Financial Reporting Standards

Corporate Reporting: Session 1

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 Outline

1. Financial Statements and Financial Reporting.

2. IFRS Convergence.
3. Accounting Standards in Indonesia.
4. Conceptual Framework for the Financial Reporting.

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Financial Statements and Financial Reporting

Essential characteristics of accounting are:

1. the identification, measurement, and communication of
financial information about

2. economic entities to

3. interested parties.

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Financial Statements and Financial Reporting

Economic Entity Financial Statements Additional Information

Financial Statement of President’s letter

Information Financial Position
Prospectuses
Accounting? Income Statement
Reports filed with
or Statement of
Identify governmental
Comprehensive
agencies
and Income
Measure News releases
Statement of Cash
and Flows Forecasts
Communicate Statement of Environmental
Changes in Equity impact statements
Note Disclosures Governance &
Remuneration.
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Corporate Reporting

• Corporate reporting comprises officially promoted and

documented communication from companies.
• It is intended to provide a comprehensive picture of their
performance and position to interested external parties.
• Whether for compliance or stakeholder information
purposes (ACCA, 2016)
• Corporate reporting therefore includes annual reports,
financial statements sustainability, corporate social
responsibility and interim reports. It covers reporting in
paper-based and online forms.

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Financial Accounting

Financial Accounting defined:

1. A process involving the collection and processing of
information of a financial nature for the purpose of assisting
various decisions to be made by external parties to the
organization.

2. Can be contrasted with management accounting which

relates to the provision of information to people within the
organization.

3. With the above definitions in mind, can we explain why

financial accounting is heavily regulated but management
accounting is not?

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The Objective of Financial Reporting and
General Purpose Financial Reporting
• Financial statements should provide information that is
useful to users in making decisions:
► Help predict the future
► Provide feedback on previous decisions
► Accountability and stewardship

• Medium and large organizations will typically have diverse

users of financial reports who have different information
needs.
• In the presence of many users it is not generally possible
to generate reports to meet individual needs.
• This leads to the generation of ‘general purpose
financial reports’ – reports that are governed by
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 General Purpose Financial Reporting

▪ The objective of general purpose financial reporting,

according to the IASB Conceptual Framework is:
► to provide financial information about the reporting
entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about
providing resources to the entity.
▪ When we talk about the regulation of financial reporting
we are generally talking about the regulation of general
purpose financial reporting.
▪ There is no need to regulate ‘special purpose financial
reporting’.

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 Accounting Standards

Rules-based Versus Principles-based Standards

▪ Rules-based standards are sets of detailed rules that
must be followed when preparing financial statements.
▪ Principles-based standards are based on a conceptual
framework that provides a broad basis for accountants to
follow
► The focus is on the economic substance of a
transaction, engaging the professional judgement and
expertise of those preparing financial statements.

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 Accounting Standards
Advantages and Disadvantages of Principles-
Based Standards
▪ Advantages:
► Principles-based standards are simpler.
► They supply broad guidelines that can be applied to many
situations.
► They allow accountants to use their professional judgement.
► They improve the representational faithfulness of financial
statements.
► Evidence suggests that managers are less likely to attempt
earnings management.

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 Accounting Standards
Advantages and Disadvantages of Principles-
Based Standards
▪ Disadvantages:
► Managers may select treatments that do not reflect the
underlying economic substance.
► The judgement and choice involved in many of the decisions
that comparability among financial statements may be
reduced.

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 Accounting Standards
International Convergence
Examples of how convergence is occurring:
1. China’s goal is to eliminate differences between its standards and
IFRS.
2. Japan now permits the use of IFRS for domestic companies.
3. The IASB and the FASB have spent many years working to
converge their standards. (Norwalk Agreement in 2002).
4. Malaysia helped amend the accounting for agricultural assets.
5. Italy provided advice and counsel on the accounting for business
combinations under common control.
See: Use of IFRS by jurisdiction at https://www.iasplus.com/en/resources/ifrs-
topics/use-of-ifrs
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 Standard-Setting Organizations

International Accounting Standards Board (IASB)

Composed of four organizations—
► IFRS Foundation

► International Accounting Standards Board (IASB)

► IFRS Advisory Council

► IFRS Interpretations Committee

• IFRS (International Financial Reporting Standards): issued by IASB

• IAS (International Accounting Standards): issued by IASC

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 International Accounting Standards Board

Types of Pronouncements
► International Financial Reporting Standards.

