Psak 71,72,73

18/12/2019
Training on PSAK 71, PSAK 72

and PSAK 73
PT Suzuki Indomobil Motor
(“Suzuki”)
19 December 2019
Agenda
Introduction
PSAK 72 – Revenue from contracts with customers :

 Five Step Model
 Application Guidance
 Case Study
 Presentation and Disclosures
 Transition Option
 Summary of PSAK 72
PSAK 71 – Financial Instruments

 Overview of PSAK 71 “Financial Instrument”
 Classification and Measurement (BM & SPPI)
 Impairment
 Hedge Accounting
PSAK 73 – Leases
 Overview of PSAK 73 “Leases”
 Lease Definition
 Lessee Accounting
 Subsequent Measurement
 Case Study
Plan for Implementation and System Consideration
Closing © 2019 KPMG Siddharta Advisory is an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
2
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Document Classification: KPMG Confidential
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18/12/2019
Future of Financial Reporting
Reaction to PSAK 71, 72 and 73
© 2019 KPMG Siddharta Advisory is an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
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Introduction
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Introduction
Our Presenters
KPMG Indonesia
Teck Wee Oh Michelle Iman

Trainer Trainer
Accounting Advisory Accounting Advisory
Aulia Rahman
Trainer
Accounting Advisory
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Introduction
Overview of Accounting Advisory Services

• Assist client to convert their current primary • Compensating for temporary or permanent
accounting standard (e.g.PSAK) to international shortages in team size and/or staff in preparation of
standard (e.g.IFRS). financial statements and annual reports.
Conversion Statutory
• Assist client in handling impact of the conversion, • Undertaking the preparation of books of account on
i.e. system, process, etc and Accounting and behalf of clients.
Accounting Bookkeeping
Change Services Compliance
• Assisting clients with documentation and
preparation requirements before, during and • Assist client to improve their financial
after regulatory and/or statutory audits reporting process, e.g. set-up reporting
• Assistance with special accounting and procedures, advise client on account
reporting projects mapping, accounting and financial
Financial
• Enhancing client teams with specialist skills to Audit Readiness Accounting Reporting
reporting reconciliation, CoA, Accounting
compensate for temporary shortages in team manual, reducing reporting timeliness.
and Accounting Advisory
size and/or quality. Process • Assist client design/update of regulatory
Co-Sourcing
• Technical Accounting and Regulatory
Accounting and Reporting
Service Advisory reporting processes in all regulated
industries
• This may be conducted in the form of assisting
a client project work stream in an advisory
project or staff secondment or staff loans
Specific Training
• Assist client based on their needs, such as staff
Ad-Hoc Solutions • Provision of technical training on accounting and
secondment/staff loan, hedge accounting, Services financial reporting frameworks, including
integrated reporting, statutory accounting and workshops in a classroom or an e-learning
bookkeeping compliance, pre and post deal, etc. environment
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Introduction
Overview of Training Course

Course Goals Presenters
 To acquire a fundamental understanding of PSAK 72  Presentation will involve several

“Revenue from Contract with Customers”, PSAK 73 consultants over the duration of the
“Leases” and PSAK 71 “Financial Instruments”. course
 To obtain understanding on PSAK 72, PSAK 73, and

PSAK 71 impact on financial report
 To provide insights on adoption plan ahead
Training Scope
 1 day training workshops
 Theory and case studies
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Introduction
Why Are These Important

Impact of PSAK 72:
• Requires organizations to make a distinction between the different elements in the contract, and
recognize revenue for each of them based on a separate pricing;
• The change in timing of the revenue recognition affects bonuses, targets, KPIs, corporate income tax,
external relations, loan covenants, regulatory requirements and more; and
• Extensive disclosures are required such as a movement schedule of contract balances.
Impact of PSAK 73:

• The new standard will require lessees more significant effort to do more than simply convert its
existing operating lease commitments disclosure to reflect lease assets and liabilities;
• The new standard requires the application of judgement and estimations;
• Number of accounting policy elections that may be made, both at transition and for the accounting
post-transition, this will also require companies to update their policies and manuals; and
• The new standard will increase EBITDA, operating profit and finance cost, lease assets, and financial
liabilities, but it will decrease net profit in early years and net assets.
Impact of PSAK 71:

• More income statement volatility. It raises the risk that more assets will have to be measured at fair
value with changes in fair value recognized in profit and loss as they arise;
• Earlier recognition of impairment losses on receivables and loans, including trade receivables. Entities
will have to start providing for possible future credit losses in the very first reporting period a loan
goes on the books – even if it is highly likely that the asset will be fully collectible.
• Significant new disclosure requirements
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Introduction
Managing Financial Reporting Impact

A sea of change in financial reporting requirements
Today
PSAK 72 Revenue Recognition:

• Effective 1 Jan 2020
• Impacts all non-financial institution, most
predominantly software, engineering,
construction, etc
• Requires significant reporting changes to
entities affected
PSAK 71, PSAK 72 and PSAK 73 Implementation

Period
NOV DEC JAN FEB MAR APR

2019 2019 2020 2020 2020 2021
PSAK 73 Lease:
• Removal of operating lease for lessee
• Significant impact to transport, retail, logistic
companies.
• Requires additional process and system to
track leases under the new requirements
PSAK 71 Financial Instruments:

• Impacts corporates with large treasury as it
allows more flexibility in hedging
• Higher provision for receivables
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Introduction
Key Impacts
Change in revenue Higher EBITDA, EBIT,
Revenue pattern will Bad debt provision
allocation to different and net debts, but
change – some will increase given the
business units and lower net profit in
revenue deferred and change in
products may impact early years and lower
some accelerated methodology
divisional KPIs net assets
Many ratios will

New policy, change, including
Significant new Less P&L volatility
governance, process leverage ratio, which
disclosure from hedging
and controls needs to may impact debt
requirements activities
be put in place covenant and
borrowing capacity
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Kahoot
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PSAK 72: Revenue

from Contracts with
Customers
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Five-Step Model
PSAK 72 : Revenue from Contracts with Customers
The Five-Step Model of Revenue

1 2 3 4 5
Identify the Identify the Determine Allocate the Recognise

contract(s) with separate the transaction transaction revenue
a customer performance price price to the when (or as)
obligations in separate you satisfy a
the contract performance performance
obligations obligation
Do we have What do I need What do I Split it up Have I

a binding deal to deliver? expect to get earned it?
with a paid?
customer?
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Step
PSAK 72 : Revenue from Contracts with Customers 1

... collection of consideration is ... rights to goods or services and
considered probable. payment terms can be identified.
A contract
exists if...
... it is approved and the parties are

committed to their obligations.
... it has commercial substance.
If an entity determined that there is no contract, revenue cannot be recognised.
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Step

Does a contract exist ?
If…
o Company agrees to deliver product to customer without
purchase order (verbally order) ?
o Company agrees to deliver product to customer with
purchase order received lately ?
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Step
Identify POs in the contract

A performance obligation (PO) is a promise to deliver a good or service that meets
both the following criteria:
Criterion 1: Can the customer

Criterion 2: Is the promise to
benefit from the good or
transfer the good or service
service either on its own or
separately identifiable from
together with other resources
other promises in the
that are readily available to the
contract?
customer?
Yes No
Distinct performance Not distinct – combine with

obligation other goods and services
Timing and pattern of revenue recognition may differ depending on when the particular
performance obligation is fulfilled.
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Step
Identify POs in the contract

Can you identify the POs ?
Product:
10 units of Suzuki
GSX150 Bandit Freight Cost 50,000 Reward
Rp 26,750,000 Standard
(FOB Shipping Points
Warranty
Point) Equivalent to
Volume rebate Free
get 10% if Rp 10,00,000 Rp 50,000
quantity > 1,000
units
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Step
Determine The Transaction Price

