided to implement ISAs effective 2007. However, in a 2007 self-assessment prepared by the IAI as part of the International Federation of Accountants' Member Body Compliance Program, the IAI stated that it was still in the process of translating ISAs, and that the final adoption of the international standards had been postponed until 2009. Overall, in its assessment, the World Bank commended the Indonesian authorities for the steps taken to enhance financial reporting framework in the country, including strengthening of audit-engagement reviews, the decision to adopt ISAs, and increasing attention to enforcement issues, among other achievements. At the same time, it was noted that the enforcement of the accounting and auditing standards was weak and professional training required further improvement. Enhanced oversight system of the audit profession, enactment of a new Public Accountancy Law, adoption of ISAs and International Financial Reporting Standards, and the introduction of differentiated reporting requirements for small and medium-size enterprises were singled out as priority measures needed to bring Indonesian accounting and auditing practices into line with international best practices.

General Overview

In 2005 the World Bank released a Report on the Observance of Standards and Codes (ROSC) for Indonesia which summarized the findings of its previously conducted review of accounting, auditing, and financial reporting practices in Indonesia. Overall, the World Bank commended the Indonesian authorities for the steps taken to enhance financial reporting framework in the country, including strengthening of audit-engagements reviews, the decision to adopt International Standards on Auditing (ISAs), and increasing attention to enforcement issues, among other achievements. At the same time, it was noted that the enforcement of accounting and auditing standards was weak and the professional training required further improvement. The World Bank asserted that enhanced oversight system of the audit profession, enactment of a new Public Accountancy Law, adoption of ISAs and International Financial Reporting Standards, and the introduction of differentiated reporting requirements for Small and Medium-size Enterprises (SMEs) were necessary to bring accounting and auditing practices in Indonesia in line with international best practices.

Indonesian Generally Accepted Auditing Standards (Standar Profesi Akuntan Publik, or SPAPs) are issued by the Public Accountants Professional Standards Board (DSPAP) of the IAI. SPAPs are based on the U.S. Statements on Auditing Standards (SASs) issued by the American Institute of Certified Public Accountants (AICPA) in 1998, as well as on some ISAs. According to the 2005 World Bank report, the IAI announced that it was going to adopt ISAs effective 2007. However, in a 2007 self-assessment prepared by the IAI as part of the International Federation of Accountants' Member Body Compliance Program, the IAI stated that the Institute was still in the process of translating ISAs, and that the adoption of the international standards had been postponed until 2009.

In Indonesia, banks, listed companies, non-bank financial institutions, issuer of debt securities, and companies whose assets exceed RP25 billion must have their financial statements audited. The Indonesian industrial structure is characterized by a small number of large companies and a lot of SMEs, which must also have their financial statements audited in accordance with international standards. The World Bank asserts that this situation "imposes unnecessary compliance costs and potentially undermines the quality of financial reporting" (p. 13). It therefore recommended the simplification of reporting requirements for this type of companies.

Under the Capital Markets Law (CML) No. 8 of 1995, issuers and public companies in Indonesia are required to have their financial statements audited by the auditors registered with the Capital Markets Supervisory Agency (Badan Pengawas Pasar Modal, or Bapepam). The CML requires auditors to comply with the Code of Ethics and professional standards, The Accounting Standards and Disclosure Bureau of the Bapepam monitors compliance with these requirements. Banks must submit audited financial statements to the Bank of Indonesia (BI). Listed banks are also required to submit their financial statements in accordance with the CML. The Law of 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.

The regulatory and public oversight of auditing requirements is shared between the MoF, BI, Bapepam, Ministry of Trade, and the IAI. While the MoF is responsible for licensing the profession, setting, and enforcing professional standards, the Bapepam and the BI register and supervise accountants and accounting firms for audits of the securities and banking sectors, respectively. The IAI focuses on establishing accounting, auditing and ethics standards; certification; and education. The World Bank pointed out the fragmented nature of the public oversight system and suggested reorganizing and enhancing the existing system with a view to strengthening 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 IAI was established in 1957 and is the only professional accountancy body recognized by the MoF. The IAI is responsible for certification, standard setting, quality assurance, and disciplinary activities. The IAI issued a Code of Ethics for the profession. However, according to the World Bank, the Code falls short of the International Federation of Accountants (IFAC) Code's requirements. The IAI is a member of the IFAC and is also a founder of the ASEAN Federation of Accountants.

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

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

ISA 210 Terms of Audit Engagements (effective 2006)

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

ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

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

ISA 230R Documentation (effective 2006)

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

ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

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

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

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

ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

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

ISA 300 Planning an Audit of Financial Statements (effective 2004)

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

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

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

ISA 320 Audit Materiality (effective 2004)

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

ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

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

ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

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

ISA 500 Audit Evidence (effective 2004)

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

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

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

ISA 505 External Confirmations (effective 2004)

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

ISA 510 Initial Engagements — Opening Balances (effective 2004)

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

ISA 520 Analytical Procedures (effective 2004)

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

ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

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

ISA 540 Audit of Accounting Estimates (effective 2004)

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

ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

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

ISA 550 Related Parties (effective 2004)

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

ISA 560 Subsequent Events (effective 2006)

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

ISA 570 Going Concern (effective 2004)

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

ISA 580 Management Representations (effective 2004)

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

ISA 600 Using the Work of Another Auditor (effective)

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

ISA 610 Considering the Work of Internal Auditing (effective 2004)

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

ISA 620 Using the Work of an Expert (effective 2005)

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

ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

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

ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

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

ISA 710 Comparatives (effective 2004)

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

ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

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

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

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