TUJUAN DARI SISTEM AKUNTANSI PEMERINTAH PUSAT R I

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					ACCRUAL ACCOUNTING: WOULD THE
ECONOMY BENEFIT IF GOVERNMENTS
ADOPT IT? – LESSON FROM INDONESIA




                      Hekinus Manao & Dwi Martani
       Member of Government Accounting Standard Board, Indonesia
                                  University of Indonesia, Jakarta
                       (hekinus@gmail.com) and (martani@ui.edu)

        The 16th ASEAN Federation of Accountants (AFA) Conference,
                            Brunei Darussalam, December 8-9, 2009
         ROLE OF GOVERNMENT

• Government gives a lot of contribution in economic by
  creating policy & regulation, spending government
  expenditure to create multiplier effect and deliver public
  services.
• Improvement the quality of financial management in
  government become the center point of public interest to
  establish new public governance.
• Credible financial information will increase transparency and
  accountability, and the information will be used in decision
  making and controlling the operation.

                                                               2
3 BASIC ISSUES IN PUBLIC FINANCIAL
           MANAGEMENT
 1. Aggregate Fiscal Discipline  to maintain fiscal
    sustainability  national
 2. Allocation Efficiency Discipline  to assure public
    choices  inter ministerial
 3. Operational Management Discipline  to assure
    that we deliver for what we are expected to and for
    what has been paid for  intra ministerial (within
    agency).

                                                          3
    THE ESSENCE OF ACCOUNTING IN PUBLIC
                  SECTORS
              P U B L I C       B U DG E T
P
                                                Budget          P
U
                      ACCOUNTABILITY           Operation        U
B                           &
                                                                B
                      TRANSAPARENCY
L
                                              Resources &       L
I                                               Claims
                                                                I
C
     Government                                                 C
B    Accounting                                                 B
U                                              Operation        U
D                                              efficiency
                       MANAGAMENT                               D
G                     DECISION MAKING                           G
E                       & CONTROL              Optimum
                                               allocation       E
T
                                                                T
                                                            4
                  P U B L I C    B U DG E T
PRINCIPAL-AGENT CONTRACTUAL RELATIONSHIP
          IN GOVERNMENT SETTING

                                                       G
                                                       O
          Transfer of Resources & Legal Rights
 P   P                                                 V
 R   E                                                 E
                                                           A
 I
     O      Monitoring                                 R
 N                                                         G
                                                       N
 C   P                                                     E
 I                                                     M
     L                              Bonding                N
 P                                                     E
 A   E                                                     T
                                                       N
 L         Legal & Managerial Accountability Process
                                                       T


                                                           5
PRINCIPAL-AGENT CONTRACTUAL RELATIONSHIP
          IN GOVERNMENT SETTING

                Laws & Legal Provisions
                                                  G
    P                                             O
P        P
                 Planning & Budgeting
    E    A                                        V
R        R                                        E
I   O    L                                                A
         I                                        R
N        A                                                G
                                                  N
C   P    M
                                                  M
                                                          E
         E
I                                                         N
P
    L    N
         T
              Accounting              Reporting   N
                                                          T
                                                  E
A   E                                             T
L
                           Auditing


             TRANSPARENCY & ACCOUNTABILITY
                                                      6
International Public Sector Accounting
Standard

 IPSAS are financial reporting standards for application by
  governments (other than for Government Business
  Enterprises) and other international public sector entities.
 International Public Sector Accounting Standards (IPSASs) are
  issued by the IPSASB, a board under IFAC
 Almost 70 countries have adopted IPSASs or are in the
  process of adopting IPSASs.
 Many countries have chosen not to adopt IPSASs lock, stock
  and barrel, but have developed standards that are similar to
  IPSASs.
 The main reason is that many countries want to adapt the
  public accounting standards to their own environment.
                                                                  7
Adaptation of IPSAS




                      8
National Public Sector Accounting Standards
Similar to IPSASs


 Governments that already apply full accrual accounting
 standards and apply accounting standards that are broadly
 consistent with IPSAS requirements:
  Australia
  Canada
  New Zealand
  United Kingdom
  United States of America




