A.

Introduction
Accounting is a system with data / information input and output in the form of
financial statement information that is useful for internal and external parties.
Accounting input is a transaction transaction or evidence. The accounting process is
an activity of identifying, recording, classifying and summarizing so as to produce
financial reports.
The financial accounting standards board or DSAK has the authority to set
Indonesian financial accounting standards and to approve interpretations of these
standards. PSAK is intended to be applied by profit-oriented entities. An entity's
financial statements provide information about performance, financial position,
changes in the entity, cash flows, notes on financial statements that are useful for
various users in making financial decisions. These users are investors and potential
investors, banks and creditors, suppliers, customers, governments, and the general
public. The financial statements also show the results of the management's
accountability for the use of the resources entrusted to them.
The basic framework according to PSAK presents the concepts that underlie the
preparation and presentation of financial statements for its users. PSAK is the
standard used for financial reporting in Indonesia. According to PSAK No. 1 financial
report is a structured presentation of the financial position and financial performance
of an entity.

B. Discussion

1. Financial Accounting Standard in Indonesia

 PSAK –IFRS (Standard Statement Financial Accounting based on IFRS)
 SAK ETAP (Financial Accounting Standards for Entities without Public
Accountability)
 PSAK SYARIAH (Standard Statement Financial Accounting based on
Islamic principles)
 SAP (Government Accounting Standards)
 SAK EMKM (Financial Accounting for Micro, Small, and Medium
Entities)
2. Development of Financial Accounting Standard in Indonesia
  In 1974: Indonesia follow US GAAP as accounting standard called PAI
(Indonesia Accounting Principle)
 1984: PAI is approved as Indonesia Accounting Standard
 1994: IAI agree to changes PAI to SAK and committed to follow IFRS
 1995-2012: IFRS being translated and adjusted to Indonesia PSAK, then
it will applied and called PSAK IFRS
 2002: IAI release PSAK SYARIAH, driven by rapid development of the
Islamic industry in Indonesia requires the existence of accounting
standards in accordance with needs sharia
 2009: IAI issued SAK ETAP, the number of small business units in
Indonesia requires standards accounting in accordance with the
business that are classified as still small and do not have public
accountability
 2010: SAP issued, government agencies also have an obligation to carry
out accounting standards in compiling financial reports
 2018: SAK EMKM issued, because SAK-ETAP has several accounting
requirements that are not or have not been able to fulfilled by Micro,
Small and Medium Enterprises (UMKM)

3. Basic concept in preparing and presenting financial statements According

to PSAK 1
a. Financial statements objective
The purpose of financial statements are to informing of; financial
position, financial performance and cash flows of the entity, which will
present information related to assets, liabilities, equity, income and
expenses including profit and loss, contribution and distribution to
owner, and cash flow. Then, all of those information will used by
financial statement users as a basis for making economic decision and
predict future performance of the entities. Financial statements are also
reflects the responsibility and accountability of management in the use of
resources that entrusted to them.