Variable consideration and the Consideration payable to a
constraint customer
…reduction to the transaction price
unless it’s a payment
for a distinct good or service
Transaction
Price
Non-cash consideration Significant financing

…measured at fair value unless it cannot component
be reliably measured
Total revenue may be lower than contract price
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Step
Determine The Transaction Price

How much is the TP ?
Product:
Volume Rebate
10 unit of Suzuki
Get 10%
GSX150 Bandit
Quantity > 1,000 units
@ Rp 26,750,000
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Step
Allocate the transaction price to POs

Allocate based on relative stand-alone selling prices
Performance obligation 1 Performance obligation 2 Performance obligation 3
Determine stand-alone selling prices
Best evidence If not available
Observable price Estimate price
Adjusted market Expected cost plus a margin

assessment approach approach
Residual approach only if selling

Fair value measurement
price is highly variable or uncertain
Due to the requirement to re-allocate transaction price to the different performance

obligations, revenue recognised may be different.
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Step
Over time or at a point in time?
An entity recognises revenue when or as it satisfies

a performance obligation by transferring a good or
Measurement service to a customer, either at a point in time
principle (when) or over time (as). A good or service is
transferred when or as the customer obtains
control of it.
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Step
Recognize revenue as POs satisfied

A performance obligation is satisfied over time if either:
Customer simultaneously receives and consumes the Routine or recurring services

1 e.g. cleaning services
benefits as the entity performs.
Construction on customer’s land;

The customers controls the asset as the entity creates or
2 customer controls the work in
enhances it.
progress
Building a specialised asset that

The entity’s performance does not create an asset for which only customer can use or building
3 the entity has an alternate use and there is a right to an asset to customer
payment for performance to date. specifications
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Application Guidance
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Contract Modification
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Principal vs Agent
If an entity does not obtain control of the goods or the right to the services in advance of transferring them to the
customer, then it is an agent for that good or service.
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Contract Costs
Costs to obtain a contract Costs to fulfil a contract
Capitalise incremental costs if: Capitalise fulfilment costs if:

Incurred only as result of Directly related
obtaining the contract
e.g. sales commission
Generate or enhance
Recovery is expected resources
Recovery is expected
Practical
Amortisation period < 1 year?
expedient
Expense costs as incurred
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Case Study
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Case Study - Facts

Facts
• Suzuki enters into a contract with Dealer A in February 2020.

• Suzuki promises to deliver the following items:
• 10 Unit of Suzuki GSX150 Bandit
• Free 5 units of helmet
• Free 5 units of motorbike jacket
• Free spare parts
• 1-year standard warranty
• Contract is worth for Rp 272,500,000 and customer will get reward points of 500,000. 1 point is equivalent
to Rp 1 and can be redeemed for next purchase (valid for 3 months). The likelihood of points will be
redeemed is 60%.
• Suzuki Motor estimates SSP as followings:
• 10 units of Suzuki W175 SE : Rp 267,500,000 • Spare parts : Rp 5,000,000
• 5 units of helmet : Rp 1,500,000 • 1-year standard warranty for 10 units:
Rp 10,000,000
• 5 units of motorbike jacket : Rp 1,000,000
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Presentation and
Disclosure
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Presentation and Disclosure
Disclosure
More information required

Objective of the under
standard: PSAK 72, affecting:
Understand the nature,  Performance obligations
amount, timing, and  Significant judgements
uncertainty of revenue and  Costs to obtain or fulfill a
cash flows contract
 Contract balances
 Disaggregation of revenue
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Disaggregation of Revenue
PSAK 72 requires the disclosure of revenue from contracts with customers disaggregated into categories that depict
how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. An entity
also discloses the relationship between the disaggregated revenue and the entity’s segment disclosures.
In determining these categories, an entity considers how revenue is disaggregated in:
- disclosures presented outside the financial statement (e.g. earning releases, annual reports)
- Information reviewed by the chief operating decision maker for evaluating the financial performance of operating
segments.
Geography
Type of good Contract
or service duration
Disaggregation of
revenue
Timing of Market or
transfer of good type of
or service customer
Sales Type of
channels contract
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The Retrospective Method

To meet the disclosure objective in PSAK 72 and comply with the presentation and disclosure
guidance in PSAK 1, an entity applies judgment in determining whether the following items should
be presented separately (either in the statement of financial position or in the notes) or
aggregated with another line item:
- refund liability
- costs to obtain contracts
- costs to fulfil a contract
- right to recover a returned good (asset)
- liability from repurchase agreement
- consideration paid to customer (asset)
An entity applies the requirements in PSAK 1 in classifying an asset or a liability related to a

contract with the customer as current or non-current.
Company presents a statement financial position as at the beginning of the preceding period,
because retrospective changes in accounting policy have a material effect on the information in
the statement.
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The Retrospective Method (cont’d)

Company label the restated comparative information with the heading ‘restated’.
PSAK 72 and other standards do not specify where assets for rights to recover products from
customers with regard to sale with a right to return should be presented. Company includes the
assets in ‘inventories’ and discloses them separately in the related note.
Any unconditional right to consideration are presented separately as receivable. A right to
consideration is ‘unconditional’ if only the passage of time is required before payment of that
consideration is due.
Company presents its refunds liabilities as ‘trade and other payable’ under PSAK 72. Company
returns policy offers only an exchange for another good or store credit. Therefore, refund liabilities
do not meet the definition of financial liabilities in PSAK 50 Financial Instruments: Presentation. If
a refund liability or a liability related to a repurchase agreement meets the definition of a financial
liability in PSAK 50, then it is subject to the disclosure requirements in PSAK 60 Financial
Instruments: Disclosures.
If a customer does not have the option to purchase a warranty separately, then an entity accounts
for the warranty in accordance with PSAK 57 Provision, Contingent Liabilities and Contingent
Asset unless the promised warranty, or a part of the promised warranty, provides the customer
with a service in addition to the assurance that the product complies with agreed-on
specifications.
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Disclosure Requirements
Under PSAK 72, an entity discloses more information about its contracts with customers than is
currently required under PSAK 23 Revenue and PSAK 34 Construction Contracts, including more
disaggregated information about revenue and more information about its performance obligations
remaining at the reporting date.
The objective of the disclosure requirements is to provide sufficient information to enable users of
financial statements to understand the nature, amount, timing and uncertainty of revenue and
cash flows arising from contracts with customers.
An entity is required to disclose, separately from other sources of revenue, revenue recognized
from contracts with customers, and any impairment losses recognized in accordance with PSAK
71 Financial Instruments (or PSAK 55 Financial Instruments: Recognition and Measurement if
applicable) on receivables or contract assets arising from contracts with customer. If an entity
elects either the practice expedient not to adjust the transaction price for a significant financing
component or the practical expedient not to capitalize costs incurred to obtain a contract, then it
discloses that fact.
PSAK 72 includes disclosure requirements on the disaggregation of revenue, contract balances,
performance obligations and asset recognized to obtain or fulfill a contract, as well as significant
judgments in the application of the standard.
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Detail Disclosure
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Detail Disclosure (cont’d)
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Transition Option
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Transition Option
Transition Options – Practical expedients

2018 2019 2020
PSAK 23 PSAK 72 PSAK 72 1 January 2019
PSAK 23 PSAK 72 1 January 2019
PSAK 23 PSAK 23 PSAK 72 1 January 2020
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Transition Option
Transition Options – Practical expedients

