IFRS Adoption Process: A Case Study in PT. Total Bangun Persada Tbk.

Hapsari Widayani
Mailany
Ulfah Khairrunnisa
Gunadarma University
Margonda Raya 100 St., Pondok Cina Depok, Indonesia
Email : ulfahkhairrunnisa@yahoo.com
ABSTRACT
This research is motivated by the existence of global financial reporting
standards (IFRS). IFRS is considered to have many benefits for entities in the
implementation. There are many problem for adopting IFRS in Indonesia, it makes the
adoption of IFRS in Indonesia become a major concern for business in Indonesia. This
study aims to analyze the process, constraints, and the benefits of adopting IFRS on
multinational entity in Indonesia. This study analyzes the processes, constraints, and the
benefits of adopting IFRS on the PT. Total Bangun Persada Tbk., as one of the
multinational entities in Indonesia. The method used in this research is descriptive
qualitative method, with the case study approach. The results of this study show that the
adoption of IFRS in the PT. Total Bangun Persada Tbk., not yet full , and there are some
constraints on the process of adoption. However PT. Total Bangun Persada Tbk., feel the
benefits from the adoption of IFRS, one of them is the financial statements that produced
by their entity have a better quality and relevant.
I. Introduction
Globalization that occurred lately encouraged the company to make changes in
the economy, especially in making listing on various capital markets in the world. To
make the listing, a good and transparent financial statements are certainly is certainly
needed. In the business world, financial reporting is mandatory to be done by the
business, especially for multinational companies. Indonesian company have made a lot of
financial statements in accordance applicable accounting standards in Indonesia. A
financial report should provide information that is both informative and open in order to
produce a qualified financial statement information. Soewardjono in Melinda (2014)
stated that the financial statements can produce quality information if those statements
are relevant (relevance) and reliable (reliability).
The information in the financial statements have relevant quality if the user can
affects economic decisions by helping them to evaluate past events, present, or future,
affirm, or correct the results of their evaluation in the past. Relevant financial accounting
information is relevant and has an influence on economic decisions using financial
accounting information (Sutaryo, 2009). In addition, a financial statements is qualified if
they have reliability (reliability). Besides relevant, the financial statements can be
categorized as qualified financial reports if they have reliability (reliability). Information
has reliability (reliable) if the information is free from misleading sense, material errors,
and reliable user as a sincere and honest presentation (Representation faithfulness) or
presented fairly (Lutfi, 2013). Qualified financial reports visible from decreased earnings
management practices and the increasing of relevance accounting information.
(Dimitropoulus in Melinda, 2014) stated that higher quality of financial reporting
information provided when companies using IFRSs (IFRS Convergence) instead of using
local standards or standards that are applied by a country. International Financial
Reporting Standards (IFRS) are standards, interpretations and the basic framework of the
preparation and presentation of financial statements (in the absence of standards or
interpretations) adopted by the international accounting standards board. On the other
hand IFRS is an effort to strengthen the global financial architecture and looking for a
long-term solution to the lack of financial transparency in Aprilicia Dewangga (2014).
The purpose of the adoption of IFRS is a lack of transparency for the users and can be
compared to all the periods presented, provide an adequate starting point for accounting
under IFRS, and can be produced at a cost that does not exceed the benefits to the users
(Aprilicia, 2014).
According Daske et al (2008) Indonesia as a member of the G-20 agreed to adopt
IFRS as its financial reporting standards as a substitute for GAAP. Agreement to use the
IFRS for companies listed on the stock exchange (listed companies) is one of the most
significant changes in the history of accounting regulation.
In addition to purposes as in the previous paragraph, IFRS has several benefits
that investors can make better decisions, the company can improve the decision-making
process about mergers and acquisitions, and the best ideas arising from the standards
creation activities can be deployed in developing a qualified global standards (Aprilicia,
2014). IFRS also have impact for both investors and creditors. The impact of the adoption
of IFRS for investors is that it can reduce the cost of processing information for investors.
Cost reduction will improve the efficiency of information processing which reflected in
the price in the stock market so that investors will benefit from an increase in market
efficiency (Natalia, 2010). The impact of the adoption of IFRS for creditors is broadening
regulatory financial reporting can provide enough information so that creditors get a good
understanding of the capacity of the company to meet its obligations such as the ability to
pay periodic bills and repayment at maturity Baskerville in Natalia (2010).
