Financial Crime World

Indonesia’s Financial Reporting Framework Sees Major Overhaul

The Indonesian Financial Services Authority (OJK) has announced a series of significant changes to the country’s financial reporting framework, aimed at improving transparency and consistency across the industry. The amendments came into effect on January 31, 2023.

Changes to Key Standards

The following key standards have been updated:

  • PSAK 107 Ijarah Accounting
  • PSAK 109 Accounting for Zakat, Infaq, and Alms
  • PSAK 101 Sharia Financial Statements Presentation
  • PSAK 73 Lease Liability in a Sale and Leaseback

Ijarah Asset Recognition

The amendments to PSAK 107 introduce new guidelines for recognizing ijarah income and expense. Specifically:

  • Ijarah income is recognized evenly from when the asset is made available until the end of the contract.
  • Ijarah expense is recognized evenly during the period the asset is used.

Zakat, Infaq, and Alms Accounting

PSAK 109 has been updated to require entities managing Zakat and Infaq/Alms assets to:

  • Recognize changes in fair value as income or expense.
  • Recognize differences between cash proceeds from sale of non-cash assets and their recognized amounts as income or expense.

Sharia Financial Statements Presentation

The amendments to PSAK 101 remove the “statement on changes in assets under management” from the financial statements of amil entities (entities that manage Zakat and Infaq/Alms), which will now be disclosed in the notes to financial statements.

Sale and Leaseback Transactions

PSAK 73 has been updated to introduce subsequent measurement requirements for sale and leaseback transactions that satisfy the requirements of PSAK 72 Revenue from Contracts with Customers. The amendments aim to prevent sellers-lessees from recognizing gains or losses relating to the right-of-use retained solely due to a remeasurement of the lease liability.

Key Considerations

Entities affected by these changes are advised to consider the following key issues:

  • Whether their existing accounting policies for subsequent measurement of leaseback liabilities align with the amendments.
  • The impact of variable lease payments on sale and leaseback transactions.
  • The need to recognize related deferred tax assets and liabilities arising from simultaneous recognition of asset and liability.

The amendments are generally adopted from international standards issued by the International Accounting Standards Board (IASB).