Retrospective method
An entity may elect to use one or more of the following practical expedients:
1. Restatement of completed* contracts - An entity need not restate completed* contracts that begin and end within the
same annual reporting period, or contracts that are completed before the beginning of the earliest period presented.
2. Completed* contracts with variable consideration - For contracts with variable consideration that are completed* on or
before the date of initial application, an entity can use the transaction price at the date of completion, rather than estimating
the amount of variable consideration.
3. Contract modification - For contracts that were modified before the beginning of the earliest period presented, an entity
may reflect the aggregate effect of all contract modifications when identifying separate performance obligations and
determining and allocating transaction price.
4. Disclosure - For all reporting periods presented before the date of initial application, an entity need not disclose the amount
of the transaction price allocated to the remaining performance obligations and an explanation of when the entity expects to
recognise that amount as revenue.
Cumulative effect method
An entity electing the cumulative effect approach may apply the practical expedient on contract modifications, either as at the
beginning of the earliest period presented or as at the date of initial application.
The entity can also elect to calculate the cumulative effect by applying the requirement of the Standard to:
— Only contracts that are not completed* contracts at the DIA; or
— All contracts at DIA.
Note: *A completed contract is defined as a contract for which the entity has transferred all of the goods or services identified in accordance with
PSAk 44 Construction Contracts, PSAK 23 Revenue and related Interpretations.
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Transition Option
Evaluating the Transition Options

Investors’
perception
Historical data & future Organization’s readiness

trends for change
Retrospective
or
Cumulative effect
adjustment?
Significance of changes Long-term contracts :
to timing and amount of ■ Volume & duration
revenue ■ Uniqueness
■ Significance
Comparability with
industry peers
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Transition Option
Comparison of the transition options

Retrospective Method Cumulative Method
 Comparability of the top-line of P&L

without any other clarifications  Decreased the number of contracts
 Allows trend statements without to be analysed under PSAK 72
Advantages
recourse on other data  No new assessments of prior year
 Facilitates capital market data needed
communication
 Requires comprehensive historical

analysis of contracts not entered  Loss of the comparability of prior
before the beginning of the year figures
Disadvantages comparative period  Requires processes running in
 Potentially causes higher costs due to parallel during the conversion year
the requirement of processes running due to disclosures
in parallel
 Companies where processes and
accounting methods are less
Suggested for affected by PSAK 72
 Companies not expecting major
which  Companies which would like to
impacts on the amount of revenues
companies provide comparability even though
expecting significant impacts on
revenue
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Summary of
PSAK 72
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Summary of PSAK 72
 Under PSAK 72, there is now a new 5-step model for revenue recognition.
 Timing and amount of revenue recognition may be significantly impacted.
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What You Need To Do Next

 Revisit all sales contract
 Revisit all marketing promotion arrangement
 Scoping PSAK 72 assessment based on type of sales contract / marketing promotion
 Ensure completeness of the PSAK 72 assessment
 Identify PSAK 72-related issues as per sales contract / marketing promotion arrangement.
This includes:
 Identification whether there is contract under PSAK 72
 Identification of performance obligation {“PO”) to customer
 Determination of transaction price of each contract
 Determination of stand-alone selling price for each PO
 Allocation of transaction price to the each PO
 Recognition of revenue based on timing of recognition
 Identify any cost incurred related to cost to fulfill and cost to obtain
a contract
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Knowledge Check
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Knowledge Check – PSAK 72

Contracts executed verbally with customers do not meet the criteria of contract per PSAK 72.
Yes
No
It depends
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Freight cost will always be accounted for as fulfillment cost based on PSAK 72.
Yes
No
It depends
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The company does not need to capitalize contract costs that are more than 1 year.
Yes
No
It depends
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Q&A Session
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PSAK 71 :
Financial
Instruments
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Overview of
PSAK 71 “Financial
Instruments”
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PSAK 71: Landscape
Criticism of IAS 39 / PSAK 55

• Complex and rules based classification methods
• Impairment method based on trigger that are deemed to be too little too late
• Rigid hedge accounting rules that does not reflect actual risk management
activities
• Doesn’t reflect economic reality as evidenced in the Global Financial Crisis
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PSAK 71: Landscape
Building blocks of PSAK 71
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PSAK 71: Scope
Financial Assets in Your Company

 Trade Receivables
 Other Receivables
 Cash in Banks
 Time Deposit
 Investment in Shares
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Classification and
Measurement
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PSAK 71: Classification and Measurement
Financial Asset: What Has Changed from IAS

39 / PSAK 55?
Held-to- Available For- Loans and
Maturity Sale Receivables
The BottomLine
IAS 39/ Under PSAK 71, the mere intention

Fair Value
PSAK 55 Through
of holding the assets can no longer
Profit or suffice as the sole determinant of
Loss the assets’ accounting
classification.
Now, such classification must be

SPPI Test Business Model Test based on the contractual cash
Are the cash flows solely What is the entity’s business flows characteristics of financial
payments of principal and model for managing the asset itself (i.e. SPPI Test), and the
PSAK 71 interest? financial asset? business objectives to hold such
financial asset (i.e. Business Model
Test).
Amortized FVOCI FVTPL

Cost
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Financial Asset: Classification of Non-Equity

Instruments
Presented below is the flowchart that must be followed for every single non-equity financial asset and then cross-
referenced against the business unit holding that particular financial asset.
Does thefinancial
instrument passthe SPPI Test
SPPITest? PSAK 71 Conclusion Result
Pass Fail
Yes No
Held to Amortized
FVTPL
Collect Cost*
What is the
Business Model Business
Held to
of BU holding the Model FVOCI* FVTPL
Collect and
financial Assessment
Test Sales
instrument?
Held to Held to Collect Others FVTPL FVTPL

Others
Collect and Sales
Amortized FVOCI* FVTPL

Cost*
* Subject to irrevocable option to designate at FVTPL on initial recognition if it reduces accounting mismatch.
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Financial Asset: The SPPI Test

Examples of when SPPI Test WILL NOT be met:
• Fixed Convertible bonds

• A loan with a negative relationship with a particular interest rate index
• Financial assets that provide exposure to variables such as changes in
equity prices or commodity prices.
SPPI
Test
Examples of when SPPI Test MAY be met:
• Imperfect relationship with time value of money may be allowed
Interest is consistent with a • If the basis/value of interest payments change depending on some
basic lending agreement: credit contingent future events, it may be allowed
risk, liquidity risk, administrative • A loan with a provision that will only occur in rare/abnormal/very unlikely
cost and profit margin circumstances may beallowed
“Solely Payments of Principal and Interest”.
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Financial Asset: The Business Model Assessment

Business Model assessment:
• It is not conducted on an instrument-by-instrument basis but at a higher level of
aggregation.
• How high? NOT at entity level, in fact an entity can have more than one
business models
• It can be done at a sub-portfolio level
• It is a matter of fact and typically observable through particular

activities that the entity undertakes to achieve the business
model’s objectives -> increases the need for documentation as
well as processes andcontrols
− Performance Measurement methodology (KPIs)
− Presentation of report to entity’s management
− Major risk factors affecting the entity’s business models
− Risk Management practices
− Compensation schemes for its managers
− Historical records of sales frequency, volume and timing.
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Financial Asset: The Business Model Assessment

Under PSAK 71, there are three types of Business Model that any particular Business Unit can possibly
have.
Business Models Key Features Measured At
— Objective is to hold assets to collect

contractual cashflows
Held-to-collect contractual cashflows
— Sales are incidental to the objective Amortized cost*
— Typically lowest sales (in frequency and
volume)
— Both collecting contractual cash flows

and sales are integral to achieving the
Held both to collect contractual cash objective of the business model
flows and for sale
FVOCI*
— Typically more sales (in frequency and
volume) than held-to-collect business
model
— Objective is neither held-to-collect nor FVTPL**

