Review of Financial Statement Reporting Objectives

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CHAPTER 2 LITERATURE REVIEW

Chapter 2 describes the literature reviews from any related resources including review from prior researches that relevant to this research. Furthermore, research framework and research hypotheses are also described in this chapter.

A. Review of Financial Statement Reporting Objectives

The difference objectives between Pernyataan Standar Akuntansi Keuangan No. 1 PSAK No.1 and Pernyataan Standar Akuntansi Pemerintahan No.1 PSAP No.1 is as shown from the table below: Table 1 The Objective of Reporting Financial Statement PSAK No.1 PSAP No.1 1. To provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decision. 1. To provide relevant information about the financial position and all of transaction done by the reporting entity in one reporting period of time. 2. Financial statements prepared for this purpose meet the common needs of most users. However, financial do not provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide non-financial information. 2.Financial statement especially used to compare realized income, spending, transfer and funding to the budget, to value financial condition, to evaluate effectiveness and efficiency of reporting entity and to help determine the compliance to the rules. 3.Financial statements also show the results of stewardship of management, or accountability of management for the resources entrusted to it. Those users who wish to assess the stewardship or accountability of management do so in order that they may make economic decisions; these decisions may include, for example, whether to hold or sell their investment in the enterprise or whether to reappoint or replace the management. 3.All the reporting entity has a responsibility to report the effort they’ve done and so the result achieved in the activity report systematically and structural on the reporting period to fulfill the needs of: a. Accountability b. Management c. Transparency d. Intergenerational equity Source: PSAK Statement No.1 and PSAP Statement No.1 11 Standar Akuntansi Keuangan SAK is accounting standards under the accrual basis of accounting that are addressed to the private sector entities for the preparation of their financial reports while Standar Akuntansi Pemerintah SAP are accounting standards under the accrual basis of accounting that are addressed to the public sector entities for the preparation of their financial reports in Indonesia. International Public Sector Accounting Standard IPSAS are accounting standards under the accrual basis of accounting that are addressed to the public sector entities for the preparation of their financial reports. According to IPSAS 1 Presentation of Financial Statement, - .35 “…the objective of general purpose financial reporting in the public sector should be to provide information to users useful for decision-making, and to demonstrate the accountability of the entity for the resources entrusted to it…” Moreover, according to IPSAS 1, p.28. “Users of general purpose financial statements include taxpayers and ratepayers, member of the legislature, creditors, suppliers, the media, and the employees”. SAP is somehow is adopted from IPSAS so the application of the standard in Indonesia itself can be generalized internationally.

B. Review of Local Government Accountability Disclosure