The advancement of Indonesian accounting standards (1990-2007)

          The second period in the Indonesian accounting standard development started in the early-1990s, fuelled by a significant progress in the development of Indonesian capital market during the time. By the early 1990s, more than 200 firms traded their shares in the Jakarta Stock Exchange, a substantial increase from 24 companies in the mid-1980s (Rosser, 1999; ADB, 2003). The IAI responded to this growth by making major changes in the accounting standard setting process (Rosser, 1999; ADB, 2003).

          Firstly, the KPAI was reorganised into the Indonesian Financial Accounting Standards Committee (KSAK) in 1994. Secondly, in the same year the IAI also transformed the basis of accounting standard setting from the U.S. GAAP to the International Accounting Standards (IAS) and made a formal decision to support the harmonisation programme initiated by the International Accounting Standards Committee (IASC). This move was evident by the direct-adoption of the IASC Framework for Preparation and Presentation of Financial Statements and the publication of a new set of Indonesian Financial Accounting Standards in 1994.

          The new accounting standards were adapted, among others, from the IAS standards. Apart from these changes, Indonesia also ran the Second Accountancy Development Project with funding assistance from the World Bank, aimed at enhancing the accounting regulations in Indonesia and increasing the competency of Indonesian accountants (Rosser, 1999).

          In an attempt to strengthen the standard setting body in Indonesia, the KSAK was subsequently restructured into the Indonesian Financial Accounting Standard Board (DSAK) in 1998 (ADB, 2003). The newly established standard setter has greater power than its predecessor as it has been granted the authority to set and endorse the statement of financial accounting standards and the interpretation of financial accounting standards.

      This authority makes the DSAK an autonomous accounting standard setter within the IAI’s organisational structure. In addition, the new standard setter also has a stronger structure than ever before, in which the member of the board comprised of representatives from the public accounting profession, academics, industries, central bank, and government (ADB, 2003). In 1998 the IAI also established the Indonesian Financial Accounting Standards Advisory Council (DKSAK) that serves a function as the advisor for the DSAK. Until presently, both the DSAK and the DKSAK continue to act as the main actors in the Indonesian accounting standard development. 

           The second period of accounting standard development in Indonesia can be seen as the improvement phase because its main objective was to enhance the quality of the Indonesian accounting standards. The standard setting agenda focused on eliminating the shortcomings of the previous version of the standards and making it more contextually relevant with the recent growth of the capital markets. The Indonesian accounting standard setters strived to achieve this objective by moving Indonesian accounting standards closer to IAS. Therefore, the sequence of revisions in the Indonesian accounting standards in this period reflected a change towards harmonisation between Indonesian accounting standards and the IAS, although the influence of US GAAP remained substantial.

          Between 1994 and 2007 the IAI has published six revisions of the Indonesian accounting standards codified pronouncements. These revisions were largely to accommodate amendments in previous standards and also to add new accounting standards to deal with the change in the business environment. As of January 2007, the Indonesian accounting standards pronouncement consists of 57 effective Statement of Financial Accounting Standards (PSAK), along with seven Interpretation of Financial Accounting Standards (ISAK). Of all these standards, 28 PSAKs were developed based on IAS standards, 20 PSAKs referred to U.S. GAAP, eight PSAKs were self-developed by the DSAK, and one PSAK concerning shari’a banking referred to the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOFI).

Post By : Rony Sutiyanto