► Conceptual Framework for Financial Reporting.

► International Financial Reporting Standards Interpretations.

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 Benefit of IFRS Convergence

► Easier understanding of financial statements by using

internationally recognized Financial Accounting Standards
(enhance comparability).

► Increase global investment flows through transparency.

► Lowering the cost of capital by opening up fund raising

opportunities through the global capital market.

► Creating efficiency in the preparation of financial reports.

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 IFRS Convergence

► Commitment as a member of the G20.

► IFRS convergence has been announced by IAI since 2008.

► Since 2012, accounting standards applied in Indonesia are

based on those IFRSs that were effective at 1 January 2009
(phase-1: 3 years lag)

► Sinces 2015, the DSAK is committed to maintain a one-year

difference with IFRS (phase-2) as issued by the IASB until
Indonesia decides when it will go for full adoption.

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 Accounting Standards in Indonesia
Indonesia Accounting Standards Board (DSAK)

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Indonesia Accounting Standards

Sumber: IAI

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Indonesia Accounting Standards

Sumber: IAI

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 Indonesia Accounting Standards Board
Due Process SAK
Due Process Procedure penyusunan dan pencabutan standar akuntansi
keuangan /standar akuntansi keuangan syariah adalah sebagai berikut:
► Identifikasi isu untuk dikembangkan menjadi Pernyataan Standar Akuntansi
Keuangan (PSAK)
► Konsultasikan isu dengan Dewan Konsultatif Standar Akuntansi Keuangan
(DKSAK)
► Membentuk tim kecil dalam Dewan Standar Akuntansi Keuangan (DSAK)
► Melakukan riset terbatas
► Melakukan penulisan awal konsep draft
► Pembahasan konsep draft dalam DSAK
► Peluncuran exposure draft dan pengedarannya
► Pelaksanaan public hearing dan atau limited hearing
► Pembahasan tanggapan atas exposure draft dan masukan public hearing
atau limited hearing
► Persetujuan exposure draft PSAK menjadi PSAK
► Optimal: final checking oleh purnawaktu IAI
► Sosialisasi standar.
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 STANDAR AKUNTANSI KEUANGAN ENTITAS
PRIVAT (1)
▪ Standar Akuntansi Keuangan (SAK) Entitas Tanpa AkuntabilitasPublik
(ETAP) diterbitkan pada 2009 dan berlaku efektif 1 Januari 2011
(dengan penerapan dini pada tanggal 1 Januari2010);
▪ Pada awalnya ditujukan untuk usaha kecil dan menengah yang
tidak diwajibkan untuk menyusun laporan keuangan sesuai SAK
berbasis IFRS;
▪ Dibuat berdasarkan Exposure Draft IFRS for SMEs (2009) yang
kemudian terdapat perubahan signifikan setelah disahkan menjadi
produk final IFRS for SMEs (2009);
▪ SAK Entitas Mikro Kecil dan Menengah (EMKM);
▪ Diterbitkan pada tahun 2016 untuk berlaku efektif pada tanggal 1
Januari 2018, penerapan dini dianjurkan;

