KASP KASP IKATAN AKUNTAN INDONESIA KOMPARTEMEN AKUNTAN SEKTOR PUBLIK The Indonesian Institute of Accountants Public Sector Accountants Compartment Sekr : Jl. Bank V/A-4, Pela Mampang, Jakarta, Telp. (021) 7192341, Fax. (021) 7190709, E-mail : sekre_kasp@yahoo.com Number : 0012/IAI-KASP/II/2006 February 2, 2006 Attachment: 1 set Subject : Comments on Exposure Draft 25, 26, 27 and 28. To: The Technical Director International Public Sector Accounting Standards Board International Federation of Accountants (IFAC) Dear Sir, According to the IPSASB s Exposure Draft 25, 26, 27 and 28, we hereby submit the comments on each draft as attachment. About the substance of the IPSAS and the revision, we treat IPSASs as follows: - We agree for IPSASs that provide the relevant subjects and the subjects have been stated in our Government Accounting Standards; - We strongly consider for IPSASs that provide the relevant subjects but they have not been covered in our Government Accounting Standard. For Examples: IPSAS 7, 8, 13 and 16; - We disagree for IPSASs that can t be applied in Indonesia, for example the concepts of control entity, capital share, minority interest, distribution to owner s. Thank you for the opportunity and for your attention concerning our submission. Sincerelly, Syafri Adnan Baharuddin, Ak., MBA. Chairman
COMMENTS ON IPSASs EXPOSURE DRAFTS 1. Introduction Ikatan Akuntan Indonesia/IAI (The Indonesian Institute of Accountants) has received four exposure drafts (ED) from IFAC/IPSASB to comment. The EDs consist of ED 25, Equal Authority of Paragraphs in IPSASs ED 26, Improvements to International Public Sector Accounting Standard ED 27, Presentation of Budget Information in Financial Statements ED 28, Disclosure of Financial Information about the General Government Sector respectively. We are glad to have the drafts. It means that we are offered opportunity to take part in the IPSASs improvements. Public Sector Compartement of Ikatan Akuntan Indonesia (IAI-KASP) is assigned to provide comments on the drafts. IAI-KASP held panel discussion to get the wide responses from any people with varies background. In the discussion, we invited the panelist from government s standardsetter, ministry of finance, academician, and from local government. The participants came from Ministry of finance, Ministry of Home Affair, Finance and Development Supervisory Board (Badan Pengawasan Keuangan dan Pembangunan/BPKP), academicians, Supreme Audit Board, and professional accountants. The next comments are extracted from the discussion. 2. Standard-setters in Indonesia We are in Indonesia has two accounting standard-setters. The first standard-setter is Financial Accounting Standard Council (Dewan Standar Akuntansi Keuangan/DSAK) that set accounting standards for private or business sector. The second is Government Accounting Standard Committee/GASC (Komite Standar Akuntansi Pemerintahan/KSAP) that set accounting standards for central and local governments in Indonesia. DSAK has been working to serve standards for business and not-for profit organization except for government. 1
GASC is independent institution. This institution was formed by Precident Decree Number 84 of 2004 based on Law (Undang Undang) Number 1 of 2004. The members of the GASC come from Ministry of Finance, Ministry of Home Affair, The Indonesian Institute of Accountants, Finance and Development Supervisory Board (BPKP), and Academicians. Government of Republic of Indonesia through Government Regulation (Peraturan Pemerintah) Number 24 of 2005 has stated the product of GASC as a set of accounting standards for local and central government in Indonesia to be followed. The set of standard consist of Conceptual Framework and 11 statements. The information about GASC can be found in http://www.ksap.org. 3. Comments in General 1) In general, the participants of the discussion asked how the convergence can take place. The public and private sector have the different world and characteristics how could it be integrated? 2) The next comment is the basis of accounting for the business sector and public sector. IPSASB intruduced cash basis in The Cash Basis IPSAS, Financial Reporting Under the Cash Basis of Accounting How can entity use it? What is the cretaria in selecting accrual and cash to be adopted? 3) The other comment is what is the definition of the sector public? Is hospital included in it? 4. Private Sector and Public Sector Remain Different Public sector and private is different. We can find the difference of private and public sector in many literatures. Granof (1998:3-8), for example, explain twelve different of government and not-for profit organization (public sector and business). They are: 1) Different in missions; 2) Budget, not the marketplace govern; 3) Expenditures may drive revenues; 4) The budget, not the annual report is the most significant financial document; 5) Budgets drive accounting and financial reporting; 6) Need to assure interperiod equity; 2
