e. make significant progress towards a single set of high quality global accounting standards; and,
f. within the framework of the independent accounting standard setting process, improve involvement of stakeholders, including prudential
regulators and emerging markets, through the IASB s constitutional review.
The following table illustrates the convergence roadmap for IFRS in Indonesia:
Table 2.1 IFRS Convergence Roadmap in Indonesia
Adoption Stage 2008 2010
Final Preparation Stage 2011
Implementation Stage 2012
Adopt all IFRS to SAK. Required infrastructure
preparation. Evaluation and
management of the impacts of adoption to
the applicable SAK. Required completion
of infrastructure preparation.
Phased implementation of
several IFRS-based SAK.
Full implementation of IFRS-based PSAK.
Comprehensive evaluation of the
impacts of implementation.
Source: Lestari 2011 The DSAK-IAI has currently finished working with a third IFRS
convergence process with the objective to further minimize the differences between SAK and IFRS, from three years to one year. Therefore, SAK effective
as of 1 January 2015 is substantially harmonized with IFRS effective as of 1 January 2014.
2.1.4. IFRS Convergence
The scope of this research will focus on the full implementation of IFRS convergence that is effective as of 2012. It is important to note that some of the
SAK from this convergence process has already been issued and effective as of 2011. However, the goal of this research is not to examine the phased
implementation of new IFRS-based standards, but the complete effect of the convergence process including the standards that are effective as of 2012. Further
analysis of these standards relating to the manufacturing industry in Indonesia provides evidence on its most major implications in corporate financial reporting.
Several examples are generalized in the following tables.
2
Table 2.2 Accounting Standards for Employee Benefits
No Criteria
Explanation 1
Scope PSAK 24 Revised 2010, adopted from IAS 19 2009,
updates PSAK 24 Revised 2004 and introduces guidance for defined benefit plans that share risks between various entities
under common control e.g., a parent and its subsidiaries. A reporting entity that participates in a group pension plan
should obtain information about the plan as a whole, measured and allocated among participating entities in accordance with
PSAK 24. 2
Recognition Full recognition of actuarial gains losses from defined benefit plans can now immediately be outside profit or loss, in
Other Comprehensive Income OCI. This latest approach adds to the corridor approach amortization through profit or
loss and the full recognition approach immediately in profit or loss. If a reporting entity chooses to recognize actuarial
gains losses in OCI, all existing unrealized actuarial gains losses are immediately charged to OCI in the year PSAK 24
is adopted. 3
Disclosure All entities reporting under this standard will be required to
disclose more information, especially for defined benefit
2
Further analysis of the differences was conducted on new and revised PSAKs effective as of 2011 and 2012. This analysis is also much reinforced by the findings provided by PwC Indonesia
online publications, including A Practical Guide to New PSAKs for 2012 and Summary of New Accounting Standards 2011.
No Criteria
Explanation pension plans. Several examples are the disclosures of:
a. the opening and closing balances of the fair value of plan assets, including adjustments;
b. the percentage or amount of each major category of plan assets respective to the individual fair values and total;
c. a narrative description of the basis used to determine the overall expected rate of return on assets;
d. the amounts included in other comprehensive income; and e. the amounts for the current annual period and the previous
four annual periods of the present value of the defined benefit obligation, the fair value of the plan assets, and
experience adjustments arising on plan liabilities and plan assets.
Reporting entities that have defined benefit pension plans will likely experience the most impact from the revised PSAK 24. The standard shed light on
the procedures for allocating costs between participating entities for group pension plans. The standard also introduces an alternative accounting choice for
the recognition of actuarial gains or losses from defined benefit plans in OCI. Reporting entities that elect to practice this accounting method for recognition can
shift losses from net earnings to special items. Furthermore, extensive
requirements for disclosures encourage managers to clarify accounting practices that describe reported financial numbers.
Table 2.3 Accounting Standards for Leases
No Criteria
Explanation 1
Classification PSAK 30 Revised 2011, adopted from IAS 17 2010, updates PSAK 30 Revised 2007 and introduces new
classification rules for leases involving land: a. When a lease includes both land and building,
classification as finance or operating lease is performed separately on each asset in accordance with the
principles provided in PSAK 30.