Based on the description above, the researcher is interested to do some research,
entitled "Adoption of IFRS: A Case Study at PT Total Bangun Persada Tbk". The
objectives of this research is to determine extent to which the adoption of IFRS by PT
Total Bangun Persada Tbk, as well as the benefits perceived by PT. Total Bangun
Persada Tbk after the adoption of IFRS.
1.2 Problem Formulation
Formulation of the problem of this research are:
1. How does the process of adoption of IFRS on the PT. Total Bangun Persada Tbk.?
2. The extent to which PT. Total Bangun Persada Tbk. adopt IFRS?
3. What are the disadvantages and benefits in the adoption of IFRS on the PT. Total
Bangun Persada Tbk.?
1.3 Research Objectives
This study aims to analyze the process of adoption of IFRS on multinational companies
listed in Indonesia Stock Exchange (IDX), in this case we specialize in PT. Total Bangun
Persada Tbk. as one of the multinational companies. This study also aimed to determine
the effect appears as the adoption of the International Financial Accounting Standards
(IFRS) as standard recently introduced in Indonesia.
II. Literature Review and Hypothesis Formulation
2.1 Financial Report
2.1.1 Definition of Financial Statements
Accounting is a service activity whose function is to provide quantitative
information, particularly about financial entities estimated economic useful in
decision making. In accordance with this purpose, the accounting information
should be presented objectively so that relevant and accountable to the taken
decisions. The accounting information provided in the form of reports, one of
them is financial statements. Financial statements is a report that is designed for
decision-makers, especially for the external company, about the financial position
of an entity during the period. Financial Statements of is a final instrument of the
accounting process that becomes a medium for an entity to communicate financial
information and provides an overview of the condition and characteristics of an
entity to the internal and external entities. For an entity, a published financial
statements may be the best way to communicate and promote their entities to
investors.
2.1.2 Objective of Financial Statements
According to Financial Accounting Standards (IFRSs) issued in 2007 by the IAI,
the purpose of the issuance of financial statements is to provide information
concerning the financial position and changes in financial position itself. All the
reports that have been prepared are aimed at users financial statements. Financial
statements issued by the company will help the shareholders, creditors, suppliers,
employees, regulators, and particularly investors to determine the position and
performance of the company (Maulana and Mukhlisin. 2011).
2.1.3 Benefits of Financial Statements
In the Statement of Financial Accounting Concept (SFAC) No. 8 Which replaces
SFAC No. 1, stated the benefits of financial statements, namely that financial
reporting should provide information that is:
Can help investors, creditors and other potential users in making other similar
decisions rationally.
Can help investors, creditors and other potential users in estimating the
amount, timing and uncertainty of cash receipts in the future are derived from
the distribution of dividends or interest payments and income from sales.
Contains the economic resources of the company. Claims over resources to
the company or the owners of capital. Contains the achievements of the
company during the period. Investors and creditors often use past information
to help assess the company's prospects.
2.1.4 Components of Financial Statements
Proper financial report consists of five components, i.e.:
Balance Sheet / Statement of Financial Position
Income Statement / Statement of Financial Performance
Statement of Changes in Equity
Statement of Cash Flows
Notes to the financial statements position
2.1.5 Qualitative Characteristics of Financial Statements
A financial statements can be said to be qualified and helpful if the report fulfill
qualitative characteristics of financial statements. Qualitative characteristics of
financial statements consist of :
Relevant (Relevance)
Relevance of the information should be associated with the proposed use. If the
information is not relevant for decision makers, the information would be useless,
although other qualities are fulfilled.
Understandable (Understandability)
Information should be understood by users, and stated in the form and terms that
can be understood by users (an understanding/knowledge of the economic
activities of the company, financial accounting processes, as well as the technical
terms used in the financial statements.
Power Test (verifiability)
Measurements cannot be completely separated from the subjective judgment and
opinion. it is related to human involvement in the process of measurement and
presentation of information, so the process is no longer based solely on objective
reality. To increase the benefits, the information should verifiable by an
independent measurement using the same measurement method.
Neutral (Neutrality)
Information should be directed to the general needs of the user, and does not
depend on the needs and desires of certain parties, in the sense that the
information should not be present for the benefit of certain parties and harm
others who have similar interests.
Timely (Timeliness)
Information should be submitted as early as possible to be used as a basis to help
in making economic decisions and to avoiddelays in the decision making.
Power of Appeals (Comparability)
Information in the financial statements would be more useful when it can be
compared with the previous period's financial statements from the same company,
as well as the financial statements of other companies in the same period. the
existence of alternative methods of accounting practices complicate achievement
of comparability between companies; for it by applying the same accounting
method from year to year, or better known as the principle of consistency.