b. Components of financial statements

 A complete financial statement consists of:
1. Statement of financial position at the end of period
2. Statement of profit or loss and other comprehensive income during the
period;
3. Reports of changes in equity during the period;
4. Cash flow statement during the period;
5. Notes to financial reports; containing a summary of important
accounting policies and other explanatory information; and
comparative information to comply with the prior period
6. The statement of financial position at the beginning of the previous
comparative period; is presented when the entity applies an accounting
policy retrospectively or makes a restatement of financial statement
items, or when the entity reclassifies items in its financial statements
An entity may also present, separately from financial statements:
a. Financial review by management
It describes the main features of the financial performance and
financial position of the entity and the major uncertainties it faces,
such as;
 The main factors or influences that determine financial
performance, including changes in the environment in which
the entity operates, investment policies, etc.
 The entity's sources of funding and the ratio of liabilities to
equity
 Entity resources that are not recognized in the financial
statements in accordance with Indonesian financial accounting
standards
b. Reports on environment and reports on value added
It is usually preparing by entities where environmental factors
are significant and where employees are seen as a significant
financial user group.
c. Responsibility for preparing financial statement
Preparing financial statements of the company are the responsibility
of management. The financial statements were prepared by management
 in accordance with accounting standard applied in Indonesia, applied on
a consistent basis, and conform in all material respects with International
Accounting Standards. Management is responsible for the integrity and
objectivity of the financial statements. Estimates are necessary in the
preparation of these statements and, based on careful judgments, have
been properly reflected. Management also has to established systems of
internal control that are designed to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use, and to produce
reliable accounting records for the preparation of financial information.
d. General Characteristics
Fair presentation and compliance with SAK
1. Financial statements present fairly the financial position, financial
performance and flows of the entity
2. State explicitly compliance with SAK
3. Select and apply accounting policies in accordance with PSAK 25
4. Presents information including accounting policies
5. Provides additional disclosures
Going Concern
The entity prepares financial statements based on the going concern
assumption, unless management has the intention to liquidate the entity.
In preparing financial statements, management makes an assessment of
the entity's ability to maintain as a going concern. if management
becomes aware (in its judgment) of material uncertainty with respect to
events that give rise to significant doubt about the entity's capabilities,
the entity shall disclose that uncertainty.
Accrual Basis
An entity prepares financial statements on an accrual basis. Entity
recognizes items as assets, liabilities, equity, income and expenses. when
these items meet the definitions and recognition criteria based on the
framework for preparing and presenting the financial statements.
Materiality and Incorporation
The entity presents separately each material items. If an individual
item is immaterial, it can be combined with other items in the financial
statements or in the notes to the financial statements.
 Delete each other
An entity does not offset assets and liabilities or income and
expenses, unless required or permitted by PSAK. Because offset
financial statements can reduce the ability of financial users in
understanding the transactions or events, and to assess the company’s
future cash flow.
Reporting Frequency
When annual financial statements are presented for periods that are
longer or shorter than a period of one year, then in addition an entity
shall disclose:
 reasons for using the longer or shorter reporting period
 the fact that the amounts presented in the financial statements cannot
be compared as a whole
Comparative Information
Minimum Comparative Information:
 Presents comparative information relating to the closest previous period
for all amounts reported in the current period
 presents, at least two statement (Financial position, income, cash flow,
changes of equity, note related to financial statement)
Narrative and descriptive information will be presented only if it is
relevant with the current period off reporting.
Additional Comparative Information :
 Entities can present comparative information in addition to the minimum
comparative financial statements required by SAK, as long as this
information was prepared according to SAK.
 For example; entity may present three income and comprehensive
statement (current, closest prior, and additional comparative, but not
required to present an complete statements.
 An entity is not required to present three statements of (Financial
Position, Cash flow, changes of equity)
Changes in Accounting Policies, restatement, retrospective or
reclassification. An entity shall present a third statement of financial
position at the beginning of the prior period in addition to the minimum
 comparative financial statements if:
 The entity applies accounting policies retrospectively, makes
retrospective restatements of financial statement items or reclassifies
items in financial statements
 retrospective application, retrospective restatement or reclassification
has a material effect on the information in the statement of financial
position at the beginning of the prior period
When an entity is required to present an additional statement of
financial position, the entity must disclose the information required in
paragraph 44 of PSAK and PSAK 25: accounting policies, changes in
accounting estimates, and errors that govern adjustments to comparative
information required when the entity makes changes in accounting
policies or corrections to error.
e. Consistency of serving
The presentation and classification of items in the financial statements
between periods is carried out consistently, except:
 After there has been a significant change in the nature of the entity's
operations or a review of its financial statements
 These changes are required by PSAK
For example: a significant acquisition or disposal, or a review of the
financial statements will result in the conclusion that the financial
statements need to be presented differently. An entity changes the
presentation of financial statements only if those changes provide
reliable and more relevant information to users and the new structure is
likely to be used in perpetuity.

4. Identification of financial statements

The entity clearly identifies financial statements and distinguishes them from
other information in the same published document. The entity clearly identifies
each financial report and the notes to the financial report. In addition, the entity
presents the following information clearly, and repeats it as needed so that it can
be understood:
a) Name of financial reporting entity or other identity, and any changes in
 information from the end of the previous reporting period.
b) Is a financial statement of one entity or a group of entities.
c) The end date of the reporting period or period covered by the financial
statements or notes to the financial statements.
d) Reporting currency as defined in PSAK 52: Reporting Currency, and
e) Rounding used in presenting amounts in the financial statements.

