Financial Accounting and Accounting Standards

  • Accounting is a process that produces financial reports to be used in decision-making by users.
  • Financial accounting focuses on providing information for external users, so a standard for preparing reports is required.
  • Accounting information can be used as a basis for evaluating an entity. This information is used by users, including management, investors, and creditors, to allocate resources appropriately and efficiently.
  • Relevant and reliable financial reports can be produced if there are accounting standards, qualified auditors, and good entity management practices within the entity.
  • According to PSAK 1, the objective of financial reports is to provide information regarding the financial position, financial performance, and cash flows of an entity that is useful to the majority of report users in making economic decisions.
  • Accounting standards are required to ensure the uniformity of financial reports. Preparers, examiners, and readers of financial statements use accounting standards as a basis for preparing, examining, and analyzing financial statements. The accounting standards that apply in Indonesia are SAK (Financial Accounting Standards), SAK Syariah, SAK ETAP (Financial Accounting Standards Without Public Accountability), and SAP (Government Accounting Standards), which are specifically used for government agencies. SAP is a government accounting standard established by the Government Accounting Standards Committee (KSAP). The preparation of this accounting standard refers to the governmental accounting conceptual framework.
  • There are currently two standards accepted for use internationally: GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards), issued by the IASB (International Accounting Standards Board). Previously, this institution was called IASC, and the standards issued were IAS. Indonesia carried out full IFRS convergence starting in 2012.
  • Indonesia uses the adaptation method; IFRS is translated and adapted to existing conditions. However, the adaptation process is explained transparently in each standard issued.
  • Financial accounting standards in Indonesia began to be developed in 1973, revised in 1978, and, in 1994, harmonization began with the IAS. In 2008, the Indonesian Institute of Accountants planned to converge PSAK with IFRS.
  • In 2008, the IAI (Indonesian Association of Accountants) issued a decision to converge with IFRS, which became effective in 2012.
  • Financial reports, according to PSAK No. 1, consist of a Statement of Financial Position, a Statement of Comprehensive Profit and Loss, a Statement of Changes in Equity, a Statement of Cash Flows, and Notes to Financial Statements.
  • development of DSAK (Financial Accounting Standards Board) and PSAK (Statements of Financial Accounting Standards).

Conceptual Framework Underlying Financial Accounting

  • The conceptual framework for presentation and reference is used by standard setters in developing standards, preparers of financial reports in dealing with transactions that have not been regulated in standards, users of reports, and auditors.
  • The conceptual framework forms the basis for preparing general-purpose financial reports, including consolidated reports.
  • The conceptual framework consists of the objectives of financial statements, assumptions, qualitative characteristics, elements of financial statements, recognition, measurement of elements of financial statements, and the concept of capital maintenance.
  • The main characteristics of financial reports are relevance, reliability, and understanding. These characteristics must be met so that financial reports are useful for users' decision-making.
  • Currently, the conceptual framework for preparing financial statements is in the process of finalizing revisions by the IASB and the FASB. It is expected that the new conceptual framework can become a point of convergence between IFRS and US-GAAP so that a set of globally applicable accounting standards can be formed.
  • According to the IFRS conceptual framework, the objective of financial reports is to provide information regarding financial position, performance, and changes in financial position that is useful to the majority of users in making economic decisions.
  • The assumption of going concern (going concern) assumes that the entity will continue its business in the future.
  • The accrual basis assumption is the assumption that underlies the preparation of financial statements. Based on this concept, the effects of transactions and other events are recognized when they occur (not when cash is received or paid).
  • Qualitative characteristics of financial reports consist of:
    • Understandable: Must be understandable by people who understand accounting and business issues or by people who want to study and analyze the information presented.
    • Relevant: Information has the quality of being relevant if it can influence the economic decisions of users by helping them evaluate past, present, or future events and confirming or correcting the results of their past evaluations.
    • Reliability: Reliability is defined as being free from misleading notions and material errors and can be relied upon by the user as a faithful representation of what should be presented or what is reasonably expected to be presented.
    • Comparable: The financial statements must be comparable with the financial statements of other similar companies or with the financial statements of the previous period.
  • Acknowledgment determines the time or date when a post will be presented so that the consequences of recording the transaction can be carried out.
  • Measurement is the process of determining the monetary amount when an element is recognized and recorded in the financial statements.
  • Maintenance of financial capital A profit is earned if the financial (or monetary) amount of net assets at the end of the period exceeds the financial (or monetary) amount of net assets at the beginning of the period, after excluding distributions to and contributions from owners during the period. Maintenance of financial capital can be measured in either nominal monetary units or units of constant purchasing power.
  • Maintenance of physical capital is obtained if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period after excluding distributions to and contributions from owners during the period.
  • The use of fair value as required by IFRS helps to provide up-to-date information so that future predictions and estimates can be made more easily.