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 STANDAR AKUNTANSI KEUANGAN ENTITAS
PRIVAT (2)
▪ Pengguna SAK ETAP beragam dengan jarak keuangan yang luas
(misalnya BPR);
▪ Komitmen DSAK IAI dalam perumusan, pengembangan, dan
pengesahan produk terkait standar akuntansi keuangan;
▪ Rating Indonesia meningkat karena mengadopsi IFRS for SMEs.
▪ SAK EP diadopsi dari IFRS for SMEs (2015) dengan telah
mempertimbangkan kondisi di Indonesia dan kesesuaian dengan
konsep adopsi IFRS ke dalam SAK;
▪ Lebih sederhana daripada SAK, namun lebih komprehensif daripada
SAK ETAP;
▪ Mengatur beberapa hal yang sebelumnya tidak diatur dalam SAK
ETAP (misalnya, mengenai kombinasi bisnis, konsolidasi, dan pajak
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tangguhan).
 STANDAR AKUNTANSI KEUANGAN ENTITAS
PRIVAT (3)
▪ Berdiri sendiri (pilar tersendiri)
▪ Namun dengan satu referensi ke SAK (PSAK 55 Instrumen Keuangan:
Pengakuan dan Pengukuran efektif pada tanggal 1 Januari 2018, sebelum
diamendemen oleh PSAK 71 Instrumen Keuangan).
▪ Terdiri dari 35 Bab berdasarkan topik dilengkapi dengan daftar istilah
dan contoh ilustratif laporan keuangan yang bukan merupakan
bagian dari standar.

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 STANDAR AKUNTANSI KEUANGAN ENTITAS
PRIVAT (4)
1. Bab 1: Entitas Privat (ruang 8. Bab 24: Hibah Pemerintah
lingkup); 9. Bab 26: Pembayaran Berbasis
2. Bab 9: LaporanKeuangan Saham
Konsolidasian Dan Laporan 10.Bab 27: Penurunan Nilai Aset
Keuangan Tersendiri; 11.Bab 28: Imbalan Kerja
3. Bab 11: Instrumen Keuangan 12.Bab 29: Pajak Penghasilan
Dasar 13.Bab 30: Penjabaran Valuta
4. Bab 12: Isu Terkait Instrumen Asing
Keuangan Lain; 14.Bab 31: Hiperinflasi
5. Bab 14: Investasi Pada Entitas 15.Bab 34: Aktivitas Khusus
Asosiasi 16.Bab 35: Tanggal Efektif dan
Ketentuan Transisi
6. Bab 15: Investasi Pada Ventura
Bersama
7. Bab19: Kombinasi Bisnis dan
Goodwill
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Indonesia Accounting Standards

Types of Pronouncements
► Pernyataan Standar Akuntansi Keuangan (PSAK).

► Kerangka Konseptual Pelaporan Keuangan (KKPK).

► Interpretasi Standar Akuntansi Keuangan (ISAK).

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 PSAK – Non IFRS
► PSAK 28: Akuntansi Kontrak Asuransi Kerugian – akan dicabut pada
saat PSAK 74 berlaku
► PSAK 36: Akuntansi Kontrak Asuransi Jiwa – akan dicabut pada saat
PSAK 74 berlaku
► PSAK 38: Kombinasi Bisnis Entitas Sepengendali
► PSAK 45: Pelaporan Keuangan Entitas Nirlaba – sudah dicabut
digantikan ISAK 35
► ISAK 25:Hak atas Tanah – sudah dicabut digantikan PSAK 73
► ISAK 31: Interpretasi atas Ruang Lingkup PSAK 13: Properti
Investasi (1 Januari 2017)
► PSAK 70: Akuntansi Aset dan Liabilitas Pengampunan Pajak (1 Juli
2016)
► ISAK 35: Penyajian Laporan Keuangan Entitas Berorientasi Nonlaba
► ISAK 36: Interpretasi atas Interaksi antara Ketentuan Mengenai Hak
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 Conceptual Framework for the
Financial Reporting 2018

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Chapter 1: The objective of general purpose
financial reporting

The main objective of general purpose financial reports is to

provide the financial information about the reporting entity that is
useful to existing and potential:

Investors,

Lenders, and

Other creditors

to help them make various decisions (e.g. about trading with

debt or equity instruments of a reporting entity).