Complete (Completeness)
Complete accounting information include all of the financial accounting data that
can adequately fulfill six qualitative objectives above ; can also be interpreted
fulfillment adequate disclosure standards in financial reporting so it will not
mislead readers. For it then there should be a classification, arrangement, and
decent terms in the financial statements. Facts or additional information that can
influence behavior in decision-making, should clearly disclosed.
Because of financial statements is intended primarily for external interests, it is
very necessary for financial statements to be prepared in accordance with international
standards to improve the quality of financial statements and the information contained
therein. To achieve these objectives, the International Accounting Standards Board
(IASB) published A Principle-Based Standards known as International Financial
Reporting Standards (IFRS), previously known as International Accounting Standards
(IAS).
2.2 International Financial Reporting Standard (IFRS)
2.2.1 Adoption of IFRS
International Financial Reporting Standard or commonly referred to as IFRS
developed by the IASB (International Accounting Standards Board) on the basis
of the need for high-quality accounting standards and can be applied globally.
IFRS is a single reporting standard accounting emphasis on assessment
(revaluation) professionals with a clear and transparent disclosures regarding the
economic substance of the transaction, an explanation to reach a certain
conclusion, Kustina (2012). The adoption of IFRS is considered to increase
disclosure and comparability of financial information compared with previous
standards, i.e. US GAAP. US GAAP is a standard which is based on the rules,
while IFRS is a standard which is based on the principle. According Cahyati
2011, principles-based standards provide advantages in allowing managers to
choose accounting treatment of transactions or events that reflect underlying
economic, although the opposite can happen. Could be argued as the IFRS
standards that are based on the principle considered to be more consistent with the
objective of financial statements due to, IFRS could illustrate actual events in the
company.
IFRS adoption is the adoption of national standards if it is same already as the
IFRS can be left and move towards full implementation of IFRS. According
Simbolon in Patralalita (2014) in the adoption of IFRS has three main stages are
carried out in the convergence program i.e. adoption phase (2008-2010), the final
preparation phase (2011), stage of implementation (2012). In addition to the three
stages of the level of adoption of IFRS is also divided into several levels. The
level according DSAK in Patralalita (2014) i.e.:
(a) Full Adoption
An entire country adopts IFRS standards IFRS and exactly translate into the
language of the country use.
(b) Adapted
An entire country adopts IFRS but adapted to the conditions in the country.
(c) Piecemeal
A majority of states simply adopt IFRS numbers ie certain standard number
and choose certain paragraphs.
(d) Referenced (Convergence)
As references, the standard applied only refers to certain IFRS with language
and paragraphs are compiled by standards-making body.
(e) Not-adopted at all
A country did not adopt IFRS.
In Indonesia, the full adoption of IFRS beginning J anuary 1, 2012 adoption of
IFRS in Indonesia still maintains Indonesian Financial Accounting Standards which are
based on US GAAP. Indonesia tries to minimize the significant differences between
IFRS with GAAP, by making some modifications based on the Exposure Draft of SFAS.
III. Research Methods
The method used in this study is a qualitative method with descriptive research.
This study focuses on the adoption of IFRS on the PT. Total Bangun Persada Tbk as one
of the multinational companies, as well as the benefits of adopting IFRS for the entity.
The data used in this study is primary data, which is obtained by submitting a
questionnaire related to the adoption of IFRS on the entity, the entity's internal parties,
Accounting Manager of PT. Total Bangun Persada Tbk as the party who is intimately
involved in the process of adopting IFRS on the entity.
IV. Result and Discussion
IFRS adoption stage in Indonesia has actually been done in the year 2008 to the
year 2010 on the stage made the whole adoption of IFRS to GAAP, prepare the necessary
infrastructure, and evaluate and manage the impact of the process. In 2011 Indonesia
embarked on the preparatory stage IFRS implementation, which characterized by several
IAS IFRS-based application while full IFRS implementation phase has been carried out
in 2012. Now IFRS implementation is very important for the entities, especially entities
that have been categorized as a multinational entity. Considering the number of
significant impact on the implementation of IFRS, e ntities are now beginning to do a lot
of preparation in the process of adopting IFRS.
Preparations which performed at PT. Total Bangun Persada Tbk in the process of
adoption of IFRS is to improve the knowledge of human resources in the entity by way of
involving their employees in seminars related to the adoption of IFRS. On another
occasion, PT. Total Bangun Persada Tbk has sent their Finance Director to attend
workshops held by the Indonesian Institute of Accountants (IAI) on the convergence of
IFRS.