7) Revenues not indicative of demand for goods or services; 8) Not direct link between revenues and expenses; 9) Capital assets may neither produce revenues nor save costs; 10) Resources may be restricted; 11) No distinct ownership interests; 12) Less distinction between internal and external accounting and reporting. In addition, Granof (1998: 8-10) also cites the characteristicts of government and not for profit organization that have implication in accounting and reporting: 1) Many different types of governments and not-for-profits 2) Short-term focus of manager 3) Governments and not-for-profits engage in business type activities Wittrup made a different from the equity side. Wittrup (in Ramanathan and Hegstad 1982:133) said: One of the distinguishing economic characteristics of a social institution is that its equity capital has been donated. That is to say, the sources of equity capital retain no propreatary interest in it. In contrast, the equity capital of a business has been invested, i.e., the providers of capital retain a propreatary interest through the holding of shares or other means. In such cases, the investors expect to realize an economic return, either in the form of dividends or through an appreciation in the value of the interest they hold. The clear different of private and public sector was made by R. N. Anthony. Anthony (in Rowan Jones and Maurice P., 2000:128) divide organization in three types as follows: 1) Profit Oriented; 2) Type A Non-profit; 3) Type B Non-profit. Beside that, in every ED except for IPSAS 12, 13, 14, we can find Comparison to IAS. It means that the two sectors have any different. We want to say that business sector and public sector remain different. So, what is the meaning of convergence? 3
5. Specific Comments on Each Exposure Draft 1) Exposure Draft 25 Equal Authority of Paragraphs in IPSASs a. Background IPSASB in view that bold and plain types of paragraph have the same authority. b. Comments on ED Question All of the participants disagrees the same authority of the bold and plain paragraphs. The plain type explains the bold type and plain type could be examples or options. Examples and options are not in the same meaning with once in the standard paragraph. Examples are impossible to be treated as standards paragraphs. If you want to treat it same, the name is not examples or options. So, separation of bold and plain is very important. They have different authority. 2) Exposure Draft 26 Improvements to IPSAS Here are the comments on each IPSAS revisions. (a) IPSAS 1, Presentation of Financial Statements IPSAS 1 was revised to converge to IAS 1. The main changes are scope, definitions, fair presentation, and classification of assets and liabilities. b) Comments on ED Questions (1) Question 1, IPSAS 1 page 6. In general all of the participants agree with the changes was made except for the substances that we can t apply in Indonesia. In Indonesia, the concepts of owners, distribution to owners, share capital and dividend are not found. The participants agree with any notes. 4
(2) Question 2, IPSAS 1 p. 6 An extraordinary item is not defined The participants express that the extraordinary items are important to be presented. The influences of the extraordinary items can t be predicted like Tsunami. It needs to be regulating in the standard(s). (b) IPSAS 3, Net Surplus or Deficit for Period, Fundamental Errors, and Changes in Accounting Policies IPSAS 3 was revised to converge to IAS 8. The main changes are scope (some items removed to IPSAS 1), definitions, materiality, net surplus or deficit for the period. b) Comments on ED Question: Question 1, IPSAS 3 p. 63 In general the participants agree with these changes. There is no significant matter to be commented on. What is the effect of these changes to financial presentation? (c) IPSAS 4, The Effect of Changes in Foreign Exchange Rates IPSAS 4 was revised to converge to IAS 21. The main changes are scope, definitions, functional currency, integral foreign operations vs foreign entities etc. b) Comments on ED Question: (1) Question 1, IPSAS 4 p. 94 In general, all participants agree with the changes. (2) Question 2, IPSAS 4 p. 94 There is no specific comment except the awareness that this subject is very important in public sector in Indonesia. 5
(d) IPSAS 6, Consolidated Financial Statements and Accounting for Controlled Entities IPSAS 6 was revised to converge to IAS 27. The main changes are scope, definitions, exemptions, separate financial statement and the other. b) Comments on ED Question: (1) Question 1, IPSAS 6 p. 120 Consolidation model in Indonesia is different. In our Government Accounting Standard, consolidation is based on legal entity. In Government Accounting Standard Statement No. 11, we introduce accounting entity and reporting entity. Accounting entity is supporting entity for reporting entity. (2) Question 2, IPSAS 6 p. 120 There is no specific comment except the awareness that this subject is very important in public sector in Indonesia. (3) Question 3, IPSAS 6 p. 120 Disclosure about this subject is very important. Significant influence of the controlled entity must be disclosed in the Notes. (e) IPSAS 7, Accounting for Investments in Associates IPSAS 7 was revised to converge to IAS 28. The main changes are scope, definitions, significant influence, separate financial statement and the other. 6
