TGS AU Partners responded positively to the issuance of the Pillars of Financial Accounting Standards by the Indonesian Institute of Accountants. Mikail Jaman, managing partner, KAP Agus Ubaidillah & Rekan (TGS AU Partners), commented "The Pillars of Financial Accounting Standards that come into effective on 1 January 2023 issued by the Financial Accounting Standards Board provides certainty and clarity for companies and other financial report preparer in the application of Financial Accounting Standards (“SAK”) in Indonesia.”

Financial Accounting Standards Pillar (Pilar SAK) which effective on January 1, 2023 issued by The Financial Accounting Standards Board provides certainty and clarity for companies and other financial report preparers in the application of Financial Accounting Standards (“SAK”) in Indonesia.

The pillars of Financial Accounting Standards are also a solution for the subsidiaries of multinational companies in Indonesia that wish to prepare financial reports according to IFRS. The reason is that the provisions in the Financial Accounting Standards Pillar provide an option for entities to adopt SAK International, Indonesian Accounting Standards that fully adopt IFRS without any adjustments as in general SAK (IFRS convergence).

The categories of Financial Accounting Standards (SAK pillars) in Indonesia

The pillars of the Financial Accounting Standards define the types of SAK known as Pillars, as follows:

  • Pillar 1 International Financial Accounting Standards (full adoption of IFRS)

  • Pillar 2 of Indonesian Financial Accounting Standards (IFRS convergence SAK which was previously commonly referred to as general SAK)

  • Pillar 3 Financial Accounting Standards for Private Entities/Entities Without Public Accountability (ETAP)

  • Pillar 4 Financial Accounting Standards for Micro, Small and Medium Enterprises (EMKM)

Pillar 1 of the International Financial Accounting Standards is the SAK pillar which is a full adoption of the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The International Financial Accounting Standards are the result of translations of IFRS and there are no modifications or adjustments to the IFRS issued by the IASB.

Pillar 2 of the Indonesian Financial Accounting Standards is the SAK pillar which is the IFRS convergence issued by the IASB. Convergence of SAK to IFRS is carried out by issuing Indonesian Financial Accounting Standards that refer to IFRS with several adjustments to accommodate Indonesian conditions. These conditions include the existence of several IFRS which are not adopted in Indonesia because they are irrelevant and there are several modifications to the requirements in IFRS. The effective date of the statement of financial accounting standards (PSAK) in Pillar 2 of Indonesian Financial Accounting Standards which refers to IFRS applies later than the effective date of IFRS. Pillar 2 of Indonesian Financial Accounting Standards also accommodates several PSAKs developed to meet Indonesia's local needs. Indonesian Financial Accounting Standards are defined in PSAK 1 concerning Presentation of Financial Statements and PSAK 25 concerning Accounting Policies, Changes in Accounting Estimates, and Errors.

Pillar 3 of Indonesian Financial Accounting Standards for Private Entities/Indonesian Financial Accounting Standards for Entities Without Public Accountability applies to entities without public accountability. Pillar 3 also applies to entities with public accountability as long as the authorities have the authority to make regulations permitting the use of Indonesian Financial Accounting Standards for Private Entities/Indonesian Financial Accounting Standards for Entities Without Public Accountability by entities with public accountability. The Indonesian Financial Accounting Standards for Private Entities is a convergence of the IFRS for SMEs issued by the IASB. There have been several adjustments from IFRS for SMEs to suit Indonesian conditions and with Pillar 2 of the Indonesian Financial Accounting Standards. The Indonesian Financial Accounting Standards for Private Entities, which will replace the Indonesian Financial Accounting Standards for Entities Without Public Accountability, are effective for the financial year beginning 1 January 2025 with early adoption permitted.

Pillar 4 of the Indonesian Financial Accounting Standards for Micro, Small and Medium Entities is a standard that applies to micro, small and medium entities that meet the requirements as described in the Indonesian Financial Accounting Standards for Micro, Small and Medium Entities. The Indonesian Financial Accounting Standards for Micro, Small and Medium Entities are the simplest standards to provide convenience and accommodate the needs of the preparation of financial reports for micro, small and medium entities.

Sharia Accounting Standards

Statement of Sharia Financial Accounting Standards (PSAK) and Interpretation of Sharia Financial Accounting Standards (ISAK) Sharia PSAK and Sharia ISAK apply to sharia entities (as described in paragraph 5 Pillars of Financial Accounting Standards (SAK)) and to transactions with sharia principles. Sharia PSAK and Sharia ISAK can be applied to Pillars 2, 3, or 4 as long as they meet the requirements for implementing a transaction regulated in each pillar. PSAK Syariah and ISAK Syariah are not applied to Pillar 1 of International Financial Accounting Standards.

Accounting Standards Requirements

The SAK pillar stipulates that entities that have public accountability only have the choice to apply Indonesian SAK (IFRS convergence SAK which we usually refer to as general SAK) or International SAK. Meanwhile, entities that do not have public accountability can apply Pillar 3, namely SAK ETAP/Private Entities or Pillar 4, namely SAK EMKM.

Entities that have public accountability

According to SAK Pillars, an entity has public accountability if:

  1. Its debt instruments or equity instruments are traded on a public market or the entity is in the process of issuing such instruments for trading on a public market (domestic stock exchanges, or foreign stock exchanges or over-the counter markets, including local and regional markets); or

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  2. The entity holds assets in a fiduciary capacity for a diverse group of outsiders as its primary business (most banks, credit unions (savings and loan cooperatives), insurance companies, securities brokers/dealers, mutual funds, and investment banks meet the second criterion this).

Changes between the category of accounting standards

According to the SAK Pillars, shifting from one type of SAK to another type of SAK is only permitted from pillar 4 to pillar 3, pillar 2 or pillar 1 (going up to the pillar with higher requirements), while vice versa it is only permitted from pillar 1 to pillar 2, from International SAK to Indonesian SAK. These rules are established to maintain the consistency of financial reports.

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