Implementation of IFRS, it is not easy for some stakeholders, there are several
constraints incurred. In adopting IFRS, a new understanding is needed by the human
resources about the new system will be implemented, so that consulting services are often
needed in this case. PT. Total Bangun Persada Tbk has a different assumption, they do
not use the services of a consultant in the process of adopting IFRS. Emphasize their
entities to the understanding of human resources to the new system, by involving their
employees to seminars and workshops. This method will be very effective for the entity,
because the knowledge and skills acquired by human resources will make the human
resources more competent, compared with using the services of a consultant which will
charge an additional fee to the entity and not any added value for human resources they
have. So far, human resources at PT. Total Bangun Persada Tbk know enough about
international financial reporting standards (IFRS). This of course is the result of the
efforts of entities in developing and improving the quality of human resources in their
entity.
IFRS is a new standard which was created to make uniformity in the financial
reporting entity in each country. IFRS are global and are created with a global language
widely applied by many countries, English is the main language in this new standard.
Indonesia, as one of the countries which will implement IFRS in financial reporting
standards are also very concerned about this. Language is considered to be one of the
obstacles that exist in the process of IFRS implementation in Indonesia. It takes a good
understanding of the language so that intent of the new standard will be conveyed
properly. Besides language problems, the readiness of Indonesian human resources in the
process of adoption of IFRS is also become a problem. Human resources should
understand both the intent and purpose of this new standard. One of the difficulties for
human resources in Indonesia is the translation of IFRS. Still there are some other
obstacles in the process of adoption and implementation of IFRS for entities, among other
issues in the information system, accounting system problems, and cost issues.
These constraints are cannot denied by PT. Total Bangun Persada Tbk.
Constraints which has been very powerful by PT. Total Bangun Persada Tbk including
constraints on information systems and the existing accounting systems. Change a
standard, will obviously affect the information system has been used on an entity. For
instance in the adoption of IFRS, the IFRS convergence IAS 1 on the presentation of
financial statements, the entity will be forced to change the system information that has
long been is a tool which they use to make financial reporting. Significant changes to the
entity's information system based on the convergence of IFRS IAS 1 is the change in the
chart of accounts on the system. Changes in Chart of accounts on the system becomes
very important, because it becomes part of the basis of the input process transactions
relating to the entity's operations. In essence, required further review of the new standards
to change any part of the information system. In addition, IFRS also impacts the
accounting system which has long been applied by the entity, there are some things that
should no longer be applied also requires entities to change the accounting system has
been applied over the years. In this case the readiness the human resources needed to
understand the new system. Although it is an obstacle for PT. Total Bangun Persada Tbk,
the entity has yet to decide to change the information systems that have been used.
Behind of the existence of these constraints for entities, IFRS also had a positive
impact. PT. Total Persada Tbk Build. The positive impact perceived by PT. Total Build
Persada is produced higher quality financial statements and relevant. This is consistent
with the results of the study by Paglietti (2009) who found that after the adoption of IFRS
profit and book value of equity increased value relevance of accounting information. The
increase in the value relevance of accounting information would make the value of the
entity will also increase in the future.
V. The Conclusions and Suggestions
The Conclusions
The adoption of IFRS on the PT. Total Bangun Persada Tbk., conducted with the
good preparations. The main preparations that made by PT. Total Bangun Persada Tbk. is
improve the understanding of the entitys human resources and implementation of IFRS.
The process for improved a human resources understanding is involved human resources
at seminars and workshop in Indonesian Institute of Accountants (IAI). The stages of
IFRS adoption in PT. Total Bangun Persada Tbk., currently has not reached the full
adoption stage, because until now PT. Total Bangun Persada Tbk., has not decided to
change the information system that used in their entity. Consider to the full of adoption of
IFRS that are many changes contained in it, indirectly also require entities to make a
changes too, especially in their used information system. It is also become a constrain for
PT. Total Bangun Persada Tbk. Moreover IFRS also impactedthe accounting system that
has long been applied by PT. Total Bangun Persada Tbk. IFRS also had a positive impact
for PT. Total Bangun Persada Tbk. The positive impact for PT. Total Bangun Persada
Tbk., is their financial statement have a better quality and more relevant.
Suggestions
On the basis that there are some limitations in this study, further research is
suggested to explore many other interesting things about the adoption of IFRS, especially
in multinational entity. Further research also suggested other problems in the process of
adoption of IFRS is conducted by the entity.
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