Overview of Accounting Practice and Environment

The history of Indonesian Generally Accepted Accounting Principles began when the Indonesian Accountants Association (abbreviated to IAI), established in 1957, was appointed by the Government of Indonesia in 1984 to develop accounting standards in Indonesia to be used mostly for Limited Liability Partnership.

IAI then established a committee to develop accounting standards in Indonesia. This committee, which is responsible for developing and implementing the accounting standards, is called Dewan Standar Akuntansi Keuangan (DSAK).

Over the years, IAI has developed many accounting standards for various types of business practices in Indonesia. In October 2004, DSAK developed Indonesian Generally Accepted Accounting Principles that consist of Accounting Methods and Procedures for Financial Statements, Accounting Methods and Procedures for Financial Statement of Islamic Banking, 59 Statements of Financial Accounting Standards, and seven Interpretations.

The Indonesian Statement of Financial Accounting Standards is mostly based on the International Accounting Standards (IAS), which was recently changed to International Financial Reporting Standards (IFRS).

The second major source of the Indonesian Statement of Financial Accounting Standards is the United States Generally Accepted Accounting Principles. In addition to the above two sources, the IAI also pronounces their own Statement of Financial Accounting Standards such as Accounting Standard for Indonesian Venture Capital, Accounting Standard for Mining Industry, and Accounting Standard for Islamic Banking. The 59 Statements of Financial Accounting Standards consist of 43 General Statements, 15 statements for specific industries and one statement revised and merged with other General Statements.

Other than IAI, the Government of Indonesia also appointed BAPEPAM (Indonesian Securities Exchange Commission) to establish additional regulations, besides those established by IAI, designed specifically for publicly held corporations.

Presentation of Financial Statements
In compliance with government regulation, every limited liability Partnership in Indonesia should prepare its Financial Statements in accordance with the Financial Accounting Standards established by the Indonesian Accountants Association.

The Indonesian Financial Accounting Standards require that Financial Statements consist of an Income Statement, Balance Sheet, Statement of Equity, and a Note to the Financial Statement. With the exception of the Cash Flow Statement, Financial Statements must be prepared based on the accrual basis, and on the assumption that the company will remain in operation for the foreseeable future. Financial Statements should be prepared annually and audited by a registered public accounting firm if the company meets any one of

the following criteria:

• The company is utilising public funds.
• The company has issued obligations.
• The company is a publicly held corporation.

The Audited Financial Statements of a company that meets one of the criteria above should then be verified and signed by the Board of Directors, and published in the local Indonesian newspaper. Moreover, the Minister of Trade and Commerce requires the filling of the audited financial statements for every limited liability partnership that meets the following criteria:

• The entity is a publicly held corporation.
• The entity is utilising public funds.
• The entity has issued obligations or promissory note.
• The entity has total assets exceeding IDR 50,000,000,000.