                                                             9
IPSAS




        10
WHY IPSAS

• IPSAS are high-quality        transparency and
  international standards        credibility

• IPSAS and IFRS are similar    understandable for people
                                 who know company
                                 accounts

• IPSAS contains cash flow      understandable for people
  Statement                      who know cash accounting

• IPSAS and GFS (Government  avoids duplication of
  Finance Statistics) are similar efforts for governments
                                                            11
                          BENEFIT OF IPSAS

 Improved internal control and transparency in respect of assets and
  liabilities generally.
 The alignment with best accounting practices through the
  application of credible, independent accounting standards on a full
  accrual basis.
 More comprehensive information about costs that will better
  support results-based management.
 The integration of non-expendable equipment into the accounting
  system, with resulting improvements in the accuracy and
  completeness of non-expendable equipment records.
 Improved consistency and comparability of financial statements as
  a result of the detailed requirements and guidance provided in
  each standard.
Sources: The United Nations General Assembly, which adopted IPSAS in 2006
                                                                            12
      BENEFIT – Improve Allocation of capital

 Many public sector organisations see the improved management and allocation of
  infrastructure assets as one of the major benefits of IPSASs and accrual accounting.
   A government wants to build a bridge and the bridge will take two years to complete. The
   government pays the contractor 50 per cent of the costs upfront and the remaining 50 per cent
   of costs on delivery. The bridge is expected to last 100 years and will cost 20 million. Under
   cash accounting 10 million hits the statement of financial performance in both years 1 and 2
   while, under accrual accounting, only 200,000 hits the statement of financial performance for
   100 years. Cash accounting reflects the cash flows of the transactions while accrual accounting
   reflects the usage of the asset.
 In a governmental (and therefore political) setting the different results under cash and accrual
  accounting matter.
 A politician may be more likely to invest in building a bridge in an election year if the
  government’s financial statements reflect the accruals based usage of the bridge rather than
  cash flows of the purchase; one method has a far greater impact on the bottom line, which may
  prove significant in an election year.
 One of the reasons why Canada adopted accrual accounting was that it thought that it would
  positively influence infrastructure investment decisions.

Sources: IPSAS Improving accountability in the World, Ian Sanderson CA(SA), works in the field of international
                                                                                                            13
development for Deloitte in Geneva, Switzerland and Professor Frans van Schaik CA(SA), is a member of the IPSAS
                    IPSAS – Developing World

 Many developing countries are also in the process of adopting IPSASs.
 Many of these countries are currently implementing the cash-based IPSASs which are
  seen as a stepping stone towards the future adoption of accrual accounting.
 Many countries have projects that are being funded by international donor
  organizations, such as the World Bank and the International Monetary Fund, the
  Swedish Development Agency (SIDA).
 The adoption of IPSASs is viewed as a means towards improving accountability in
  those countries and it is a move that should be supported. The adoption by
  developing countries should not be underestimated, because the move towards an
  effective and transparent accounting system will hopefully lead to better resource
  allocation and less wastage (i.e. corruption) in public sector finances.
 The development will hopefully also lead to improved investor confidence and an
  improved economic outlook.

Sources: IPSAS Improving accountability in the World, Ian Sanderson CA(SA), works in the field of international
development for Deloitte in Geneva, Switzerland and Professor Frans van Schaik CA(SA), is a member of the IPSAS
                                                                                                      14
IPSAS – Must go with Audit Strong Framework


  The risk of corruption in developing countries will diminish further as the
   cash based IPSASs are gradually superseded by the accruals based IPSAS.
  The risk of corruption can only be mitigated by sufficient checks and
   balances in the system to reduce the temptation to steal (i.e. the risk of
   being caught) such as a strong audit framework.
  In many developing countries there are moves towards strengthening the
   audit function in government, and many donors are supporting their efforts
   to improve accountability through IPSASs by working to strengthen the
   technical capacity.
  We note a significant rise in the number of qualified chartered accountants
   working for the South African Auditor-General. The Auditor-General and his
   staff will play a critical role in working with the public sector in the move
   towards accrual accounting.

