The Public Sector Accounting Reforms in Indonesia

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Chapter II : LITERATURE REVIEW AND HYPOTHESIS FORM ULATION

This chapt er discusses about account ing ref orm in Indonesia, financial rat io analysis, exogenous fact or select ion, hypot hesis for mulat ions and t heor et ical framew orks.

Chapter III : RESEARCH M ETHOD

This chapt er discusses about r esear ch met hods comprising dat a collect ions, populat ion and sample, operat ional definit ion and variable measur em ent , and analysis t echnique

Chapter IV : DATA ANALYSIS

This chapt er discusses about dat a analysis comprising dat a descript ion, descript ive st at ist ics, result s of hypot hesis t est ing, and discussion

Chapter V : CONCLUSIONS AND SUGGESTIONS

This chapt er discusses about conclusions of t he r esearch, limit at ions, and suggest ions for fut ure researches.

CHAPTER II LITERATURE REVIEW AND HYPOTHESIS DEVELOPM ENT

A. The Public Sector Accounting Reforms in Indonesia

xxvii The public sect or account ing refor m in Indonesia is not a revolut ion. It passes a long journey t hrough phase t o phase. For t he t ime being, t he last phase of t he r eform is signed by t he issuance of law about st at e finance w hich consist s of Law Num ber 17 Year 2003 about St at e, Act Number 1 Year 2004 About St at e Tr easury and Law Number 15 Year 2004 about St at e Finance Audit . Art icle 32 1 Act Number 17 Year 2003 about St at e Finance st at es t hat t he r esponsibilit y of budget implement at ion bot h st at e budget and local gover nment budget has t o be report ed in form of financial st at em ent s t hat comply w it h governm ent account ing st andard. The st ruggle t o r ef orm governm ent al account ing w as st art ed by M inist r y of Finance in 1979- 1980 by t he planning of government al account ing syst em modernizat ion st udy but t he realizat ion of t he st udy w as st art ed in 1982 and w as financially sponsored by World Bank Soegijant o and Hoesada, 2005. Unfort unat ely, t he next phases of account ing ref orm had not t ouched t he int roduct ion of accrual account ing. The refor m process st ill used cash basis account ing unt il t he issuance of st at e finance law packages in 2003 and t hen follow ed by t he issuance of Government Rule No. 24 Year 2005 about Governm ent al Account ing St andard. The Government al account ing st andard consist s of Concept ual Framew or ks and eleven Government al Account ing St andard St at em ent s GASS. The eleven of GASS are as f ollow s: 1. GASS 01 Financial St at ement s Pr esent at ion 2. GASS 02 Budget Realizat ion Report 3. GASS 03 Cash Flow St at em ent s 4. GASS 04 Not e t o Financial St at ement s 5. GASS 05 Invent or y Account ing 6. GASS 06 Invest m ent Account ing 7. GASS 07 Fixed Asset s Account ing xxviii 8. GASS 08 Const ruct ion in Progress Account ing 9. GASS 09 Liabilit y Account ing 10. GASS 10 Error Correct ion, Change on Account ing Policy and Ext raordinary Event 11. GASS 11 Consolidat ed Financial St at ement s One of t he import ant point s from t he St andard is t he int roduct ion of accrual basis account ing in report ed financial st at ement s. The Concept ual Framew ork st at es t hat account ing basis used in t he f inancial st at em ent s is cash basis t o acknow ledge r evenues, expendit ur es and financing in budget r ealizat ion repor t . On t he ot her hand, accrual basis is used t o acknow ledge asset s, liabilities and equit ies in balance sheet . The combinat ion of accrual and cash basis account ing is know n as cash t ow ard accrual basis account ing. Indonesia uses t his account ing basis because budget r ealizat ion report adopt s cash account ing basis M ust ofa, 2008. M ust ofa 2008 also st at es t hat full accrual basis account ing can be applied if Indonesia uses accrual-based budget ing in it s budget ing syst em. The em erging issues in public sect or account ing r efor m in Indonesia are t he shift f rom single ent r y t ow ards double ent r y bookkeeping and t he shift from cash basis account ing t ow ards accrual basis account ing M ar diasmo, 2006. In relat ion t o bookkeeping, M ardiasmo 2006 st at es t hat t he change from single t o double ent ry bookkeeping is caused by t he massive demand in r ealizing good public governance by considering t hat t he applicat ion of double ent r y bookkeeping w ill result in audit able financial st at ement s. In relat ion t o account ing basis, M ardiasmo 2006 st at es t hat t he main dr aw back of cash basis account ing is t hat it less in reflect ing t he act ual perfor mance t han t he accrual basis. M ellor 1996 st at es t hat t he implement at ion of accrual account ing gives full pict ure t hat includes resource management , liabilit y managem ent , and provides indicat ions of long t erm fiscal pow er in accordance w it h financial m anagem ent refor m and ot her managem ent refor ms. Furt her, The Law Number 17 Year 2003 about St at e Finance st at es t hat accrual basis xxix account ing must be applied t o all t ypes of financial st at em ent s including budget realizat ion report . Account abilit y is one of rol e expect ed f rom t he public sect or r efor m in Indonesia as st at ed in Governm ent al Account ing St andard. Account abilit y is a disclosure of act ivit ies and f inancial perfor mance t o t he st akeholders Schiavo-Campo and Tomasi, 1999. Gillibrand and Hilt on 1998 advocat es t hat t he use of accrual account ing could impr ove account abilit y. In a w ell funct ioning local governm ent budget and managerial st ruct ure, a local government is subject t o account abilit y t o it s cit izens, account abilit y t o public agencies and account abilit y t o higher l evel governm ent s Schaeffer and Yilmaz, 2008. Aust ralia is one role model in applying t he accr ual basis account ing in it s local government s. Local government financial report ing r efor ms in Aust ralia in t he lat e 1980s and early 1990s w er e promot ed on t he basis of usefulness for decision making and for enhanced account abilit y purposes. How ever, persist ent crit icism of t he ref or ms cont inue t o be made, including t hose made by councilors and ot her rat epayers w ho oft en appear t o find such informat ion t o be t oo narrow , t oo complex, and oft en bew ildering Carnegie, 2005. The availabilit y of f inancial st at ement s in government ent it ies is a for m of t ransparency needs over t he managem ent of public resources. Tr ansparency of infor mat ion especially f inancial and fiscal informat ion should be implem ent ed in a relevant and underst andable for m Schiavo- Campo and Tomasi, 1999. This not ion aligns w it h the exist ence of Government al Account ing St andard in Indonesia. Account ing also plays role in enhancing t ranspar ency in local government s by disclosing financial inf ormat ion honest ly and openl y t o t he societ y based on t he judgment t hat t he societ y xxx has a right t o know t he governm ent ’s responsibilities in managing ent rust ed r esour ces and governm ent ’s obedience t o t he posit ive law s. The audit able financial st at em ent s by t he supr eme audit inst it ut ion enable t he local governm ent s t o disclose t he infor mat ion about t he managed resources SAP, 2005. The t ranspar ency of infor mat ion, especially financial and fiscal informat ion should be r ealized in t he r elevant f or m and easy t o underst and Schiavo-Campo, 1999. The not ion of t ransparency is also advocat ed by van der Hoek 2005.

B. Financial Ratio Analysis