Others
held to collect and for sale.
* Subject to meeting the SPPI criterion

** SPPI criterion is irrelevant
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Financial Asset: Classification of Equity

Instruments
Is it “Held For FVOCI option:
Trading”? — Irrevocable classification
— Individual instrument basis
Yes
No
— No need for impairment
— Foreign exchange differences recognized in OCI
Has the entity elected the
OCI option?
— On disposal, the total amount accumulated in OCI is not
reclassified into P&L.
— Only dividend payments are recorded through P&L
Yes No
Unquoted Shares:
FVOCI FVTPL — The new PSAK 71 standard eliminates the exemption
allowing some unquoted equity instruments and related
embedded derivative to be measured at cost.
* Amounts recognised in OCI are not reclassified to profit or loss on derecognition and no impairment loss recognised in profit or loss.
** Equity instrument is as defined in IAS 32 / PSAK 50
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Impairment
PSAK 71: Impairment
Key Differences Between PSAK 55 and PSAK 71

Forward
Looking
Adjustments
Losses must
Stage 2 / 3
Off Balance include the
Assets Sheet Positions impact of
multiple
Stage 1 Lifetime probability
Expected Credit weighted
Assets economic
Losses
forecasts
12 - Month
Required to
include off PSAK
Expected Credit
Losses Key judgement
around
balance sheet
items and 71
“significant estimate lifetime.
Size depends on increase in credit
current loss risk”
emergence
period under Must calculate
PSAK PSAK 55 and the lifetime credit
new PSAK 71 loss for the asset
55 calculation
requirements
• Must include estimates of Point in Time (PIT) PD%, LGD, EAD
• Pre-payment & Transition Probabilities. also need to be modelled
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PSAK 71: Impairment
Expected Credit Losses (ECL)

Under the general principle, impairment would be measured as either:
• 12-month expected credit losses; or
• lifetime expected credit losses
The measurement basis would depend on whether there has been a significant increase in credit risk since initial
recognition. The assessment should be made at each reporting date.
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PSAK 71: Impairment
Calculation Method
Past events
Expected loss model
replacing ‘incurred
+
loss’ model under Current conditions
IAS 39 / PSAK 55
+
What’s Forecast of future
New? economic conditions
Expected Credit Loss computation:
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PSAK 71: Impairment
Exemption from the general model

Trade receivables with Trade receivables
Lease receivables a significant financing without a significant
component financing component
Policy election to apply
General approach Simplified approach
Loss allowance always equals

to lifetime expected credit
losses
Stage 2 Stage 3
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Impairment for Non

Financial Institution
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PSAK 71: Impairment
Common Financial Assets in Your Company

 Account / Trade Receivables
 Other Receivables
 Cash in Banks Simplified
 Time Deposit approach cannot
be applied. How
 Investment in Shares
to derive
variables below?
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PSAK 71: Impairment
PD - How to derive Probability of Default (“PD”)

Approaches to estimate PD:
External Data Providers
• PD can also be estimated based on proprietary data / models provided by data providers
such as Bloomberg, Moody’s, and S&P
Note that transparent market information which incorporates forward-looking information should used where available.
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PSAK 71: Impairment
PD - External data providers - Moody’s and S&P

PD based on historical default rates published by Moody’s and S&P
Average Cum ulative Issuer-Weighted Global Default Global Corporate Average Cum ulative Default Rates By
Rates By Alphanumeric Rating, 1998-2016 (%) Rating Modifier (1981 - 2016) (%)
Rating/Year 1 2 3 4 5 Rating/Year 1 2 3 4 5
Aaa 0.00 0.03 0.03 0.03 0.03 AAA 0.00 0.03 0.13 0.24 0.35
Aa1 0.00 0.00 0.00 0.00 0.03 AA+ 0.00 0.05 0.05 0.11 0.16
Aa2 0.00 0.01 0.15 0.29 0.39 AA 0.02 0.03 0.09 0.22 0.37
Aa3 0.05 0.14 0.19 0.26 0.40 AA- 0.03 0.09 0.18 0.26 0.35
A1 0.12 0.26 0.45 0.67 0.94 A+ 0.05 0.1 0.21 0.35 0.47
A2 0.07 0.21 0.41 0.62 0.90 A 0.06 0.16 0.25 0.37 0.51
A3 0.07 0.20 0.44 0.67 1.02 A- 0.07 0.18 0.29 0.42 0.6
Baa1 0.16 0.41 0.69 0.98 1.18 BBB+ 0.12 0.32 0.56 0.82 1.08
Baa2 0.20 0.47 0.75 1.05 1.31 BBB 0.17 0.44 0.69 1.08 1.47
Baa3 0.27 0.64 1.04 1.46 1.97 BBB- 0.26 0.81 1.48 2.24 3.01
Ba1 0.33 1.24 2.24 3.15 4.32 BB+ 0.36 1.17 2.12 3.09 4.08
Ba2 0.71 1.67 2.96 4.29 5.41 BB 0.58 1.79 3.57 5.22 6.87
Ba3 1.00 2.77 4.81 7.05 8.63 BB- 1.05 3.28 5.6 7.96 10.01
B1 1.39 4.26 7.41 10.56 13.44 B+ 2.15 5.89 9.51 12.59 14.98
B2 2.91 7.58 12.43 17.11 20.68 B 3.89 8.85 13.03 16.18 18.57
B3 4.03 9.76 15.92 20.94 25.43 B- 7.49 14.64 19.91 23.59 26.42
Caa1 5.15 11.92 18.22 23.51 28.05 CCC/C 26.78 35.88 40.96 44.06 46.42
Caa2 10.22 19.18 26.92 33.53 38.69 Source: Standard & Poor’s Financial Services LLC's publication
Caa3 20.39 31.98 39.79 44.71 49.34 titled "2016 Annual Global Corporate Default
Ca-C 32.71 43.20 50.58 54.94 57.41 Study And Rating Transitions"
Source: Moody's Investors Service, Inc's publication titled
"Annual Default Study: Corporate Default and Recovery Rates,
1920-2016"
Note: Historical default rates may not be an accurate predictor of future default rates.
71
PSAK 71: Impairment
Accounts Receivables - Provision Matrix

 Company M operates only in one geographical location, and has a portfolio of trade receivables of
$30million on 31 December 20X1.
 The trade receivables have common risk characteristics.
 The trade receivables do not have a significant financing component.
 M uses a provision matrix to calculate impairment.
Provision matrix estimate*:

Current 1–30 days 31–60 days 61–90 days More than 90
past due past due past due days past due
Default rate 0.3% 1.6% 3.6% 6.6% 10.6%
*The provision matrix is based on:

- historical default rates over the expected life of the trade receivables; and
- adjustment for forward-looking estimates.
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PSAK 71: Impairment
Accounts Receivables - Provision Matrix

Potential changes to impairment using the provision matrix:
Current Lifetime
incurred loss expected credit
method loss rate
PSAK 55 PSAK 71
Current 0.0% 0.3%
It would be expected
that an ‘expected loss’
1–30 days past due 0.0% 1.6%
amount would be
31–60 days past due 0.0% 3.6% higher and recognised
much earlier than the
61–90 days past due 4.0% 6.6% current incurred loss
model
>90 days past due 10.6% 10.6%
Note:
Consider also impairment on intercompany loan – especially for funding / treasury entity’s stand alone financial
statements that borrows and provide funding for other entities.
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PSAK 71: Impairment
Accounts Receivables – Deriving Loss Rate

