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).

Indonesian Accounting Environment

Accounting System

          A country’s accounting system, which is referred to as a set of accounting rules or practices used in financial reporting (Nobes, 1998), is shaped by various factors including those specific within a particular country. As a result, there have been variations in financial reporting practices around the world. A number of factors that influence countries’ accounting systems have been identified in the literature (see Nobes, 1988). Among those factors, perhaps accounting system orientation, stage of economic development, and culture have contributed most in shaping Indonesian accounting system.

Brief History of Indonesian Economy

         

          Indonesia is a country of about 17,000 islands located in Southeast Asia with a total  area of approximately 1,910,931 square kilometres. The main islands include Sumatera, Java, Bali, Borneo, Sulawesi, Mollucas, Timor, and Papua. The archipelago  spans over the equator and lies between the Indian Ocean and the Pacific Ocean. Malaysia, East Timor, and Papua New Guinea are the countries that share land borders with Indonesia, while other closely located countries include Singapore, the Philippines, and Australia. The capital city of Indonesia is Jakarta, located in the most populous island of Java.

          Statistics show that as many as 237,641,326 people lived in Indonesia as of 2010, making the country the fourth largest country by population after China, India, and the U.S. (Statistics Indonesia, 2012, p.78; UNDESA, 2011). Indonesia has a heterogeneous and multicultural society that stems from numerous indigenous ethnicities with different  customs  and cultures. lthough there are countless of traditional languages spoken within particular ethnics, Bahasa Indonesia is the formal national language. Islam is the predominant religion in Indonesia and there are also followers of Catholics, Christian, Hindu, Buddhist, and Confucianism. Although being a predominantly Muslim country, Indonesia is not an Islamic state.Indonesia proclaimed its independence in 1945, after being colonised by the Dutch for  about 350 years and being occupied by Japan for three and a half years.