 Sources: IPSAS Improving accountability in the World, Ian Sanderson CA(SA), works in the field of international
                                                                                                         15
 development for Deloitte in Geneva, Switzerland and Professor Frans van Schaik CA(SA), is a member of the IPSAS
      CASH – ACCRUAL ACCOUNTING


Cash
���� Traditionally used in public sector
���� Expenses and revenues recorded when they are paid or
   received

Accrual
���� Traditionally used in private sector
���� Expenses and revenues recorded when they are
   incurred or earned



                                                          16
CASH – ACCRUAL ACCOUNTING




                            17
CASH – ACCRUAL ACCOUNTING




                            18
     WHY “ACCRUAL BASIS” IS GOOD
        PUBLIC ACCOUNTING?
1.   Providing good economic measures for resources consumed,
     earned, or transferred
2.   Yielding more acceptable measures of performance, in line
     with the performance-based budget approach
3.   Improving information on the costs of government services
      Total costs, not just immediate cash outlays
4.   Capable to produce comprehensive balance sheet (assets
     and liabilities)  Illuminate long-term fiscal sustainability
5.   Embracing the capital maintenance concept
6.   Gaining universal acceptance

                                                              19
        WHY “ACCRUAL BASIS” - 1
1.   The promotion of accrual accounting and reporting in public sectors
     has received varied responses and caused considerable debate or
     controversy.
2.   In a comparative study of public financial management reforms in ten
     OECD countries, Olson et al. (1997) found the shift to accrual in only
     one case.
3.   The result in inefficient resource allocation and ineffectiveness of
     public financial management, as in contrast to the efficiency and
     market effectiveness by commercial sectors supported by accrual
     accounting information. The adoption of business accrual accounting
     systems was advocated, as it was the readily implemented accounting
     model for public sectors “without reinventing the wheel” (Anthony
     1978, Christensen 2003).

                                                                          20
           WHY “ACCRUAL BASIS” - 2
 Information generated from accrual-based reporting systems allows users to :
     assess the accountability for all resources and the deployment of those resources,
     assess the performance, financial position, and cash flows of the reporting entity,
     making decisions as to providing resources to, or doing business with, the entity.
 Study #14 of IFAC Public Sector Committee (2002) argues that reporting on
  accrual basis is useful in evaluating a government’s performance in terms of
  its service costs, efficiency, and accomplishments.
 This basis enables users of reports to identify the financial position and
  changes of the financial position of a government, and how a government
  financed its activities and met its cash requirements, and therefore it
  facilitates the assessment of a government capacity.
 Accrual-based government accounting will also allow the government to
  identify opportunities of future use of resources and to demonstrate
  successful management of the resources.
                                                                                    21
         WHY “ACCRUAL BASIS” - 3
 Compared to cash-based accounting, accrual-based
  accounting has been widely accepted in commercial sector for
  its ability to provide a multi-dimensional view of the
  government’s cash flow, financial performance, and financial
  position, and to show the full cost of activities, not just the
  short term cash impact.
 The broad benefits of accrual based accounting include the
  facts that
    it provides measures of the economic goods and services
       consumed, transformed, and earned,
    it yields a more acceptable measure of performance, and
    it embraces well the concept of capital maintenance
       (Jones & Pendlebury 1988).                                 22
      WHY “ACCRUAL BASIS” - 4
 The Public Sector Committee of IFAC has commented extensively on
  the benefits of accrual accounting for governments and individual
  public sector entities (IFAC 2002).
 Therefore, accrual accounting is currently gaining importance in
  several countries, particularly in OECD countries (Schiavo-Campo &
  Tommasi 1999).
 Carlin (2005) explores the body of literature expressing support for
  accrual adoption by the public sector. He identifies two appealing
  justifications for the “inevitability” of the adoption, i.e.
    improvement of organizational performance allowed by the full
       cost information which yields to operational efficiency and
       optimum resource allocation and
    enhancement of transparency, both internally and externally.