b) Comments on ED Question: (1) Question 1, IPSAS 7 p. 158 There is no specific comment except the awareness that this subject is very important in public sector in Indonesia. It s not included in our Government Accounting Standard. (2) Question 2, IPSAS 7 p. 158 There is no specific comment except the awareness that this subject is very important in public sector in Indonesia. (3) Question 3, IPSAS 7 p. 158 There is no specific comment except the awareness that this subject is very important in public sector in Indonesia. It s not included in our Government Accounting Standard. (f) IPSAS 8, Financial Reporting of Interests in Joint Ventures IPSAS 8 was revised to converge to IAS 31. The main changes are scope, definitions, exemptions from applying proportionate consolidation or the equity method, separate financial statement and the other. b) Comments on ED Question: (1) Question 1, IPSAS 8 hal. 180 There is no specific comment on this matter except the awareness that this is very important in public sector in Indonesia. It s not included in our Government Accounting Standard. (2) Question 2, IPSAS 8 p. 180 There is no specific comment on this matter except the awareness that this is very important in public sector in 7
Indonesia. It s not included in our Government Accounting Standard. (g) IPSAS 12, Inventories IPSAS 12 was revised to converge to IAS 2. The main changes are objective and scope, cost of inventories, and disclosure. b) Comments on ED Question: (1) Question 1, IPSAS 12 p. 207 The participants agree with these changes. (2) Question 2, IPSAS 12 p. 207 No specific comments for these matters. (h) IPSAS 13, Leases IPSAS 13 was revised to converge to IAS 17. The main changes are definitions, classification of land and building, and initial direct costs incurred by lessor. b) Comments on ED Question: (1) Question 1, IPSAS 13 p. 215 Most of participants agree that leasing is very important to be regulated. The options of buy or lease enable government to be easier in decision making. (2) Question 1, IPSAS 13 p. 215 There is no specific comment on this matter except the awareness that this is very important in public sector in Indonesia. It s not included in our Government Accounting Standard. 8
(i) IPSAS 14, Events After the Reporting Date IPSAS 14 was revised to converge to IAS 10. The change is dividends/distributions declared after reporting date. b) Comment on Question 1, IPSAS 14 p. 228: All participants disagree with this matter. There is no dividend or distribution to owner in government/public sector in Indonesia. (j) IPSAS 16, Investment Property IPSAS 16 was revised to converge to IAS 40. The changes are property interests held by a lessee under an operating lease and changes to reflect equivalent requirements in proposed IPSAS 17. b) Comment on Question 1, IPSAS 16 p. 235: Most of participants agree that leasing is very important to be regulated. (k) IPSAS 17, Property, Plant and Equipment IPSAS 17 was revised to converge to IAS 16. The main changes are definitions, recognition and measurement at recognition, depreciation, also derecognition. b) Comments on ED Question: (1) Question 1, IPSAS 17 p. 270 The participants are careful in commenting this matter. The objectives of financial reporting in private and public sector are different so the treatments of the fixed assets are different too. 9
(2) Question 2, IPSAS 17 p. 270 In general, all participants agree with the changes. (3) Question 3, IPSAS 17 p. 270 No specific comments. 3) Exposure Draft 27 Presentation of Budget Information in Financial Statements a. Background Governments prepare and issue budget as public documents that reflect the financial characteristics of the government s plans for the forthcoming period. The budget serves as a key tool for financial management and control and is the central component for governments and parliamentary oversight of the financial dimensions of operations. For some users, budget information is viewed as more important that other financial information. b. Comments on ED Question Based on the background mentioned above, the following are specific comments on the ED 27: (a) The requirement to compare of actual amounts with amounts in the original and final budget as part of the general purpose financial statements (GPFSs); We agree with the proposal, although the comparison of actual to the final budget is deemed sufficient. (b) The requirement to disclose the reasons for material differences between budget and actual amounts unless such explanation is included in other public documents issued at the same time as, or in conjunction with, the financial statements. We suggest that such disclosure is encouraged. 10