Following is an illustration using historical credit loss in each delinquency bucket to build a provision matrix
Assume that the past 3 years is representative of conditions expected moving forward, ECL (as % of balance) is
estimated based on the average historical ECL percentages, sampled monthly over 3 years:
Exam ple ECL (%) Estim ation based on Provision Matrix

Period Mar-14 Apr-14 May-14 … Jan-17 Feb-17 Mar-17 Average
Current 0.30% 0.55% 0.43% … 0.31% 0.57% 0.47% 0.44%
1 – 30 days past due 1.60% 2.73% 2.63% … 2.37% 1.82% 1.66% 2.13%
31 – 60 days past due 3.60% 5.23% 6.43% … 4.71% 5.62% 5.62% 5.20%
61 – 90 days past due 6.60% 7.57% 7.30% … 9.56% 11.61% 9.91% 8.76%
Over 90 days past due 10.60% 17.81% 10.72% … 13.10% 18.02% 16.48% 14.46%
ECL can then be estimated as at the measurement date using a provision matrix:
Exam ple ECL Calculations for Trade Receivables
As at Mar-17 ECL (%) Trade Receivables (SGD) ECL (SGD)

Current 0.44% 15,000 66
1 – 30 days past due 2.13% 7,500 160
31 – 60 days past due 5.20% 4,000 208
61 – 90 days past due 8.76% 2,500 219
Over 90 days past due 14.46% 1,000 145
30,000 798
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PSAK 71: Impairment
Accounts Receivables – Deriving Loss Rate

The following is an illustration using the roll rate method to build a provision matrix
Roll rate method is similar to previous method, except that for each bucket, we track
— % that was paid
— % that was written off
— % that progressed to the next bucket (e.g. 30 days past due moving to 60 days past due)
Example transition matrix from historical experience:
Exam ple transition m atrix based on historical experience
31 – 60 61 – 90 Over 90
Written 1 – 30 days days past days past days past
Period Paid off Current past due due due due Total
Paid 100% 0% 0% 0% 0% 0% 0% 100%
Written off 0% 100% 0% 0% 0% 0% 0% 100%
Current 5% 0% 0% 95% 0% 0% 0% 100%
1 – 30 days past due 75% 1% 0% 0% 24% 0% 0% 100%
31 – 60 days past due 80% 5% 0% 0% 0% 15% 0% 100%
61 – 90 days past due 30% 20% 0% 0% 0% 0% 50% 100%
Over 90 days past due 10% 90% 0% 0% 0% 0% 0% 100%
75
PSAK 71: Impairment
Accounts Receivables – Deriving Loss Rate +

Macro Factors
Factors such as market or business conditions can be incorporated.
For example, historical ECL percentages can be classified based on the business conditions at that time
(e.g. good, uncertain, poor).
Exam ple ECL (%) Estim ation based on Provision Matrix
Period Jan-09 Feb-09 Mar-09 … Jan-17 Feb-17 Mar-17

Business conditions Poor Poor Poor Uncertain Good Good
Current 0.30% 0.55% 0.43% … 0.31% 0.57% 0.47%
1 – 30 days past due 1.60% 2.73% 2.63% … 2.37% 1.82% 1.66%
31 – 60 days past due 3.60% 5.23% 6.43% … 4.71% 5.62% 5.62%
61 – 90 days past due 6.60% 7.57% 7.30% … 9.56% 11.61% 9.91%
Over 90 days past due 10.60% 17.81% 10.72% … 13.10% 18.02% 16.48%
ECL (as % of balance of each bucket) can then be estimated by averaging across historical ECL percentages
corresponding to the different business conditions.
Exam ple ECL Calculations for Trade Receivables
Business conditions Good Uncertain Poor

ECL (%) ECL (%) ECL (%)
Current 0.34% 0.40% 1.00%
1 – 30 days past due 2.00% 2.50% 3.60%
31 – 60 days past due 5.10% 5.30% 7.50%
61 – 90 days past due 7.50% 8.00% 10.20%
Over 90 days past due 10.50% 12.00% 18.60%
More sophisticated methods such as econometric models can also be applied
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Hedge Accounting
PSAK 71: Hedge Accounting
How Hedge Accounting Can Help Companies

A typical hedging activity would be the usage of derivatives to hedge against a certain risk
exposure
Derivative Is used to hedge Risk exposure
Changes in the fair value of this derivative Certain risk exposures are not reflected in
instrument are recognized in profit or loss the financial statements. However, hedge
as per normal accounting treatment. accounting allows you to recognise
changes in the fair value of these in profit
or loss.
- -
- -
- -
- -
offsetting
- -
The economic benefits of the hedging activity are now reflected in the firm’s
financial statements.
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Why Hedge Accounting?

• Hedge accounting allows companies to record a gain (loss) in the hedging instrument and loss (gain) in the
hedged item in the same reporting period (opposite performance offset each other)
• The income-offsetting and effectiveness of the hedge is reflected in the financial statements
Change in FV of
-
20X1 20X2 Cumulative hedged item
-
-
Hedged Item 0 A (20) (20) -
-
Hedging Instrument 20 B 0 20 -
20 20 0
Change in FVs are offset
Change in FV
of hedging -
A instrument -
Recognition of gain or loss on hedged item is accelerated
-
-
-
Recognition of gain or loss on hedging instrument is deferred B
For illustrative purposes, assuming certain conditions are met.
79
Hedge Accounting Models

Fair Value Hedges Cash Flow Hedges Net Investment Hedges
Exposure to change in fair Exposure to variability in Net investment translation

Risk
value cash flows exposure
- Available for Sale (AFS)

- Highly probable
investment
forecasted transaction - Consolidated subsidiary
Examples - Inventory
- Variable-rate investment with FX exposure
- Fixed-rate investment or
or debt
debt
Recognition of Fair
Value changes on In the Period Hedging Reserve (Equity)* Hedging Reserve (Equity)**
Hedging Instrument
* Transferred to P/L when hedged item impacts P/L or as basis adjustment when transaction occurs on certain
situations
** Transferred to P/L on disposal of subsidiary
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Objective of IFRS 9 / PSAK 71

The Hedge Accounting in IFRS 9 aims to align accounting with risk management objectives and
practice
Risk
Management
Objectives
Links risk management

and financial reporting
(top down)
Manages timing of
recognition of gains or
losses (bottom up)
Accounting Objectives
Benefit: Financial statements better would reflect what the company is doing
81
Changes to the Hedge Accounting Framework

Key changes What stays the same?
• Aligns hedge accounting with risk • Hedge accounting elective

management • Retains 3 types of hedge relationships
• Simplified effectiveness testing (removal of  cash flow
80-125% test)
 fair value
• Rebalancing
 net investments
• Voluntary discontinuation is not permitted
• General documentation requirements
• Cost of hedging
• Accounting for actual ineffectiveness
• Risk component hedging of non-financial
items
• Hedging of aggregate exposure
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Hedge Effectiveness Testing

PSAK 55 PSAK 71
Quantitative ΔFV-comparison
Static requirements for effectiveness Qualitative assessment can be sufficient
Quantitative assessment for imperfect hedges
(80-125% test)
Retrospective Prospective Retrospective Prospective
• Dollar-offset-method • Critical term match Assessment can be • Critical term match

• • Sensitivity analysis
Methods
Methods
Regression analysis adopted from the • Sensitivity analysis