                                                                         23
       WHY “ACCRUAL BASIS” - 5
 The lack of evidence to improved government performance as a result of
  improved cost control systems has been also provided by Olson et al. (2001).
  In general, Olson et al. conclude that public services may be caught in
  “evaluator trap”, where continual promotion of reforms results in decreasing
  public service with increasing cost per unit.
 Barton (1999, 2004, 2009) strongly argues that the business model of accrual
  accounting should not be forced on to the public sector.
 The two sectors are not identical twins with respect to their accounting
  requirements. The reasons for governments to exist are totally different from
  those for business institutions.
 Barton (2004) emphasizes that the nature of governments and their roles in a
  modern democratic nation are fundamentally different, and much more
  complex and diverse, than those of the private sector. “As a minimum,
  citizens want their governments to provide various goods and services which
  cannot be readily provided by private firms, and they require that they be
  accountable to them for all of their activities” (p. 283).
                                                                              24
        WHY “ACCRUAL BASIS” - 6

 According to McGregor (1999), accounting selection in government setting
  requires a more conceptual approach. One common argument in support of a
  separate and different approach for public sector entities relates to the
  broader notion of accountability that exists in public sector.
 The need for accountability is written into the U.S. constitution and it is the
  first objective of financial reporting by the U.S. Government (Granoff 2001).
 Accountability is fundamental to public sector accounting and reporting. In a
  democratic nation, the government plays the role as agents of the citizens.
  The parliament and the public need the detailed information on government
  activities and their financial resources. It is for this reason that all taxation
  and expenditure proposals must be approved by the parliament before they
  can be implemented, and it is for this reason why budget compliance is
  necessary (Barton 2004).


                                                                                    25
“ACCRUAL BASIS” in Public Sector
  Accounting: SOME CAVEATS?
1.   Accrual accounting is not in harmony with the typical
     governmental context, except for units that have business like
     activities
2.   Incorporates defects in that economic inputs (costs) are
     matched with limited economic outputs when they should
     actually be compared to the social services
3.   Most governments adopt non-accrual budgeting approach
4.   Relevance for political decision-makers  more room for
     interpretation
5.   Research evidence  Switching does not automatically
     produces benefits (Christians & Rommel 2008)
                                                              26
    “ACCRUAL BASIS” - CAVEATS

 The arguments for accrual adoption has been ripe for criticism,
  including among others the potential moral hazards of creative
  accountability reporting produced therein (Carlin 2000), the
  contingency to a range of factors, e.g. asset valuation, especially
  those of public infrastructure and collections of cultural, scientific,
  and heritage assets (Mautz 1981, 1988; McGregor 1999, Blondal
  2007, Carlin 2005),
 The different concept of net equity of government – it is a passive
  residual between the total assets and the total liabilities, rather than
  owners’ residual claims (Barton 2004),
 Costlier accounting design and implementation issues (Carlin 2005,
  Blondal 2007),


                                                                             27
“ACCRUAL ACCOUNTING” in Public
 Sector: IMPLEMENTATION ISSUES
1.   Recognition criteria: heritage assets, military systems,
     infrastructure assets, social insurance
2.   Valuation issues: historical or current market?
3.   Setting accounting standards: a separate committee, single
     standard setter for both private and public sectors, or
     IPSAS?
4.   Asset registers: many countries did not have up-to-date
     asset registers
5.   Upgrading accounting skills: accruals requires higher level of
     accounting skills
6.   Conversion problems: lack of understanding, time
     consuming, costly, and riskier                           28
WHY IS “CASH BASIS” PREFERABLE?

1. Simple; avoiding difficulties and complexities in its
   implementation and comprehension
2. Annual government budgets are constructed
   based on real cash flows; hence, the accountability
   report should be designed consistently
3. The lack of demand for financial stock information
4. Has been a long tradition in most countries