5. Statement of Financial Position (Balance Sheet)

The minimum financial position statement includes the presentation of the
following items: fixed assets, investment property, intangible assets, financial
assets, investments using the equity method, inventories, accounts receivable and
other receivables, cash and cash equivalents, total assets classified as assets held
for sale and assets that are classified as classified as held for sale in accordance
with PSAK 58 (revised 2009): Non-current Assets Held for Sale and discontinued
operations, trade and other payables, fees, financial liabilities, liabilities and
assets for current tax as defined in PSAK 46: Accounting for Income Tax,
deferred tax liabilities and assets, liabilities that are classified as classified as held
for sale in accordance with PSAK 58 (revised 2009), non-controlling interests are
presented as part of of equity, and share capital and reserves attributable to to the
owner of the parent entity.
The difference between current and non-current assets and short-term and
long-term liabilities, an entity presents current and non-current assets and short-
term and long-term liabilities as separate classifications in the statement of
financial position, unless a presentation based on liquidity provides more relevant
and reliable information. If the exception is applied, the entity shall present all
assets and liabilities based on liquidity. Regardless of the presentation method
used, an entity shall disclose the amount expected to be recovered or settled after
more than twelve months for each asset and liability item that combines the
amounts expected to be recovered or settled:
a) Not later than twelve months after the reporting period; and
b) More than twelve months after the reporting period.
Current assets, an entity classifies assets as current assets, if:
a) The entity expects to realize the assets, or intends to sell or use them, in the
normal operating cycle;
b) the entity has assets for trading purposes;
c) the entity expects to realize the assets within twelve months after the reporting
period; or
d) Cash or cash equivalents (as stated in PSAK 2 (revised 2009); Statement of
Cash Flows), unless the asset is restricted from exchange or use to settle
liabilities for at least twelve months after the reporting period. An entity shall
classify assets that are not included in that category as non-current assets.
Short-term liabilities, a liability is classified as a current liability if:
a) the entity expects to settle the liability in its normal operating cycle;
b) the entity selects the liability for this purpose;
c) The liability is due for settlement within twelve months after the reporting
period; or
d) The entity does not have an unconditional right to postpone settlement of the
liability for at least twelve months after the reporting period.
An entity classifies liabilities that are not included in this category as long-
term liabilities.

6. Comprehensive Income Statement

An entity shall present all items of income and expense recognized in one
period:
a) In the form of a comprehensive income statement, or
b) In the form of two reports:
Ø A report that shows the components of income (separate income
statement); and
Ø The report begins with profit or loss and shows the components of other
comprehensive income (comprehensive income statement).
The information presented in the statement of comprehensive income, the
statement of comprehensive income at least includes the presentation of the
number of items following the period:
a) Income;
b) Financial costs;
c) Portion of profit or loss from associates and joint ventures is recorded using the
equity method;
d) Tax burden;
e) A single amount that includes the total of; profit or loss after tax from
discontinued operations and profit or loss after tax that is recognized at fair value
less costs to sell or from disposal of assets or groups that were disposed of in the
context of discontinued operations).
f) Profit and loss;
g) Any component of other comprehensive income that is classified according to
its nature.
h) Portion of other comprehensive income from associates and joint ventures
which is accounted for using the equity method, and
i) Total comprehensive income.

7. Statement of Changes in Equity

An entity shall present a change in equity that shows:
a) Total comprehensive income for the period, which shows separately the total
amount attributable to owners of the parent entity and to non-controlling interests.
b) For each component of equity the effect of retrospective application or
retrospective restatement recognized in accordance with PSAK 25 (revised 2009):
Accounting Policies, Changes in Accounting Estimates, and Errors;
c) For each component of equity, a reconciliation between the carrying amounts
at the beginning and the end of the period, separately discloses each change
arising from; profit or loss, other items of comprehensive income, and
transactions with owners in their capacity as owners, which show separately the
contributions of owners and distributions to owners and changes in ownership
rights in subsidiaries that do not result in loss of control.

8. Cash Flow Statement

Cash flow information provides a basis for users of financial statements to
assess the entity's ability to generate cash and cash equivalents and the entity's
needs to use these cash flows. PSAK 2 (revised 2009): Statement of Cash Flows
establishes the requirements for the presentation and disclosure of cash flow
information.

9. Notes to Financial Statements

The structure of the notes on the financial statements is as follows:
 a) Presents information about the basis for the preparation of financial
statements and certain accounting policies used.
b) Disclose information required by SAK that is not presented anywhere in
the financial statements, and
c) Provide information that is not presented elsewhere in the financial
statements, but that information is relevant to understanding financial
statements.
An entity, to the extent practicable, presents notes to financial statements
in a systematic manner. An entity makes cross-reference for each item in the
statement of financial position and statements of comprehensive income,
separate income statement (if presented), statement of changes in equity, and
cash flow statement for related information in the notes to financial
statements.