• Regression risk management • Regression
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Presentation and
Disclosure
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Disclosure
PSAK 71 amends IFRS 7 (PSAK 60: Instrumen Keuangan: Pengungkapan) to introduce extensive
new and amended disclosures.
• Classification and measurement of financial assets and financial liabilities:
o Financial assets or financial liabilities designated as at FVTPL
o Investment in equity instruments designated as at FVOCI
o Reclassification
• Credit risk and expected credit losses
o Explanation of credit risk management practices
o Expected credit loss calculation
o Reconciliation of ECL
o POCI
• Credit risk exposure
o Staging: 1,2,3,POCI
o Trade receivables, contract assets and lease receivables.
85
Disclosure
Classification and measurement of financial assets and financial liabilities
Currency Unit At 31 December 2020
Assets Liabilities
010 020
Financial instruments measured at fair value through profit or loss
Designated as FVTPL1 010 X X
[provide further breakdown as appropriate] 020 X X
Mandatorily measured at FVTPL 030 X X
[provide further breakdown as appropriate] 040 X X
Total 050 X X
060
Financial instruments measured at amortised cost 070
Financial assets measured at amortised cost 080 X -
[provide further breakdown as appropriate] 090 X -
Financial liabilities measured at amortised cost 100 - X
[provide further breakdown as appropriate] 110 - X
Total 120 X X
130
Financial assets measured at fair value through other c 140
Mandatorily measured at FVOCI2 150 X -
[provide further breakdown as appropriate] 160 X -
3 -
Investments in equity instruments designated FVOCI 170 X
Total 180 X -
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Disclosure
Credit risk and expected credit losses
Key drivers of credit risk and credit lossess
87
Disclosure
Credit risk exposure by PD
Table Credit risk profile by probability of default of other financial assets measured at amortised cost (trade receivables, contract assets and lease
receivables) subject to lifetime ECL
Probability of Default At 31 December 2020

Not credit- Credit-impaired Total
impaired
Subject to lifetime Excluding Purchase/
ECL purchase/ originated credit-
originated credit- impaired
impaired
Gross carrying Gross carrying Gross carrying Gross carrying
amount amount amount amount
010 020 030 040
0.00 - 0.10 010 X X X X
0.11 - 0.40 020 X X X X
0.41 - 1.00 030 X X X X
1.01 - 3.00 040 X X X X
3.01 - 6.00 050 X X X X
6.01 - 11.00 060 X X X X
11.01 - 17.00 070 X X X X
17.01 - 25.00 080 X X X X
25.01 - 50.00 090 X X X X
50.01+ 100 X X X X
Lifetime expected credit losses measured on a collective basis 110 X X X X
Total 120 X X X X
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Disclosure
Credit risk exposure by DPD
Table Credit risk profile by days past due of trade receivables, contract assets and lease receivables subject to lifetime ECL.
At 31 December 2020
Trade receivables days past due
Current More than 30 days More than 60 days More than 90 days Total
less than 60 less than 90
010 020 030 040 050
Trade receivables [provide further breakdown as appropriate]
Expected credit loss rate (%) 010 X (%) X (%) X (%) X (%) X (%)
Gross carrying amount 020 X X X X X
Lifetime expected credit losses 030 X X X X X
Contract assets [provide further breakdown as appropriate]

Lease receivables [provide further breakdown as appropriate]

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Transition Option
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Transition Option
PSAK 71 contains specific transition requirements for the following items.
91
Transition Option
Requirement for The New Standard

The general principle in the new standard is for retrospective application in accordance with IAS 8 /
PSAK 25 Accounting Policies, Changes in Accounting Estimates and Errors.
The new standard contains certain exemptions from full retrospective application, including an
exemption from the requirement to restate comparative information about classification and
measurement, including impairment
Opsi 1 Opsi 2
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Summary of
PSAK 71
93
Summary of PSAK 71
 Non-Financial Institutions are also impacted by PSAK 71.
 There are numerous financial assets that need to be considered when adopting PSAK 71.
 Gains from shares classified as FVOCI will never be reflected in P&L.
 Impairment for investments, A/R, etc need to be forward looking to represent Expected
Credit Loss.
 Losses are recognized early, even when the A/R are still current.
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 Identify financial asset, including debt instrument and equity instrument.
 Perform business model and SPPI assessment for relevant debt instrument to determine its
classification.
 Determine classification of equity instrument based on how Company manage the
instrument.
 For simplified approach, prepare aging of account receivables schedule based on ageing
bucket.
 Determine conditions to reflect forward looking overlay as component of calculation of
expected credit-losses (“ECL”).
95
Q&A Session
96
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PSAK 73 : Leases
97
Overview of
PSAK 73 “Leases”
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18/12/2019
Overview of PSAK 73 “Leases”
Why?
One of my great Listed companies are

ambitions before I die estimated to have
is to fly in an aircraft US$3.3 trillion of lease
that is on an airline’s commitments, over 85%
balance sheet … of which do not appear
on their balance sheets …
Sir David Tweedie Hans Hoogervorst

January 2016
April 2008
99
What’s Changing?
A new on/off balance sheet test for lessees
Lease
On balance Off balance
classification
sheet sheet
test
Service
New standard All leases
contracts
Finance lease Operating

Old standard
lease
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Potential impact to your Organization

• Under PSAK 73, lessees will bring leases on
balance sheet.
• Financial ratios, debt covenants and
borrowing capability may be impacted.
• Exploration of alternative structures of lease
arrangements may be considered to minimize
the impact of adoption.
101
Impact on Balance Sheet

Balance sheet
Asset
= ‘Right-of-use’ (ROU) of
underlying asset
Liability
= Obligation to make lease
payments
Asset Liability
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18/12/2019
Impact on Profit/Loss
P&L
Lease expense
Depreciation
+ Interest
= Front-loaded total lease
expense
Depreciation Interests
Cash Rental payments
103
Impact on financial ratios

Profit/loss Balance sheet Ratios Cash flows
EBITDA Net debt Gearing Operating
EBIT
EBITDAR Net cash flow
Net profit Net assets Interest cover Financing

(in early years) ROE
ROCE
Asset turnover
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Overview of the model – Lessor vs. Lessee

“Risks and rewards” model “Right-of-use” model
Right to use leased

Lessor asset Lessee
Underlying asset Right-of-use asset

Consideration
(lease rentals)
Substantially all
risks and rewards
of ownership Recognise Recognise
transferred? “right-of-use” liability to pay
asset rentals
Finance lease Operating lease
All significant leases on-balance sheet for lessees with expense recognition
generally front-loaded, similar to current finance leases
105
Lease Definition
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Lease Definition
Key Elements of the Definition

A contract is, or contains, a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
No
Identified asset?
Yes
No
Lessee obtains substantially all
of the economic benefits? Contract
does
Yes
not contain
No a lease
Lessee directs the use?
Yes
Contract is or contains a lease
107
Lease Definition
Identified Asset No
Is the asset specified
(explicitly or implicitly)?
Yes Contract does not contain a lease.

Apply other PSAKs
Is the asset physically distinct or does the

No
customer have the right to receive
substantially all of the capacity of that asset?
Yes
No
Does the supplier have substantive There is an identified
substitution rights? asset
Yes
Contract does not contain a lease.