                                                    29
WHY IS “CASH BASIS” PREFERABLE?
 There are at least two reasons for many governments to
  maintain the cash basis approach, rather than implementing
  the accrual-based model (Manao 2006, 2008):
      Annual government budgets of many governments are constructed
       based on real cash flows; hence, the accountability report should be
       designed consistently.
      The use of cash basis approach has been a long tradition, avoiding
       difficulties in its comprehension, especially among the parliament
       members.
 While warranting the importance of information of stock
  position of government assets and debts, Blondal (2007)
  admits that for public sector management, cash information
  is paramount.
                                                                       30
WHY IS “CASH BASIS” PREFERABLE?
 According to Barton (2009), the activities of governments in satisfying the
  community and national interests can be summarized into sixfold as
  follows:
       provision of public goods and services to the community,
       provision of social welfare goods and services to citizens,
       macroeconomic management of the economy,
       conservation of the nation’s natural and cultural environment,
       pursuit of intergenerational equity, and
       management of government resources which are used to provide the above
        goods and services.
 The first five activities involve conditions that apply only in the public
  sector of the economy
 Those activities involve the expenditure of cash by government and its
  collection from taxation and other government sources in order to fund
  their provision.
                                                                           31
WHY IS “CASH BASIS” PREFERABLE?
 A cash budgeting and accounting system is more relevant to
  manage the government roles. Only in the last role of efficient
  resource management that requires accrual information.
 Barton (2009) argues further that for fiscal policy purposes
  cash accounting information is also required. The flows of
  government cash receipts and expenditures encompassed in
  the government’s fiscal policies have major effects on the
  state of economy (economic growth, inflation and exchange
  rates, and unemployment rate), on financial markets, and on
  social welfare.


                                                             32
WHY IS “CASH BASIS” PREFERABLE?
 In such cases, the business model of accrual accounting does
  not easily fit the environment and does not properly satisfy
  the information requirements.
 Accrual information is not quite relevant when a government
  agency is primarily designed as a spending unit or as a cost
  center, relying on budget appropriation not from revenue
  generation.
 The outputs of such government agencies cannot be
  measured in terms of traditional financial performance, and
  their non-financial assets do not provide economic benefits to
  the entities.

                                                            33
WHY IS “CASH BASIS” PREFERABLE?
 the accrual adoption by the governments of New Zealand,
  Australia, the United Kingdom, and Sweden, must be viewed
  in particular as a strategic tool for the public sector reform
  agenda in those countries.
 The accrual accounting choice in New Zealand and the United
  Kingdom was a precursor implementation of the reform
  concept of New Public Management. The reforms were
  openly based on public choice theory (PCT) which advocates
  that governments should be managed based on the business
  methods to achieve highest efficiency and to curtail the size
  of the governments (Newberry & Pallot 2005).

                                                            34
WHY IS “CASH BASIS” PREFERABLE?
 The reforms had been oriented to identifying government
  entities operating in pseudo-business, where accrual
  accounting model should fit better in the environment.
 Likewise, the so-called marketization reform approach as
  practiced in Sweden attempted to embed the performance
  measurement of government agencies where accrual
  accounting was expected more appropriate (Modell & Wiesel
  2008).
 Carlin (2005) has also underscored the limited relevance of
  accrual accounting to government setting, particularly in
  those entities with quasi-business operations, as he
  illustrated it in the case of Victoria State, Australia.
                                                         35
     The “CASH TOWARDS ACCRUAL
           BASIS”: A MID WAY
1. Maintaining daily transaction recording based on cash
     transaction events
2.   Creating corollary entries on transactions affecting the
     position of capitalized assets or liabilities
3.   Requiring year-end adjusting entries to reflect new
     balances of receivables, inventories, investments, and
     payables (periodical approach)
4.   Minimizing the issue of complex reconciliation
5.   Generating budget accountability reports in line with
     the cash-based budget model
6.   Producing accrual information wherefrom balance
     sheet is constructed
                                                         36
     THE ODD “CASH TOWARDS
         ACCRUAL BASIS”
             GAINING ACCEPTANCE BECAUSE:
 Embracing both the simple cash basis and the pervasive
   accrual basis
 Fitting the migrating transition from cash to accrual basis
    avoiding high resistance
                            BUT:
 The rationality of the new approach is still questioned
 Some accounting complexities remain intact.
                       NEVERTHELESS:
with this new accounting approach, the central Government of
         Indonesia has been successfully produce its first
     Comprehensive FS of 2004 and FS of 2005, 2006 & 2007.