(c) The presentation of a comparison of budget and actual amounts in the GPFSs as additional budget columns in the primary financial statements when the budget amounts and the actual amounts in the GPFSs are prepared on a comparable basis. We agree with the proposal, the same basis of accounting and same classification structure is needed for sound analysis. (d) The requirement to disclose an explanation of the following is made in a report issued in conjunction with, or at the same time as, the financial statement: whether differences between the original and final budget arise from reallocation within the budget or other factors such as policy shifts, natural disasters, or other unforeseen events. We agree with the proposal, however, rather than a requirement, we would suggest an encouragement to report such disclosures. (e) The requirement to compare the actual and budget amounts to be made on the same basis of accounting as adopted for the budget, even if the basis is different from the basis adopted for the GPFSs. We agree with the proposal although further clarification is needed. Thus, eventhough the budget is cash basis and the accounting is accrual basis, the budget comparison is made based on the budget basis. This is done in order to improve understandability. (f) The requirement to reconcile the actual amounts on a budget basis with actual amounts presented in the GPFSs. We agree with the proposal although further clarification is needed. 11
4) Exposure Draft 28 Disclosure of Financial Information about the General Government Sector a. Background Some governments prepare, present, and widely publish both GPFSs and statistical information about the financial characteristics and performance of the public sector. IPSASB is encouraged to consider explicitly allowing/encouraging the disclosure of financial information about the GGS, as defined in GFSM 2001, in whole-of-government GPFSs. b. Comments on ED Question Based on the background mentioned above, the following are specific comments on the ED 27: (a) Whether requirements for the disclosure of financial information about the GGS should be included in GPFSs prepared in accordance with IPSASs. We would disagree with the proposal. The standards are intended to enhance the decision making capabilities of users. Thus, if the users can obtain information sufficiently from the existing standards than additional disclosures are not necessary. Please also remember that the financial statements are for general purpose. If there is a need to obtain specific information such as statistical data from General Government Sector, than the users might use their own resources to obtain such information. Furthermore, some partial information of GGS is usually provided in the notes to financial statements. Therefore, there is no need for IPSAS on GGS. 12
(b) Whether the definition of the GGS in paragraph 14 is appropriate; Need more explanations, i.e. what the meaning of statistical reporting base. (c) Whether the proposed treatment of investments in public corporations in the GGS disclosure is appropriate. We agree with the proposal. (d) Whether a government which elects to disclose information about the GGS should be required to separately disclose information about the GGS of each level of government consolidated in its whole of government GPFSs. It is unecessary for GGS to consolidate reports of each level of government in its whole of government GPFSs. GFS reports are not accountability reports, but parts of statistical reports. (e) Whether reconciliation to the statistical reporting basis should be required. Reconciliation is presented on the Notes to Financial Statements, but not required. (f) Whether there should be a separate IPSAS on disclosure of information about the GGS, or whether the requirements proposed in this Standard should be included as an addition to IPSAS 1. The disclosure of such information should be in a separate IPSAS. (g) Whether requirements for disclosure of the GGS under a cash basis IPSAS should also be developed. We agree with the proposal that the disclosure of the GGS under cash basis IPSAS should be developed. 13
Bibliography Granof, Michael H., (1998), Government and Not-For-Profit Accounting: Concepts and Practices, New York, John Wiley & Son. International Federation of Accountants (IFAC), (2003), Handbook of International Public Sector Accounting Standards. Jones, Rowan, and Pendlebury, Maurice, (2000), Public Sector Accounting, (Fifth Edition), Harlow, Pierson Education Limited. Ramanathan, Kavasseri V., and Hegstad, Larry P., (1982), Readings in Management Control in Nonprofit Organizations, New York, John Wiley and Son. Republic of Indonesia, Government Regulation Number 24 of 2005 tentang Standar Akuntansi Pemerintahan. 14