Apply other PSAKs
Determining whether a supplier’s substitution rights are substantive is key to

assessing whether an identified asset exists.
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18/12/2019
Lease Definition
Right to Control the Use

Obtain substantially all
Right to control
= of the economic
benefits throughout the
period of use
Direct the use of the
identified asset
PSAK 73 increases the

focus on control (rather Who takes the ‘how and what purpose’ decisions?
than who obtains the
output)
Customer Predetermined Supplier
Contract is or Further Contract does

contains a analysis not contain a
lease* required lease
* If other criteria are met
109
Lease Definition
Exemptions for Lessee

Two major optional exemptions make the standard easier to apply
Short term Leases of low value

leases items
≤ 12 months ≤ USD 5,000 (suggested)
When exemption is applied, recognize the lease payments as an expense

on a straight line basis over the lease term.
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Lessee Accounting
Lessee Accounting
Balance Sheet Impact

At the commencement date, a lessee measures the right-of-use (“ROU”) asset at a cost including :
Costs to
dismantle or
Initial direct Prepaid lease Lease
Lease liability + costs + payments + restore - incentives
(IAS 37 /
PSAK 57)
At the commencement date, a lessee measures the lease liability at the present value of the future
lease payments :
Present value of
Present value of
lease payments + expected payments
at end of lease
Key calculation inputs :

• Lease term – consists of non-cancellation period, option renewable periods and other reasonably certain periods
• Lease payments – consists of fixed payments, variable payments depends on an index or a rate, residual value
guarantees, purchase option exercise price and payments for termination
• Discount rate – rate implicated in the lease (if available) or the lessee’s incremental borrowing rate
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Lessee Accounting
Profit or Loss Impact

Existing lease expenses will be classified as depreciation and interest expense
Depreciation expense
• ROU asset depreciated in accordance with IAS 16 (PSAK 16) Property Plant and Equipment
• Depreciation period is the shorter of the lease term and the asset’s useful life
• Recognise expense straight line over the depreciation period
Interest expense
• Lease liability is measured at amortised costs using
the effective interest method
• Calculation of the interest expense is made with
reference to the following:
– Lease payment for year; less
– Opening lease liability x discount rate (i.e.
effective interest rate)
113
Lessee Accounting
Discount Rate
With lessees recognising leases on-balance sheet, the appropriate discount rate will affect the balance
sheet and key ratios.
The rate implicit in the lease, if The lessee’s incremental

readily available OR borrowing rate
Key Impact :
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18/12/2019
Measuring Lease Liability
Incremental Borrowing Rate

The rate is specific to:
 The lessee - i.e. it is a company-specific rate

that reflects the credit-worthiness of the
company;
 The term of the arrangement;
 The amount of the funds ‘borrowed’;
 The ‘security’- i.e. the nature and quality of

the underlying asset; and
 The economic environment
As a practical expedient, a lessee may determine a single discount rate for a portfolio of leases
with similar characteristics. This is permitted if the lessee expects that this approach would not
differ materially from applying the standard to individual leases.
115
Measuring Lease Liability
When does a lessee need to revise the

discount rate?
A lessee remeasures the lease
liability at the reassessment date
using a revised discount rate
when there is: Upon lease modification
• A change in lease term (to be covered later)
OR
• A change in the assessment of the
exercise of a purchase option
• A change in floating interest rates
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Subsequent
Measurement
Subsequent Measurement
Subsequent Measurement of Lease Liability

Amortised cost using the effective interest method; no fair value option
Changes in carrying amount of lease liability due to:
Reassessment of variable lease

Reassessment of Variable lease Lease
payments depending on an
lease term, payments not modifications
index or rate
purchase option depending on an that are not
and residual value index or rate separate leases
Relates to Relates to
guarantee
future current
periods periods
• Discount rate
Adjust right-of-use Recognise in profit or loss
• Lease term
asset*
• Purchase option
*If the carrying amount of the right-of-use asset is reduced to nil, then any further
reductions are recognised in profit or loss
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Subsequent Measurement of RoU Assets

Measurement basis
Accumulated
Accumulated
Cost impairment ROU asset
depreciation
losses
119
Re-measurement of RoU Assets

Changes in carrying amount of lease liability due to:
Reassessment of in-substance fixed

Reassessment of payments and variable lease payments Variable lease
lease term, depending on an index or rate payments not
purchase option depending on an
and residual value index or rate
Relates to Relates to
guarantee
future current
periods period
Adjust ROU assets

Recognise in profit or loss
(recognise in profit or loss if zero balance)
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Lease Modification
121
Lessee Accounting
Example : Lease of Building
10 year $100,000 per No renewal no Discount

lease of an annum purchase rate: 7%
building option
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Lessee Accounting
Impact on P&L- PSAK 30 vs PSAK 73

Depreciation expense under new standard
Interest expense under new standard
140,000
119,401 115,842 RENTAL EXPENSE
120,000 112,035
Company’s expense in $
107,961 UNDER CURRENT

103,602
98,937 STANDARD
100,000 93,946
49,165
88,606
45,607 41,799 37,725
82,892
33,366 28,701 23,710
76,778
80,000 18,370
12,656
6,542
60,000
40,000
70,236 70,236 70,236 70,236 70,236 70,236 70,236 70,236 70,236 70,236
20,000
-
1 2 3 4 5 6 7 8 9 10
Year
Total lease expense will be front-loaded even when cash rentals are constant
123
Lessee Accounting
Impact on balance sheet
Companies with operating leases will appear to be more asset-rich, but also more heavily indebted
124
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Case Study
125
Recognition of Lease
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Case Study
Recognition of lease
Contract for office space
On 1 Jan 2020, Suzuki enters into a non-cancellable contract with PT Y to lease office space. The contract states
that PT Y can choose any of the building lot to place the Suzuki office and will have non-exclusive use of the office
space.
Is this a lease or service contract?
A. Lease contract
B. Service contract
127
Case Study
Recognition of lease
Contract for office space
On 1 Jan 2020, Suzuki (the “lessee”) enters into a non-cancellable contract with PT Y (the “lessor”) to lease
office space and the entire office space will be leased exclusively to Suzuki.
Is this a lease or service contract?
A. Lease contract
B. Service contract
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Measurement of
Lease
Case Study
Measurement of lease
Contract for vehicles
vehicles**.
Discount rate: 7.5% per annum
Lease term: 5 years
Payment : $50,000 per annum (at the end of each year)
** The entire vehicles will be leased exclusively to the lessee. Suzuki has assessed that the contract contains a
lease under PSAK 73. Therefore, Suzuki will apply lessee accounting under PSAK 73.
What is the value of ROU and liability?
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Case Study
Extension Option
vehicles.
Lease term: 5 years
The lease contract contains an option that is exercisable by the lessee to extend the lease for an
additional 2 years at the same rental price.
To determine the lease term, the lessee considers the following
— Market rental for comparable vehicles are expected to increase by 10% over the 2 years period covered
by the lease
— At the inception of the lease, lease rentals are in accordance with current market rent
What should be the lease term?

A. 5 Years B. 7 Years
131
Re-measurement of
Lease
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Case Study
Re-measurement of Lease
vehicles.
Lease term: 5 years
Discount rate at date of re-measurement 6% per annum
Lessee has an option to extend the lease for another 2 years. On initial recognition of the lease, lessee was
certain that it would exercise this option so the lease term was estimated at 7 years.
However, at the end of second year, one of its long term key customers have shifted far away from the
office location and impossible to be reached by car. Lessee determines that it is no longer cost effective to
extend the lease.
How should this remeasurement of lease be accounted for?
133
Presentation and
Disclosure
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Presentation
135
Disclosure
More extensive disclosures required. Some examples are as follows:
Quantitative Qualitative
 Breakdown of ROU assets by class of  Description of how liquidity risk

underlying asset, including additions related to lease
Balance Sheet during the year liabilities is managed
 Lease liabilities, including a maturity  Use of exemption for short-term
analysis and/or low-value item leases
 Depreciation by class of ROU asset

 Interest expense on lease liabilities
Profit or Loss  Expense relating to amounts not
Statement included in lease liabilities, such as Impact for the Company
short-term leases, low-value items
and certain variable lease payments - Chart of accounts needs to be updated
- Detailed and extensive data needs to be
collected for disclosure  Significant time
Cash Flow and effort
Statement  Total cash outflow for leases
136
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Detail Disclosure - Lessee
137
Transition Option
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Transition Option
Applying the New Lease Definition