10. Other disclosures

An entity shall disclose in the notes to the financial statements: a) the amount
of dividends proposed or declared before the financial statement adjustment date
but not recognized as distributions to owners during the period and the amount of
dividends per share; and b) the amount of the cumulative preferred dividend that
is not recognized. An entity shall disclose the following, if not disclosed
elsewhere in the information published together with the financial statements: a)
domicile and legal form, country of incorporation, address of the entity's head
office (or main location of business, if different from location. office), b)
description of the nature of its main operations and activities, c) name of the
parent entity and name of the last parent entity in the group, and d) for entities
that have a limited life, information about the length of life of the entity.

C. Case
Case 13.2 The issue of terrorism insurance, or the lack of it, raises some
questions in relation to financial reporting.
The 11 September 2001 terrorism attacks in the United States resulted in the
single largest economic loss in the history of USA. The insured losses have been
estimated at between US$40 billion and US$50 billion. Before the attacks,
insurance companies did not treat possible losses from terrorist activity
differently from general property and liability coverage. Since then, however,
insurance companies have begun recognizing the risk of acts of terrorism, and
insurance coverage has become difficult to obtain.
Questions :
1. Consider the definition of a liability provided in the Framework. Would be
potential loss from terrorist activity meet this definition? Why or why not?
2. Should be potential loss be recognized in the financial statement? In your
answer, consider the recognition criteria included in the framework.
3. Do you recommend that a company’s lack of terrorism insurance be disclose
to investors?
4. Explain whether the concepts of relevance and reliability are useful when
deciding about disclosure in this situation?

Answer :
From the conceptual framework, we can define a liability as a present
obligation of the entity arising from their past events, the settlement of which is
expected to result in as the outflow from the entity of resources embodying
economic benefits.
In IAS 37, it is also stated that, the obligating event is defined as the event
that creates a legal or constructive obligation that results in an entity doesn’t have
realistic alternative to settle their obligation. From the conceptual framework
definitions of financial statement elements , it consistently requires that the
recognition of each element depend on two criterion
1. Whether it is a probable that any future economic benefits associated with the
item will result as flow to or from the entity, and
2. The item as a cost or value that can be measured with reliability.

The probability criterion requires in assessing whether the existence of the

element is more likely or less likely to be happened. In the other words, a
probability excess of 50% should be required before an element is recognized.
From this explanation, we can see that acts of terrorism was not expected to
be happened or less likely considered as this massive before 9/11 happened. The
fact that this attack resulted economic loss as US$ 40-50 billion, it must be a big
 change through entities in considering this as their liability. Whether it should be
recognized in the financial statements, it depends on how possibly this act of
terrorism could happened, that should be measured in such reliable way. Since
terrorism still became a big threat for any entity, especially in US, they now must
be aware for any future terrorism attack that could be possibly happened which
result as an outflow from their resources.

We do recommend that a company’s lack of terrorism insurance be disclosed

to investors, because we realize that the act of terrorism is so odds yet potential
resulting into big losses for entities in such unpredictable way, and the exact
potential liability is enormous. The combination of uncertainty and potentially
huge losses makes us believe the need of terrorism act insurance be disclosed for
investors.

From the concept of relevance in accounting, we can see that it defined as

any information that is capable of making a difference to the decisions made by
users. Capable in this term defined as if it has predictive value or confirmatory
value. Meanwhile, reliability defined as information that possible, complete,
neutral, and free from error. Therefore, the concept of relevance of reliability in
this case is very needed. The act of terrorism could result in huge losses which
affects decision making, and entity need to asses the predictive or confirmatory
value due to this act in such faithful way. It is expected that liability being
measured for the act of terrorism should be in manner with accounting conceptual
framework.

D. Conclusion
The purpose of financial reports is to provide information that is useful in
making economic decisions. The objective of PSAK 1 is to present general
purpose financial statements, which are then discarded as financial statements so
that they can be compared to any previous period's financial statements with the
financial statements of other entities. This Statement sets out the requirements for
the presentation of financial statements, the structure of financial statements, and
the minimum requirements for the content of financial statements.
E. References
http://staff.blog.ui.ac.id/martani/files/2014/04/ED-PSAK-1.pdf
IAI. (2014). PSAK 1. Jakarta. DSAK
https://www.ppak.co.id/dokumen/artikel-berita/Perkembangan%20SAK%20di%2
0Indonesia.pdf
http://www.transformasi.net/articles/read/156/psak-1-penyajian-laporan-
keuangan.html
http://iaiglobal.or.id/v03/standar-akuntansi-keuangan/halpernyataan-2.html
Godfrey, Jayne.(2006). Accounting Theory 6 th Edition.