Indonesia's financial reporting requirements are set by four different government agencies which are responsible for regulating the specific sectors and industries. These agencies are the Bank of Indonesia, Bapepam, Directorate General of Taxation, and Ministry of Finance. Each of these agencies has responsibility over different parts of Indonesia's framework, and each helps to keep the other in line. With this said the financial reporting environment in Indonesia is still a work-in-progress, but has made some substantial improvements over the past decade. In the late 1990's, after a series of reporting scandals undermined investor confidence, the government realized it had to improve its quality of financial reporting. This came to the forefront in 1997 when the Rupiah collapsed, and by 1998 many of the country's major companies were bankrupt.

 

In May of 1998, President Suharto was forced to resign, ending his thirty-two year reign and marking the end of his control of the country's accounting environment (Accounting and Auditing in Indonesia). The newly controlled government attempted to tighten the regulations in order to improve financial disclosure and investor confidence; it also let go of its grip on Bank Indonesia, as well as redefined and narrowed the responsibilities of Bapepam. Bank Indonesia, now free of government control, administers the country's monetary policies and prescribes financial reporting requirements for banks and financial institutions operating there. Its one and only goal is to establish rupiah stability and to maintain it. With the Bapepam's new ability to focus on just one job, the supervisor and overall securities regulator of the stock market, it is able to spend more time creating a more transparent capital market that public investors can trust. It works together with the privately operated Jakarta Stock Exchange and Surabaya Stock Exchange, and they determine the reporting requirements of domestic companies raising money by issuing shares of stock. It is also overseen by the Ministry of Finance to ensure that it keeps moving in the right direction. Its function and goal is very similar to that of the Securities and Exchange Commission (SEC) in the US as it administers the Accountancy Law.

 

The Directorate General of Taxation prescribes the specific accounts and financial statements which must be included in the financial reports. A very significant group is the Indonesian Institute of Accountants which was founded in 1957 (IAI), and is an extremely important group in setting the financial reporting framework and setting the accounting standards even though the it is not an appointed licensing body of accountants. The IAI delegated to the Indonesian Accounting Standards Board (DSAK) the responsibility of establishing authoritative accounting pronouncements. The cornerstone of the generally accepted accounting principles in Indonesia was prepared by the IAI and is called the Indonesia Accounting Principles (Professional accounting Bodies).? The IAI also is responsible for keeping up with popular topics and discussions that may affect accounting standards. Deriving from the regulations set forth by both the Bapepam and DSAK, this collective group of work is referred to as Indonesian GAAP (INA GAAP).#p#分頁標題#e#

 

INA GAAP covers the accounting pronouncements for companies that claim Indonesia as home, and it requires the following statements to be presented: balance sheet, income statement, statement of changes in equity, statement of cash flows, and the notes to the statements. The financial statements should also be consolidated when applicable and comparative for a period of at least two years. INA GAAP uses the historical cost, but certain assets may be revalued if the net realizable value is below cost. The accrual method is used to recognize revenue and expenses, or at least once the amount is reliable. The equity method of accounting for investments is used, which means they record the initial investment at cost and then adjust based on the company's proportional share of income or losses (IFRS Compared to Indonesian GAAP, KPMG). A company has the option of using FIFO, LIFO, or the weighted-average method of determining the cost of goods sold. When comparing the standards and pronouncements between the INA GAAP and IFRS, they are relatively the same except for some minor variances. INA GAAP has the same overall goal of achieving transparency and fair disclosure on its financial statements so investors can make the best decision possible given the information. Although the goal of INA GAAP is the same, it is very difficult in a developing country such as Indonesia to enforce and maintain these standards (IFRS and Indonesian GAAP, Deloitte). The Bapepam, INA GAAP and the Ministry of Finance need to work together and enforce sanctions on those who don't properly institute and follow the standards; hopefully in the near future these ideas will be engrained into the people and businesses of Indonesia.

 

The above shows how Indonesia accounts for certain issues, but INA GAAP differs from IFRS in a few ways. Firstly, INA GAAP covers the accounting pronouncements for use by profit-and nonprofit oriented entities as well as Syariah entities while IFRS is only designed for profit oriented entities.? IFRS requires that the financial statements be presented fairly, while PSAKs (Indonesian GAAP) do not require the financial statements to be presented fairly. Instead AU section 508 states that "circumstances not affecting the auditor's unqualified opinion include the situation where in order to prevent the financial statements from being misleading because of unusual circumstances, the financial statements contain a departure from an accounting principle established by IAI" (IFRS compared to Indonesian GAAP: An overview).? When dealing with the statement of Changes in Equity, IFRS and Indonesian GAAP require different presentation. Indonesian GAAP specifically states that all changes must be presented in the changes of equity statement, while IFRS reporting allows for a choice or where to present.? IFRS allows the user to choose between presenting a statement of recognized income and expenses, or state their changes in the changes in equity statement#p#分頁標題#e#

 

Indonesia uses the worldwide system of tax, meaning it taxes its corporations and individuals on the amount of income they earn both inside the country and out. A corporation is said to be a resident if it is managed, controlled or has its head office located in Indonesia. An individual is determined to be a resident if they live in Indonesia; if they are in the country for 183 days in a 12 month period; or if they plan on living or meeting the time requirements with the taxable year (Asia Trade Hub). Non-residents are only taxed on the income they earn that is sourced within Indonesia, which makes sense when the taxpayer's country also uses the worldwide tax system. For example if an American were to earn income in Indonesia, he would pay the Indonesian tax and then receive a foreign tax credit on his US tax return.? Similar to the US, Indonesian residents are given a credit for any foreign income taxes they paid. The income tax structure for individuals is progressive, and the tax rates range from 5-30%. The tax law recognizes however that it is a developing country with many people who are extremely poor, and most of the poorest citizens don't have to pay any tax at all. Meanwhile corporate income taxes are taxed at a flat 25% rate (Asia Law). Instead of using a sales tax the country has implemented a value added tax (VAT).

 

Basically the seller charges the VAT to the buyer, who then has to pay this tax to the government. If the buyer is not the end consumer then the VAT it has already paid can be deducted from the amount it charges to its customer. This means the government only receives taxes on the difference, or value added in each transaction, which is the gross margin of each transaction in the sales chain. The VAT is 10% on most goods, however luxury goods can be taxed anywhere between 10 and 50%. Certain goods are exempt from the VAT, these include: basic food supplies like rice and corn, medical and social services, and religious, education and art services. There are tax incentives granted to new resident corporations which invest in certain businesses or regions, these incentives include things such as accelerated depreciation and the ability to carry forward tax losses (Introduction to the Indonesian Tax System). The tax laws are determined by the Directorate General of Taxation, which as mentioned earlier also determines the financial reporting requirements for taxes. The Directorate General of Taxation is overseen by the Ministry of Finance to ensure that the tax rates and reporting requirements stay in line with the country's objectives.