A lessee can choose whether to:
Grandfather existing contracts and

Apply the new definition to all
contracts
or apply new definition only to new
contracts
Cost Comparability Cost Comparability
139
Transition Option
Lessee Approach to Transition

Modified retrospective approach
Operating lease Finance lease

A lessee is permitted to:
— adopt the standard
retrospectively; or
— follow a modified
retrospective approach ROU asset
Lease liability ROU asset Lease liability
A lessee applies the As if PSAK 73
Present value of Previous carrying Previous carrying
election consistently to all had always been
remaining amount of amount of
of its leases applied
lease payments finance lease finance lease
OR
asset liability
Lease liability
140
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Transition Option
Lessee Approach to Transition

Significance of
Comparability of change in
accounting Availability of
information and
historical
investor
information
perceptions
Future profit
Costs
trends
Contract structure
Systems and
and volume of
processes Disclosure
contracts
requirements
141
Summary of
PSAK 73
142
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Summary of PSAK 73
 Under PSAK 73, lessees will bring leases on balance sheet.
 Companies with operating leases will appear to be more asset-rich, but also more heavily
indebted.
 Total lease expense will be front-loaded even when cash rentals are constant.
 The new definition of lease increases focus on who controls the asset and may change which
contracts are leases.
143

 All lease agreement need to be identified and lease data extracted
 Set up a process to start collating a database of lease documentation for existing and new
leases.
 Perform test of completeness to understand in-scope lease population
 Determine discount rate for each lease contract to calculate lease liability and right-of-use
asset
 Start to analyse the requirements for additional resources to monitor lease activity
throughout the life of the lease considering the complexity, judgement and continuous
reassessment requirements
144
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Knowledge Check
145

Determining whether a supplier’s substitution rights are substantive is not key criteria to
assessing whether an identified asset exists.
Yes
No
It depends
146
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18/12/2019

The higher discount rate, the lower gearing ratio?
Yes
No
It depends
147

Under PSAK 73, Lessee should record all operating lease contracts on balance sheet?
Yes
No
It depends
148
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Q&A Session
149
Plan for
Implementation
and System
Consideration
150
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Why Think of the New Standards Now?

Response to Identify
Optimise terms
stakeholder commercial
of new contracts
questions opportunities
Reduce burden Revise budgets/ Review terms

on finance and forecasts for when renewing and
contract teams decision making modifying contacts
Determine Length of time to

Identify potential
implementation implement
unfavourable results
time, effort, cost
Dealing with Link into wider

Changes to KPIs,
broader business transformation
bonus schemes
impacts projects
Changes to IT
Update and align Informed long
systems or
group policies term decisions
programs
151
Adoption Needs to Consider Holistic Impact

Accounting and Reporting is the backbone of an IFRS (PSAK) adoption, and the results of the accounting impact
assessment feed all other impact areas.
1 2
Accounting, Tax and Reporting
Systems and Processes
 What are the essential differences in
 What is the impact on systems,
accounting and disclosures between
processes and controls?
the current and the new standard?
3 Business People and Change 4

 What are the impacts of the new  Who is impacted by this new
standard on the business models? adoption and what are their
 What are the commercial implications? training needs?
 How do we need to communicate with  How do we achieve ‘business as
external stakeholders? usual’?
5 Program Management
 How will the conversion be managed?
 What is its likely impact on cost and
resources?
152
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Typical Implementation Timeline

Phase 1: Phase 2: Phase 3: Phase 4:
Assess Design & Develop Implement Parallel Run & Go Live
Impact Assessment for both Design, develop, and validate Build, Integrate and Test the Running parallel to ensure process is
quantitative & qualitative impacts the IFRS (PSAK) Solution system and Quality Assurance operational
and Data & System
FINAL
DEADLINE
2 3 4
Gap Assessment 5
PSAK 72 PSAK 71 PSAK 73 Audit &
(Accounting,
Process, System) Assurance
Key financial and

reporting controls
Design & Document Controls, Disclosure, Governance Framework,
Impact computation – System, COA, PSAK 72, 73, 71 Policies and Procedures
How substantial is Key balances on-
the change? and off – B/S and in
Review
R i /R
Refine
fi P/L
Finalize Plan for Systems Accounting
Parallel Run Reconciliations System /
Process
ocess Key Disclosures
1
Decisions and Training & BAU
Roadmap Handover “Business as usual”
153
Il ustration
Business
Requirement Identify Issues / Functional UAT
Document Challenges Specifications and
Document SIT
Common Issues / Challenges

• Challenges in developing proper business requirements (e.g. due to large number of product
types / contracts)
• Limitation of data availability as required for implementing business requirements
• System limitation to accommodate all business requirements
154
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Summary
155
Kahoot
156
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Thank You
157
For more information about the presentation, you may contact:
Denny Hanafy
Partner
KPMG Siddharta Advisory
35th Floor Wisma GKBI
Jl. Jend. Sudirman Kav. 28
Jakarta 10210, Indonesia
Tel. +62 (0) 21 574 0877
Fax. +62 (0) 21 574 0313
Denny.hanafy@kpmg.co.id
kpmg.com/socialmedia kpmg.com/app
© 2019 PT KPMG Siddharta Advisory, an Indonesian limited liability company and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a
Swiss entity. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of
any particular individual or entity. Although we endeavor to provide accurate and timely information, there can
be no guarantee that such information is accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
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18/12/2019

Training on PSAK 71, PSAK 72

PSAK 72 – Revenue from contracts with customers :

PSAK 71 – Financial Instruments

Plan for Implementation and System Consideration

Document Classification: KPMG Confidential

Future of Financial Reporting

Reaction to PSAK 71, 72 and 73

Document Classification: KPMG Confidential

Document Classification: KPMG Confidential

Teck Wee Oh Michelle Iman

Document Classification: KPMG Confidential

Overview of Accounting Advisory Services

Document Classification: KPMG Confidential

Overview of Training Course

 To acquire a fundamental understanding of PSAK 72  Presentation will involve several

 To obtain understanding on PSAK 72, PSAK 73, and

 To provide insights on adoption plan ahead

 1 day training workshops

 Theory and case studies

Document Classification: KPMG Confidential

Why Are These Important

Impact of PSAK 73:

Impact of PSAK 71:

Document Classification: KPMG Confidential

Managing Financial Reporting Impact

PSAK 72 Revenue Recognition:

PSAK 71, PSAK 72 and PSAK 73 Implementation

NOV DEC JAN FEB MAR APR

PSAK 71 Financial Instruments:

Document Classification: KPMG Confidential

Many ratios will

Document Classification: KPMG Confidential

Document Classification: KPMG Confidential

PSAK 72: Revenue

Document Classification: KPMG Confidential

PSAK 72 : Revenue from Contracts with Customers

The Five-Step Model of Revenue

Identify the Identify the Determine Allocate the Recognise

Do we have What do I need What do I Split it up Have I

Document Classification: KPMG Confidential

The Five-Step Model of Revenue

... it is approved and the parties are

If an entity determined that there is no contract, revenue cannot be recognised.

Document Classification: KPMG Confidential

The Five-Step Model of Revenue

Document Classification: KPMG Confidential

Identify POs in the contract

Criterion 1: Can the customer

Distinct performance Not distinct – combine with

Document Classification: KPMG Confidential

Identify POs in the contract

Document Classification: KPMG Confidential

Determine The Transaction Price

Non-cash consideration Significant financing

Total revenue may be lower than contract price

Document Classification: KPMG Confidential

Determine The Transaction Price