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Chapter 1: The objective of general purpose
financial reporting

▪ Chapter 1 describes more general purpose reports that should

contain the following information about the reporting entity:

➢ Economic resources and claims (this refers to the financial

position);

➢ The changes in economic resources and claims resulting from

entity’s financial performance and from other events.

▪ Chapter 1 puts an emphasis on accrual accounting to reflect the

financial performance of an entity. It means that the events should
be reflected in the reports in the periods when the effects of
transactions occur, regardless the related cash flows.

▪ However, the information about past cash flows is very important to

assess management’s ability to generate future cash flows.
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Chapter 2: Qualitative characteristics of useful
financial information

ILLUSTRATION 2.2
Hierarchy of Accounting
Qualities

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 Qualitative Characteristics

Fundamental Quality—Relevance

To be relevant, accounting information must be capable of making

a difference in a decision.

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 Qualitative Characteristics

Fundamental Quality—Relevance

Financial information has predictive value if it has value as an input to

predictive processes used by investors to form their own expectations
about the future.

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 Qualitative Characteristics

Fundamental Quality—Relevance

Relevant information also helps users confirm or correct prior

expectations.

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 Qualitative Characteristics

Fundamental Quality—Relevance

Information is material if omitting it or misstating it could influence

decisions that users make on the basis of the reported financial
information.

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 Qualitative Characteristics

Fundamental Quality—Faithful Representation

Faithful representation means that the numbers and descriptions

match what really existed or happened.

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 Qualitative Characteristics

Fundamental Quality—Faithful Representation

Completeness means that all the information that is necessary for

faithful representation is provided.

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 Qualitative Characteristics

Fundamental Quality—Faithful Representation

Neutrality means that a company cannot select information to favor

one set of interested parties over another.

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 Qualitative Characteristics

Fundamental Quality—Faithful Representation

An information item that is free from error will be a more accurate

(faithful) representation of a financial item.

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 Qualitative Characteristics

Enhancing Qualities

Information that is measured and reported in a similar manner for

different companies is considered comparable.

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 Qualitative Characteristics

Enhancing Qualities

Verifiability occurs when independent measurers, using the same

methods, obtain similar results.

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 Qualitative Characteristics

Enhancing Qualities

Timeliness means having information available to decision-makers

before it loses its capacity to influence decisions.

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 Qualitative Characteristics

Enhancing Qualities

Understandability is the quality of information that lets reasonably

informed users see its significance.

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Chapter 3: Financial Statements and the
Reporting Entity

▪ Financial Statements
The financial statements should provide the useful information
about the reporting entity:
➢ In the statement of financial position, by recognizing
o Assets,
o Liabilities,
o Equity
➢ In the statements of financial performance, by
recognizing
o Income, and
o Expenses

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Chapter 3: Financial Statements and the
Reporting Entity

▪ Financial Statements
➢ In other statements, by presenting and disclosing
information about
o recognized and unrecognized assets, liabilities, equity,
income and expenses, their nature and associated
risks;
o Cash flows;
o Contributions from and distributions to equity holders,
and
o Methods, assumptions, judgements used, and their
changes.

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Chapter 3: Financial Statements and the
Reporting Entity

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Chapter 3: Financial Statements and the
Reporting Entity

▪ Financial Statements
➢ Financial statements are always prepared for a specified
period of time, or the reporting period.
➢ Normally, the financial statements are prepared on the
going concern assumption.
➢ It means that an entity will continue to operate for the
foreseeable future (usually 12 months after the reporting
date).

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Chapter 3: Financial Statements and the
Reporting Entity

▪ Reporting Entity
Although the term “reporting entity” has been used throughout
IFRS for some time, the Framework introduced it and “made it
official” only in 2018.
Reporting entity is an entity who must or chooses to prepare
the financial statements. It can be:
➢ A single entity – for example, one company;
➢ A portion of an entity – for example, a division of one
company;
➢ More than one entities – for example, a parent and its
subsidiaries reporting as a group.

