Indonesia Accounting Standards

What are Indonesian accounting standards?

Indonesian Financial Accounting Standards (SAK) are the guiding principles that regulate accounting in Indonesia. These are set by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI) - responsible for establishing the specific set of standards that businesses operating within Indonesia must adhere to.

Contributing Advisor

Meizaroh

Assistant Manager, Corporate Accounting Services

These financial accounting standards serve as a fundamental framework, ensuring that all businesses conform to the designated principles and policies. Moreover, they facilitate a standardized approach across all businesses, enabling straightforward comparisons between multiple entities. These accounting standards encompass various aspects of business financials, encompassing shareholders' equity, liabilities, and revenue, among others.

Which standards are audits in Indonesia based on?

All public and private companies in Indonesia must follow the accounting standards laid out by the DSAK-IAI and DSAS-IAI.

Current harmonization revolves around the chronological adoption of past IFRS with emphasis on closing the gap between Indonesia’s adoption status and the most up to date international standards.

Tiers of accounting standards in Indonesia

Indonesian Financial Accounting Standards (SAK) is broken down into the following tiers:

• Tier 1 SAK – applies to listed companies and other entities with significant public accountability. Effective on 1 January 2015, the Indonesia Financial Accounting Standard (SAK) has fully converged with the International Financial Reporting Standard (IFRS). This is part of Indonesia’s efforts to make local financial statements more comparable and understandable across international boundaries as the country aims to attract greater foreign investment and play a more prominent role within the G20.
• Tier 2 SAK EP – applies to private entities. Private Entity SAK is intended for use by entities that do not have public accountability and issue general purpose financial statements for external users. However, entities that have public accountability can use Private Entity SAK after obtaining the permission from the appropriate regulatory authority. Private entities may also choose to adopt Tier 1 SAK.
• Tier 3 – PSAK Syariah applies to companies that the Syariah principle for transaction. For example, Bank Syariah and other Syariah Financial Institutions.
• Tier 4 – PSAK EMKM is for micro, small and medium enterprise.

Bookkeeping in Indonesia

It is mandatory for every company operating within the country to maintain their bookkeeping locally. The process of maintaining company books in Indonesia involves several key aspects:

• Preparation of Financial Statements: This includes the creation of various financial statements that provide a comprehensive overview of the company's financial position and performance. These statements typically include:
  • Statement of Financial Position: This reflects the company's assets, liabilities, and owner's equity.
  • Profit and Loss Statement and Other Comprehensive Income: This document outlines the company's income, expenses, and overall profit or loss for the fiscal year.
  • Cash Flow Report: This report details the company's cash flow activities throughout the year.
  • Statement of Changes in Company Equity: This statement highlights any changes in the company's equity over the course of the year.
  • Notes to the Financial Year: These are detailed explanations and descriptions of the items included in the aforementioned reports.
• Maintenance of Accounting Records and Supporting Documents: It is crucial for companies to keep thorough and organized records of their financial transactions. This includes retaining all relevant accounting records and supporting documents, such as sales invoices, vendor invoices, bank statements, agreements, contracts, and tax documents.
• Document Retention: All these records and documents must be securely preserved for a period of 10 years. Additionally, it is important that the financial statements for each year include comparative figures from the previous years for the purpose of comparison and analysis.

By adhering to these bookkeeping requirements, companies in Indonesia ensure compliance with local regulations and maintain accurate financial records for transparency and accountability.

Fiscal year

The annual deadline for reporting and paying corporate income tax is April 30 – if a company’s fiscal year begins from January 1 – December 31. If a company’s fiscal year differs from the calendar year, then its deadline is four months after the end of its fiscal year.

Language and currency

All accounting records must be in Bahasa Indonesian, and the financial books should be maintained in Rupiah.

However, there are exceptions for certain entities. Foreign-investment companies (Penanaman Modal Asing/PMA), permanent establishments (PEs), subsidiaries of foreign companies, taxpayers listed overseas, and taxpayers who present their financial statements in USD as per the applicable Financial Accounting Standards (Standar Akuntansi Keuangan/SAK) in Indonesia can maintain their books in USD and use English for their documentation. This exception is granted upon approval from the Director General of Taxes. It's important to note that the use of languages other than English and currencies other than USD in a company's books is strictly prohibited.

Convergence of Indonesian Financial Accounting Standards (PSAK) with International Financial Reporting Standards (IFRS)

The financial reporting landscape has undergone significant and unprecedented transformations because of the Indonesian Financial Accounting Standard Board's (DSAK) commitment to fully adopt International Financial Reporting Standards (IFRS). A gradual transition approach, starting 2008, was chosen instead of a sudden shift, primarily to address interpretation and implementation challenges.

Phase 1 of the IFRS convergence has now been completed, and as of January 1, 2012, the Indonesian Financial Accounting Standards (PSAK) are substantially aligned with IFRS as of January 1, 2009.

Currently, the Indonesian Financial Accounting Standard Board (DSAK) is actively pursuing the second phase of IFRS convergence with the aim of reducing the gap between PSAK and IFRS from three years to just one year. Consequently, PSAK has been undergoing continuous changes over the past three years and will continue to do so in the future.

It is advisable for foreign companies in Indonesia to contact local taxation and accounting professionals

This is part of Indonesia’s efforts to make local financial statements more comparable and understandable across international boundaries as the country aims to attract greater foreign investment and play a more prominent role within the G20.