New Financial Accounting Standards

Previously, during 2008-2010, many new Exposure Draft of PSAK already made and officially released shall be effectively applied on 1 January 2011, while the rest should be on 1 January 2012. This issue has been actually covered in our Tax Minimagz previous edition. To catch up with all the revisions of the PSAK Draft thorough 2008 till the current days, this edition will bring you the update. 

The following are some revised financial accounting standards which are relevant to the common company in Indonesia:

PSAK 1  - Presentation of Financial Statements

The Presentation of Financial Statement standard is applied to all entities, including profit-oriented and non-profit entities, excluding Shari’a entity.

It provides overall requirements for the presentation of financial statements, guidance on their structure, and the minimum requirements for their content. It ensures the comparability both the entity’s financial statements of previous periods and the other entities’ financial statements. 

PSAK 2 - Cash Flow Statement

The purpose of cash flow statement is to provide information on the operating cash receipts and cash payments of an entity during a period, as well as to provide insight into its various investing and financing activities.  It is a vitally important financial statement since the ultimate concern of investors is the reporting entity’s ability to generate cash flows which will support payments (typically but not necessarily in the form of dividends) to the shareholders.

PSAK 4 - Consolidated Financial Statements

The standard is applied in preparing the consolidated financial statements of groups of companies controlled by a parent entity. All subsidiaries of the parent company should be consolidated. Control is supposed to occur when the parent company owns either directly or indirectly more than half of the voting rights of the entity.

PSAK 7  - Affiliated Party Disclosure

This standard is applied to entities in identification of; (1) their special relationships and affiliated transactions; (2) outstanding balances, including commitments between the entities and their affiliated parties, and determination of the disclosures which are made concerning the items.

PSAK 10 - Effects of Changes in Foreign Exchange Rates

The purpose of this standard is to set out the way to record account for transactions in foreign currencies and foreign operation. The standard also provides guidelines to determine the functional currency. The key issues are the exchange rate(s) that should be used and where the effects of changes in exchange rates are reported in financial statements.

PSAK 12 - Interests in Joint Ventures

The standard is applied to accounting of interests in joint ventures and the financial reporting of assets, liabilities, income, and expenses of the joint ventures in the account of the venturers. The definition of joint venture refers to a contractual agreement between two or more parties that undertake an economic activity subject to joint control.

PSAK 15 - Investments in Associates

The standard is applied to all accounting for investment in associates, except for investment in associates held by a venture capital organization, a mutual fund, a unit trust, and a similar entity, including investment-linked insurance funds, where these investments upon initial recognition are designated at fair value through profit or loss or classified as held for trading and accounted for in accordance with PSAK 50&55.  The associates are an entity in which an investor has significant influences (20% or more ownership) but neither subsidiary nor an interest in a joint venture.

PSAK 19 - Intangible Assets

The purpose of the standard is to prescribe the recognition and measurement criteria for intangible assets not covered by other standards. The standard will enable users of financial statements to understand the extent of an entity’s investment in such assets and the movements.  The principal issues involved relate to the nature and recognition of intangible assets, determination of costs, and

PSAK 23 - Revenue

The standard prescribes the requirements for the recognition of revenue in an entity’s financial statements. Revenue can take various forms, such as sales of goods, provision of services, royalty fees, franchise fees, management fees, dividends, interest, subscriptions, and so on.  The requirements of this standard are to be applied to accounting for revenue arising from sale of goods, provision of services, and utilization of the entity’s assets  by other party (ies) which can arise a royalty, interest or dividend. 

PSAK 24 - Employee Benefits

The standard sets out the accounting and disclosure by employers for employee benefits.  The standard is applied to all employee benefits including short-term employee benefits such as wages, salaries, vocational holiday benefit, sick pay, profit sharing or bonus plans paid within 12 months of the end of the period, and non cash benefits, such as medical care and so on. The standard is also for postemployment benefits, such as pensions, postemployment medical benefits, and postemployment life insurance, and other benefits.

PSAK 25 - Accounting Policies, Changes in Accounting Estimates and Errors

The standard prescribes criteria for selecting and changing accounting policies and the disclosures thereof and also sets out the requirements and disclosures for changes in accounting estimates and corrections to errors. There is always a possibility for errors and changes in accounting estimates.

PSAK 46 - Income Tax

The standard is applied to all Income taxes related with companies’ activities. It provides guidelines on accounting treatment related to Income tax. The main issues of this standard are differences between the accounting and tax consequences of revenue and expenses.

PSAK 48 - Impairment of Assets               

The purpose of this standard is to ensure that assets are carried at no more than their recoverable amount. If an asset’s carrying value exceeds the amount that could be received through use or through selling the asset, then the asset is impaired. An entity shall assess at each balance sheet date whether there is any indication that an asset is impaired. Since an entity should review the impairment indication periodically, and there is always a possibility of impairment existence in the future.

PSAK 50 - Financial Instrument: Presentation

The standard addresses the presentation of financial instruments as financial liabilities or equity. It includes requirements for the presentation of financial instruments as either financial liabilities or equity, including when a financial instrument should be presented as a financial liability or equity instrument by the issuing entity, how to separate and present the components of a compound financial instrument that contains both liability and equity elements, the presentation of interest, dividends, losses and gains related to financial instruments. It complements the requirements for recognizing and measuring financial assets and financial liabilities in PSAK 55, Financial Instruments: Recognition and Measurement, and the disclosure requirements for financial instruments in PSAK 60, Financial Instruments: Disclosures.

PSAK 55 - Financial Instruments: Recognition and Measurement

The standardaddresses the accounting for financial assets and financial liabilities. More specifically, it contains requirements for the condition that: a financial asset or financial liability should firstly be recognized in the balance sheet; a financial asset or a financial liability should be derecognized (i.e., removed from the balance sheet); a financial asset or financial liability should be classified into one of the categories of financial assets or financial liabilities; a financial asset or financial liability should be measured, including; a financial asset or financial liability should be measured at cost, amortized cost, or fair value in the balance sheet; impairment of a financial asset or group of financial assets should be recognized and measured; special accounting rules for hedging relationships involving a financial asset or financial liability should be applied; a gain or loss on a financial asset or financial liability should be recognized either in profit or loss or as a separate component of equity.

PSAK 60 - Financial Instruments: Disclosures

The purpose of the standard is requiring entities to provide disclosures in their financial statements that enable users to evaluate, first, the significance of financial instruments for the entity’s financial position and performance, and, second, the nature and extent of risks arising from financial instruments to which the entity is exposed, and how the entity manages those risks. The disclosure requirements in this standard complement the recognition, measurement, and presentation requirements for financial instruments in PSAK 50, Financial Instruments: Presentation,andPSAK 55, Financial Instruments: Recognition and Measurement.

For Taxpayer, tax planning strategies are ideally made in conformity with any changes created by the IFRS convergence. The related tax-reporting and compliance implication should be identified as the companies begin to assess the potential implications of adopting each new accounting standard. Impacts on the Indonesian taxation from each change of financial statements as a result of IFRS convergence are unavoidable. In addition, with new IFRS-based information, the corporate information systems that support the tax planning, accounting and compliance processes continue to run effectively and efficiently.