                                                         37
THE “CASH TOWARDS ACCRUAL” ACCOUNTING SCHEME

                       Recording and
All external cash   posting in Revenue or               Budget Realization
  transactions      Expenditure Accounts                     Report
                      and Cash Account



                         Affecting LT
                        Asset/Liabilit                   Cash - flow Report
                         y Accounts             Stop
                              ?             N

                                   Y

                    Corollary entries on
                         related LT
                                                         Balance Sheet or
                       Asset/Liability
                                                       Statements of Ending
                         Accounts
                                                             Position


    Non – cash      Periodical adjusting
internal/external    entries, affecting :
   transactions       - Stock Accounts                  Reversing entries on
                       - Flow Accounts                     Adjusted Flow
                                                             Accounts
Lesson from Indonesia




                        39
Causing factors of economic crisis

 Weak institutions:
      Poor quality of information due to:
          deficiencies in accounting system;
          weak legal system.
      Poor policy analysis;
      Poor policy implementation;


 Weak economic fundamentals: public finance, banking
  system and corporate governance.




                                                        40
Poor quality of information

   The quality of information has been poor in Indonesia mainly
    because of deficiencies in the accounting system, poor auditing
    process and the flawed legal system.
   Financial reporting of the public sector applied the single entry
    and cash basis accounting system based on the outdated
    Indische Comptabiliteitswet (ICW) inherited from the Dutch
    colonial era.
   As the government budget, under this system, does not
    represent allocation of resources, it cannot be used as a tool
    for public resource management.
   There was no treasury single account for public funds.




                                                                   41
Poor quality of information

   On the surface, the government’s fiscal position had appeared
    to be relatively strong prior to the crisis as government
    budgets were either in balance or shown as having small
    surpluses. The real story was, however, different fromthe
    official figures as:
       Government budget did not provide the true picture of financial transactions
        of the public sector due to the presence of the large extra-budget funds;
       not all government revenues and expenditures were reported in the formal
        budget;
       a large amount of state funds was deposited under the names of individual
        government officials, including those who has long been passed away;
       the losses of state-owned enterprises and state-owned banks and their
        clients, particularly those owned by politically well-connected groups,
        became contingent liabilities of the government.
       these future budget commitments were not recognized until cash payments
        had been made.



                                                                                  42
  PRE REFORM ACCOUNTING
The Absence of modern accounting until 2003:
1. Single Entry recording system;
2. Cash based reporting;
3. No accounting standards;
4. Limited IT supports;
5. The lack of integrated recording systems;
6. More judgmental number than reconciled data
   source;
7. Significant time lag of recording and
   reporting;
8. Deficiency of competent accounting personal;
                                              43
Fiscal Reform
Fiscal reforms address the weaknesses of the previous fiscal
    system by, among other things:

 end separation between routine and development
  expenditures in order to avoid duplication of spending
  and misuse of public funds for unintended purposes;
 move from a single entry to a double entry accounting
  system, and from cash basis to accrual basis to allow
  medium- and long-term planning and performance basis
  and multi-year budget;




                                                           44
Fiscal Reform

 The reform of the fiscal system to align it with the
 international best practices started with the issuance of a
 Presidential Decree on Government Financial
 Accountability in 1999. Major reforms were introduced
 with the promulgation of the following three laws on
 state finance in 2003 and 2004:

  Law No. 17 of 2003 on State Finance;
  Law No. 1 of 2004 on State Treasury;
  Law No. 15 of 2004 on Auditing the Management and
   Accountability of State Finance.

                                                          45
Fiscal Reform
 adopt a Treasury Single Account to improve financial
  control;
 modernize and integrate computerized accounting
  system;
 decentralize the accounting implementation in a
  hierarchical manner by each accounting unit, both at the
  central and regional levels;
 Improve the audit of public funds, applying a tight time
  frame for the accountability report, strengthen follow up
  on audit findings and prosecute cases of corruption.