No Criteria
Explanation b. When classifying a lease of land as finance or operating
lease, the general assumption is that land has an indefinite useful life. Before revision, accounting
standards required a lease of land with an indefinite useful life to be classified as an operating lease, unless
there is an exchange of title at the end of the lease term. c. Entities reporting under PSAK 30 should reconsider the
classification of land and building elements of unexpired leases at the date PSAK 30 is adopted on the basis of
information existing during the inception of those leases. 2
Recognition When a lease includes a land and a building element, the
measured minimum lease payments is allocated between the land and building elements in proportion to the relative fair
values of their respective components of the lease agreement at inception date.
The revised PSAK 30 requires companies to reclassify all leases involving land in accordance with the principles provided in PSAK 30. Prior to revision, a
lease of land can only be classified as a finance lease if title passes at the end of the lease term. However, the new standard revised this rule and introduced more
possibilities for classifying a lease of land as a finance lease. In such cases, the reclassification as a finance lease introduces an asset and liability component on
the balance sheet of the lessee. This reclassification will likely reduce the total periodic expense recognize from the lease because land is not depreciated since in
most cases it is assumed to have an indefinite useful life. This reclassification introduces a receivable asset on the balance sheet of the lessor and will reduce the
total periodic revenue recognize, since cash received from the lease is treated as a payment for the receivable and not a revenue recognition.
In addition, the total value of the land and building elements are allocated on a pro-rata basis of the relative fair values of each asset, thus better reflecting
their respective exchange values at arm s length transaction.
Table 2.4 Accounting Standards for Share-based Payment
No Criteria
Explanation 1
Scope PSAK 53 Revised 2010, adopted from IFRS 2 2009,
updates PSAK 53 Revised 1998 and requires reporting entities to present the impacts of share-based payments on
the income statement and balance sheet. PSAK 53 Revised 1998 included share-based payments involving equity-
settled awards in its scope. The revised standard scopes out to additional groups of share-based payments including:
a. transactions involving cash-settled awards, b. transactions giving the option for selecting between
equity-settled or cash-settled awards, and c. transactions of group share-based payment e.g.,
transaction between a parent and subsidiaries. 2
Recognition The difference in the fair values of share-based payment
liabilities at the end of each period is recognized in the income statement. Modification of the liability that results in
the changes in fair value of equity instruments granted should be recognized. Cancellation of the liability is an
acceleration of vesting that should be recognized. 3
Measurement Reporting entities are required to measure the impacts of share-based payments using the new basis of fair value.
a. Share-based payment transactions involving non- employees are usually measured at the fair value of the
goods or services received. b. Share-based payment transactions involving employees
are usually measured at the fair value of the equity instruments granted.
c. Liabilities arising from share-based payment transactions are restated at fair value at the end of each period.
In addition, PSAK 53 considers different vesting and non- vesting conditions in share-based payment transactions.
4 Disclosure
The revised standard requires extensive disclosures regarding share-based payment transactions. Several examples include:
a. nature and the description of key terms of the arrangement,
b. reconciliation of the number and the weighted average
No Criteria
Explanation exercise prices of share options, and
c. the methods and assumptions used to determine the fair value.
The revised standard introduces significant changes to the scope and accounting approach for share-based payments. In general, reporting entities will
have to understand how every situation of a share-based payment transaction should be accounted in accordance with the principles in PSAK 53. It is highly
likely there will be more expense recognition due to the introduction of a significant amount of share-based payment groups that has to be accounted for,
including awards settled by entities within a group. Furthermore, the general method of measurement for recognition is based on fair value. The estimation of
fair value is dependent on several factors, including the estimated stock market price, vesting conditions, and option pricing models. Dependency on fair value
will result in a reporting number better reflecting the exchange values at arm s length transaction. The revised PSAK 53 also introduces extensive disclosure
requirements. In addition to the previously mentioned changes regarding the issuance of
extensive disclosure requirements, PSAK 60 Financial Instruments: Disclosures merges and extends several existing disclosure requirements and introduces some
significant and challenging new disclosures. Some of the required disclosures in PSAK 60 replace the requirements previously found in PSAK 50 Financial
Instruments: Presentation such as the requirements for disclosure of qualitative information about credit risk, liquidity risk, and market risk. Furthermore, PSAK
60 adds a new requirement to disclose summary of quantitative data on risk exposure at reporting date. Also, PSAK 60 requires extensive disclosures of
information pertaining to the fair values of each class of financial asset and financial liability. A few examples have already been mentioned.
2.1.5. Agency Theory and Information Asymmetry