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Chapter 3: Financial Statements and the
Reporting Entity

▪ Reporting Entity
As a result, we have a few types of financial statements:
➢ Consolidated: a parent and subsidiaries report as a single
reporting entity;
➢ Unconsolidated: e.g. a parent alone provides reports, or
➢ Combined: e.g. reporting entity comprises two or more
entities not linked by parent-subsidiary relationship.

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Chapter 4: Elements of the Financial Statements

There are five basic elements:

➢ Asset = a present economic resource controlled by the entity as
a result of past events;
➢ Liability = a present obligation of the entity to transfer an
economic resource as a result of past events;
➢ Equity = the residual interest in the assets of the entity after
deducting all its liabilities;
➢ Income = increases in assets or decreases in liabilities resulting
in increases in equity, other than contributions from equity
holders;
➢ Expenses = decreases in assets or increases in liabilities
resulting in decreases in equity, other than distributions to equity
holders;
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Chapter 4: Elements of the Financial Statements

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Chapter 5: Recognition and Derecognition

▪ Recognition
➢ Recognition means including an element of financial
statements in the financial statements.
➢ If the entities decide on recognition, they decide on
WHETHER to show this item in the financial statements.
➢ The Framework requires recognizing the elements only
when the recognition provides useful information – relevant
with faithful representation.

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Chapter 5: Recognition and Derecognition

▪ Derecognition
➢ Derecognition means removal of an asset or liability from
the statement of financial position and normally it happens
when the item no longer meets the definition of an asset or
a liability.
➢ For an asset, when the entity loses control of all or part of
the recognised asset.
➢ For a liability, when the entity no longer has a present
obligation for all or part of the recognised liability.

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Chapter 6: Measurement

▪ Measurement means IN WHAT AMOUNT to recognize

asset, liability, piece of equity, income or expense in the
financial statements.
▪ The Framework discusses two basic measurement
basis:
➢ Historical cost – this measurement is based on the
transaction price at the time of recognition of the element;
➢ Current value – it measures the element updated to reflect
the conditions at the measurement date. Here, several
methods are included:
o Fair value;
o Value in use;
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Chapter 6: Measurement

▪ The issue here is that the equity is defined as “residual

after deducting liabilities from assets” and therefore total
carrying amount of equity is not measured directly.
▪ Instead, it is measured exactly by the formula:
➢ Total carrying amount of all assets, less
➢ Total carrying amount of all liabilities.
▪ The Framework points out that it can be appropriate to
measure some components of equity directly (e.g. share
capital), but it is not possible to measure total equity
directly.

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Chapter 7: Presentation and Disclosure

▪ The main aim of presentation and disclosures is to

provide an effective communication tool in the financial
statements.
▪ Effective communication of information in the financial
statements requires:
➢ Focus on objectives and principles of presentation and
disclosure, not on the rules;
➢ Group similar items and separate dissimilar items;
➢ Aggregate information, but do not provide unnecessary
detail or the opposite – excessive aggregation to obscure
the information.
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Chapter 8: Concepts of capital and capital
maintenance
▪ This chapter is carried forward from previous versions of
Framework.
▪ The Framework explains two concepts of capital:
➢ Financial capital – this is synonymous with the net assets
or equity of the entity. Under the financial maintenance
concept, the profit is earned only when the amount of net
assets at the end of the period is greater than the amount
of net assets in the beginning, after excluding contributions
from and distributions to equity holders. The financial
capital maintenance can be measured either in
o Nominal monetary units, or

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o Units of constant purchasing power. LO 4
Chapter 8: Concepts of capital and capital
maintenance
▪ The Framework explains two concepts of capital:
➢ Physical capital – this is the productive capacity of the
entity based on, for example, units of output per day. Here
the profit is earned if physical productive capacity
increases during the period, after excluding the
movements with equity holders.
▪ The main difference between these concepts is how the
entity treats the effects of changes in prices in assets
and liabilities.

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Chapter 8: Concepts of capital and capital
maintenance

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 Summary of
the Structure

ILLUSTRATION 2.7
Conceptual Framework for
Financial Reporting

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 Thank You

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