                                                         46
THE NEW GOVERNMENT
ACCOUNTING RULES (1)
1.   Every public spending agency (both central and local
     government, around 37.000) must administer accounting
     and present periodic financial statement;
2.   Accounting standards to be established by an
     independent committee;
3.   Ministry of Finance develops accounting system for the
     central government agencies;
4.   Local government develops accounting system for their
     own purposes, with assistance from Ministry of Home
     Affair.
5.   The new accounting systems must at least generates (1)
     budget realization report, (2) balance sheet, (3) cash
     flow statement, and (4) notes to the financial statement.
                                                          47
THE NEW GOVERNMENT
ACCOUNTING RULES (2)

5. Information on actual output to be submitted along with
   the financial statements (FS);
6. Spending minister/governor/major must present a
   Statement of Responsibility (SOR);
7. The Supreme Audit Board performs financial audit and
   render its opinion on the fairness of the FS;
8. The audited financial statement are to be submitted to the
   parliament in 6 month period after the budget-year end;
9. Once submitted to parliament, the audit report are
   opened for public access.

                                                          48
CRUTIAL ISSUES IN GOVERNMENT
ACCOUNTING STANDARDS DEVELPOMENT

The Government Accounting Standards Committee, established
   in 2004, has 9 members from government officer,
   academia, and accounting professionals.

Several crucial issues arising:
1. Whether a separate set of accounting standards is needed;
2. Whether International public accounting standards are to
   be adopted;
3. Which accounting basis to be adopted;
4. Which government units set forth as accounting and
   reporting entities;
5. Whether or not to adopt the fund accounting concept


                                                         49
INDONESIA GOVERNMENT
ACCOUNTING STANDARS
1.  The Conceptual Framework of Government Accounting;
2.  Presentation of Financial Statement;
3.  Budget Realization Statement;
4.  Cash Flow Statement;
5.  Notes of the Financial Statement;
6.  Accounting for the Inventories;
7.  Accounting for Investment;
8.  Accounting for Fixed Asset;
9.  Accounting for Construction in progress;
10. Accounting for Liabilities;
11. Accounting for Error Adjustments, Accounting Changes,
    and Extra-ordinary Events;
12. Consolidation of Financial Statement.

                                                            50
IN PROGRESS: ACCRUAL
ACCOUNTING DEVELOPMENT
 Law 17/2003 on State Finance and Law 1/2004 on State
  Treasury;
 Government Accounting Standards Committee has
  developed Government Accounting Standards based on
  accrual basis;
 Referring to the best international practices
 Adapting to the International Public Sector Accounting
  Standards;
 Hearing has been conducted from 2007 to 2008;
 In December 2008, final draft has been delivered to The
  Supreme Audit Board (BPK) for the consideration.
 2009, process to become President Decree.

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                       IN CONCLUSION
   Modern accounting serves the need for public accountability and transparency, as well as
    the process of decision making and control, but all confined in the public budget
    constraints;
   Some countries such as NZ, UK, Australia, and Sweden have been adopting accrual-based
    accounting, and some of countries adapted IPSAS as an accounting Standard;
   Empirical academic evidence remains strain as to the benefits claimed for accrual
    accounting in governments;
   Accrual information may be indispensable, but cash information is more relevant in the
    public financial management as constrained by the budget, instead of the normal marginal
    cost-benefit theory;
   A midway solution to serve the information need for cash and accrual in government is
    important. Indonesia promotes the “cash towards accrual” based accounting approach.
                 IN CONCLUSION
1. The comprehensive Government Financial Management
   Reform in areas of Legal and Institutional, Planning and
   Budgeting, Treasury, Accounting, and Auditing has opened
   a policy window for the implementation of modern
   accounting in Indonesia;
2. The introduction of modern accounting from 2004 requires
   the double-entry recording approach, but accommodates
   the recording of both cash and accrual transactions in the
   “Cash toward Accrual” basis
3. The new accounting has successfully produced the first
   comprehensive financial statements of 2004 – 2005.
4. In December 2008, final draft of accrual basis Government
   Accounting Standards has been delivered to get approval.
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Reference
 F.D.J Van Schaik, IPSAS Summary – Deloitte,
   http://www.iasplus.com/ifac/2007ipsassummary.pdf
 Andrew Newman, CA Financial Accountability, Looking
  Forward .
 IPSAS ADOPTION BY GOVERNMENTS,
  www.unops.org/SiteCollectionDocuments/Accountability
  documents/20090831-IPSAS-implementation-UNOPS.pdf




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THANK YOU
TERIMA KASIH




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