A Detailed Overview on Accounting Standards in Indonesia

Indonesia’s accounting standards differ from many others because of its unique economic and regulatory landscape. Unlike its Western counterparts, which follow principles-based standards like IFRS, Indonesia employs a rules-based approach, as outlined in its Financial Accounting Standards (SAK). Besides being driven by this rule, cultural and business factors also greatly influence Indonesia’s accounting practices, resulting in varied reporting requirements and methodologies. These differences necessitate careful navigation by multinational corporations and investors seeking to operate effectively in Indonesia's financial environment. This blog aims to offer detailed information on accounting standards in Indonesia, their key principles, and more. 

Understanding Indonesia Accounting Standards 

Indonesian Financial Accounting Standards (SAK) are the foundation of accounting regulations in Indonesia. It is established by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI). These standards provide a unified set of guidelines businesses operating within Indonesia must follow, ensuring consistency and reliability in financial reporting. By adhering to these standards, businesses uphold fundamental principles and policies, promoting transparency and accountability. SAK fosters a standardized approach across all sectors, facilitating easy comparisons between entities. It encompasses various aspects of business financials, including shareholders' equity, liabilities, and revenue, enhancing the clarity and accuracy of financial information presented to stakeholders.

Tiers of Accounting Standards in Indonesia

In Indonesia, accounting standards are structured into tiers to cater to the diverse needs of entities operating in the country. These tiers, consisting of SAK (Standar Akuntansi Keuangan), SAK ETAP (Standar Akuntansi Keuangan Entitas Tanpa Akuntabilitas Publik), PSAK Syariah (Prinsip-Prinsip Akuntansi Syariah), and PSAK EMKM (Prinsip-Prinsip Akuntansi Entitas Mikro, Kecil, dan Menengah). These standards provide a comprehensive framework for financial reporting while considering entities' size, nature, and complexity. Let's explore each tier in detail below. 

Tier 1 - SAK (Standar Akuntansi Keuangan)

SAK, or Financial Accounting Standards, constitute Indonesia's first tier of accounting standards. These standards are applicable to entities with public accountability, such as publicly listed companies, financial institutions, and other entities with significant public interest. SAK is developed and promulgated by the Indonesian Financial Accounting Standards Board (DSAK-IAI) and is aligned with International Financial Reporting Standards (IFRS) to ensure global comparability. It covers various aspects of financial reporting, including calculation, presentation, and disclosure of financial information, and provides comprehensive guidelines for entities subject to public scrutiny and regulatory oversight.

Tier 2 - SAK ETAP (Standar Akuntansi Keuangan Entitas Tanpa Akuntabilitas Publik)

SAK ETAP, or Financial Accounting Standards for Entities Without Public Accountability, constitutes Indonesia's second tier of accounting standards. These standards are specifically tailored for entities that do not have public accountability, such as private companies, non-profit organizations, and other non-publicly traded entities. SAK ETAP aims to simplify accounting requirements for smaller entities with limited resources, providing a more accessible and practical framework for financial reporting. While SAK ETAP maintains the core principles of financial reporting, it offers simplified and streamlined accounting requirements to meet the needs of entities without public accountability.

Tier 3 - PSAK Syariah (Prinsip-Prinsip Akuntansi Syariah)

PSAK Syariah, or Sharia Accounting Principles, constitutes Indonesia's third tier of accounting standards. These standards apply to entities that comply with Islamic principles and practices, such as Islamic banks, Islamic financial institutions, and other Sharia-compliant entities. PSAK Syariah guides accounting treatments and disclosures specific to Sharia-compliant transactions, products, and contracts. These standards ensure that financial reporting accurately reflects the economic substance of Islamic financial transactions while adhering to Sharia principles and ethical considerations.

Tier 4 - PSAK EMKM (Prinsip-Prinsip Akuntansi Entitas Mikro, Kecil, dan Menengah)

PSAK EMKM, or Accounting Principles for Micro, Small, and Medium-sized Entities, constitutes Indonesia's fourth tier of accounting standards. These standards are designed for micro, small, and medium-sized entities (MSMEs) to address their unique characteristics and reporting needs. PSAK EMKM aims to simplify accounting requirements for MSMEs, recognizing their limited resources, operations scale, and complexity level. These standards provide a more accessible and practical framework for financial reporting and enable MSMEs to comply with relevant accounting standards.

Accounting Standards in Indonesia Requirements

In Indonesia, accounting standards requirements are governed by the Indonesian Financial Accounting Standards (IFAS) framework, which is established by the Indonesian Financial Accounting Standards Board (DSAK-IAI). These requirements apply to all entities engaged in financial reporting activities in Indonesia, including public companies, private companies, non-profit organizations, and other entities subject to financial reporting obligations. The key accounting standards requirements in Indonesia include:

1. Compliance with Indonesian Financial Accounting Standards (IFAS)

Entities are required to comply with IFAS, which provides guidelines for the recognition, measurement, presentation, and disclosure of financial information. IFAS is aligned with International Financial Reporting Standards (IFRS) to ensure global comparability and consistency in financial reporting practices.

2. Preparation and Presentation of Financial Statements

Entities must prepare and present financial statements in accordance with the requirements of IFAS. Financial statements. This includes balance sheets, income statements, cash flow statements, statements of changes in equity, etc. Also, these statements must accurately reflect the entity's financial position, performance, and cash flows.

3. Disclosure of Significant Accounting Policies

Entities are required to disclose significant accounting policies adopted in preparing financial statements. These disclosures provide transparency and enable users to understand the basis of preparation and accounting treatments applied by the entity.

4. Consolidated Financial Statements

Entities with subsidiaries or associates are required to prepare consolidated financial statements, which combine the financial information of the parent company and its subsidiaries or associates. Consolidated financial statements provide detailed information on the financial position and performance of the entire group.

5. Compliance with Interpretations and Guidance

Entities must comply with interpretations and guidance issued by the Indonesian Financial Accounting Standards Board (DSAK-IAI) to address specific accounting issues or industry-specific practices. This provides clarification and practical application guidance on the implementation of IFAS.

6. Disclosure of Related Party Transactions

Entities must disclose related party transactions, including with subsidiaries, associates, key management personnel, and other related parties. Disclosure of related party transactions ensures transparency and helps prevent conflicts of interest.

7. Adherence to Regulatory Requirements

Entities must comply with regulatory requirements set forth by regulatory bodies, including the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX), regarding financial reporting, disclosure, and transparency.

Conclusion 

As Indonesia progresses economically and integrates further into the global market, its accounting standards will see a lot of transformation. The country may align more closely with international norms such as IFRS to enhance transparency, comparability, and investor trust. While this transition could streamline financial reporting for Indonesian businesses, it may also necessitate adjustments in practices and systems. Moreover, staying abreast of evolving standards will be crucial for businesses to ensure compliance and a competitive edge in Indonesia's evolving commercial environment. This is where the need for trusted third-party partners will arise to help businesses ensure accurate and transparent financial reporting. 

At Invensis, we are committed to delivering accurate and compliant financial reporting and helping businesses in Indonesia adhere seamlessly to evolving accounting standards. We harness the power of automation, artificial intelligence, and cloud-based solutions to enhance efficiency, minimize costs, and improve the quality of financial services. Invensis empowers Indonesian businesses to achieve greater transparency, reliability, and effectiveness in their financial operations by utilizing industry best practices and advanced technologies. Contact us to streamline your financial reporting tasks with our finance and accounting services.