The accounting standards in Indonesia is Indonesia Financial Accounting Standards (Pernyataan Standar Akuntansi Keuangan – PSAK) issued by Indonesia Financial Accounting Standard Board (Dewan Standar Akuntansi Keuangan – DSAK) and the Indonesia Sharia Accounting Standards Board (Dewan Standar Akuntansi Syariah – DSAS) which are under the Indonesian Institute of Chartered Accountants (Ikatan Akuntan Indonesia – IAI).
DSAK-IAI has the authority to set PSAK and to approve interpretations of those standards. PSAK are intended to be applied by profit-orientated entities. These entities’ financial statements give information about performance, position and cash flow that is useful to a range of users in making financial decisions. These users include shareholders, creditors, employees and the general public.
A complete set of financial statements includes a:
- statement of financial position;
- statement of comprehensive income;
- statement of cash flows;
- a description of accounting policies;
- notes to the financial statements; and
- statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements.
There are four tiers of accounting principles in Indonesia:
- Tier 1 – PSAK based IFRS is for domestic and foreign listed companies, and companies with public accountability. Effective on 1 January 2015, the Indonesia Financial Accounting Standard (SAK) has fully converged with the International Financial Reporting Standard (IFRS) as of 1 January 2014. The board commits to maintain a one-year gap. As a result, PSAK based IFRS will continually change following the IFRS updates.
- Tier 2 – PSAK Syariah is for companies which conduct their transactions using the Syariah principle, such as Bank Syariah and other Syariah Financial Institutions.
- Tier 3 – PSAK-ETAP is for entities without public accountability or entities with insignificant public accountability. The purpose of this standard is to provide convenience in presenting their financial statements.
- Tier 4 – PSAK EMKM is for micro, small and medium enterprise.
Companies need to be audited by a public accountant registered in Indonesia if they meet one of the following requirements:
- Companies that have total assets exceeding IDR 25 billion
- Companies with annual gross turn over exceeding IDR 50 billion per year
- Companies that issue debt acknowledgement instruments
- Companies that are state-owned enterprises
- Companies in the business sector that are related to the mobilisation of the public fund.
- Publicly traded companies
Audits of Indonesian companies are based on the Indonesian Financial Accounting Standards (Standar Akuntansi Keuangan – SAK) which is determined by the DSAK-IAI and DSAS-IAI for sharia-based companies.
In practice, a company with audited financial statements would be more convincing to the local tax office when it comes to annual corporate income tax return submission.
