There are five different convergence approaches a country can implement in adopting the IFRS, namely: 1) adoption of the IFRS entirely; 2) selective adoption of the IFRS or adoption within time interval; 3) IFRS adoption with modification to account for country-specific characteristics; 4) Preserving national accounting standards but in line with the IFRS; and 5) Continuation of national accounting standards (Chand and Patel, 2011, p.15). Of these five approaches, IFRS convergence in Indonesia follows both the second and third approaches, in which IFRS are adopted gradually into local accounting standards and minor modifications are made to align the standards with Indonesian regulations and business environment. This approach has led to different phases in the IFRS convergence programme, in which every phase has a set of objectives that guide the progression of the convergence process.
The gradual approach in IFRS convergence means that different newly-adopted IFRS standards have different effective dates of implementation. The period between 2007 and 2010 has been slated as the adoption period in the Indonesian convergence roadmap (Sinaga, 2011). The main goal of this phase is to gradually converge IFRS standards with the Indonesian accounting standards. The Indonesian codified accounting standards published as of 1 September 2007 reflects the beginning of this phase, in which a number of PSAKs in the pronouncement are full adoption of IFRS/IAS standards. IAS 16 Property Plant and Equipment, IAS 32 Financial Instruments: Presentation, and IAS 39 Financial Instruments: Recognition and Measurement were among the first standards that were fully adopted in Indonesia, and that soon gained wide attention from the public. IAS 16 which was adopted as PSAK 16 Fixed Assets has brought about major changes in accounting practice as it allowed companies to choose either cost model or revaluation model in the valuation of property, plant and equipment. Similarly, IAS 32 and IAS 39, which were adopted as PSAK 50 Financial Instruments: Presentation and Disclosure and PSAK 55 Financial Instruments: Recognition and Measurement respectively, had also sparked controversy, particularly in the financial industry, due to their complexity.
Between 2008 and 2011, the DSAK had endorsed 35 PSAKs adopted from IFRS, along with 20 interpretations of financial accounting standards. Specifically, there is one PSAK with effective date as of 1 January 2009, 16 PSAKs are effective as of 1 January 2011, and 18 PSAKs must be implemented by 1 January 2012. In general, the Indonesian accounting standards as of 2012 are equivalent to the IFRS standards as of 1 January 2009 (Sinaga, 2011), although two standards, i.e. IFRS 1 First Time IFRS Adoption and IAS 41 Agriculture, are yet to be adopted. As with IAS 41 Agriculture, the DSAK’s position is that it will wait for the standard to be finalised by the IASB before it is adopted in Indonesia (Sinaga and Wahyuni, 2012). Meanwhile, IFRS 1 First Time IFRS Adoption will not be adopted until Indonesian accounting standards have fully converged with IFRS (Sinaga, 2011). As alreadynoted, there are a number of minor modifications in the adoption of IFRS standards as PSAKs. For example, in PSAK 1 Presentation of Financial Statements, adopted from IAS 1 Presentation of Financial Statements, the DSAK provides additional explanations related to definition of financial accounting standards to make it in line with the capital market regulations (IAI, 2009a).
The adoption of IFRS as of 1 January 2009 by the end of 2011 marks the accomplishment of the first phase of IFRS convergence. As not all IFRS standards have been adopted in the first phase, it is clear that full convergence remains an ultimate goal of the standard setting process in the following phases. Although full convergence has not been achieved, however, Indonesian accounting standards have clearly moved towards IFRS, consistent with the final objective of the standard setting agenda.
After completing the first phase, the DSAK has stated its readiness to begin the second phase of IFRS convergence, despite a specific timetable or deadline for the full adoption being yet to be decided. Currently, the main focus of the accounting standard setting agenda in Indonesia is minimising the differences between Indonesian accounting standards and the IFRS standards due to any revisions in the IFRS between 1 January 2009 and 1 January 2013 (Sinaga, 2013). The decision to start the second IFRS convergence phase in a gradual way is also affected by the need to examine the challenges and obstacles experienced by Indonesian listed companies in implementing the new set of accounting standards resulting from the first phase of IFRS convergence, which is discussed in the next section.
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