The Transition to IFRS in Indonesia

         

          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 convergence period (2007-present)

         As the development of Indonesian accounting standards since 1994 has followed the progress of the international accounting standard setting, the international convergence of IFRS inevitably affects the DSAK’s strategy in formulating Indonesian accounting standards. Since the publication of the 2007 codified Indonesian accounting standards pronouncement, the IAIhas stated its support to the IASB convergence programme. However, it was not until 23 December 2008 did the IAI announce its formal statement that Indonesian accounting standards would fully converge with IFRS with the expected completion date by 1 January 2012 (Deloitte Touche Tohmatsu, 2009). This marked the beginning of a period of transition to IFRS, a process that still continues until presently. In this convergence period, an ultimate goal to achieve full convergence between Indonesian national standards and IFRS has directed the sequence of events in the Indonesian accounting standard setting agenda. Accordingly, the Indonesian accounting standards have moved significantly closer to IFRS compared to the previous period.

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).

Development of Accounting Standards in Indonesia

          The authority to set accounting standards in Indonesia in the present day is mainly held by the Indonesian Financial Accounting Standards Board (DSAK), an accounting standard setting body within the IAI. Members of the DSAK come from various sectors within the Indonesian accounting environment, including the public accounting profession, the capital market authority, the central bank, accounting academics, and industries. In conducting its duties, the DSAK is advised by the Indonesian Financial Accounting Standards Advisory Council (DKSAK), a consultative body that is also under the IAI. Although the IAI does not have a legal status as a standard-setting body (Kusuma, 2005, p.356), the regulatory framework in Indonesia requires companies to prepare financial statements based on accounting standards set by the accounting professional organisation which is approved by the government.

Accounting Profession

          The first step in the development of the accounting profession in Indonesia was the enactment of the Accountant Designation Act in 1954, which regulates the use of accountant professional designation and the provision of public accounting services by professional accountants. The year 1957 saw the establishment of the Indonesian Institute of Accountants (IAI), the first professional accounting association in Indonesia (Tuanakotta, 2007, p.317). The institute was established to advance the accounting profession and practice in Indonesia, which, in the 1950s was still in its infancy. To achieve the aforementioned goals, the IAI has run various programmes and held important responsibilities, including registering member accountants, organising professional certification programmes, developing ethical codes for accountants, publishing academic and professional journals, and running continuing professional education programmes (IAI, 2012a).