IFRS: The Road to

Conversion
 Objectives
• What is IFRS?
• What Are the Goals of the IASB?
• Who Uses IFRS?
• What Are the Potential Benefits of Adopting
IFRS?
• What Are the Potential Challenges When
Adopting IFRS?
• What Costs Should be Considered?
• What Are the Implications?
 What Is IFRS

• An accounting framework similar

in character and scope to U.S.
GAAP (and Indonesian GAAP?)
 What Is IFRS

• A suite of globally accepted, high

quality financial reporting
standards promulgated by the
IASB and its predecessor, the
IASC
 What Is IFRS

• Principles-based rather than

rules-based
 What Is IFRS

• The future of world-wide financial

reporting
 Goals of the IASB
• To increase financial reporting
transparency and comparability
 Goals of the IASB
• To encourage worldwide
convergence to one global set of
standards
 Goals of the IASB
• To facilitate lower costs of capital
due to improved world-wide
capital allocations
 Who Uses IFRS?
• Over 130 countries currently
require the use of or have a policy
of convergence with IFRS
 Who Uses IFRS?
• Increased globalization of capital
and trade markets have led to
increased pressures to harmonize
 Who Uses IFRS?
• Companies with an international footprint*
are finding IFRS to be preferable or
necessary in many instances

*Trail, track, footstep, path, trace, marks, paw marks, hoof marks,
imprints, trajectory
 Who Uses IFRS?
• Most public U.S. companies are
beginning to think about IFRS,
and the impact it will have on their
organizations in the coming years
 Potential Benefits of Adopting
IFRS
• Eliminate dual reporting for
foreign subsidiaries using IFRS
locally
 Potential Benefits of Adopting
IFRS
• Comparability of financial
information with international
competitors
 Potential Benefits of Adopting
IFRS
• Easier access to foreign capital
markets
 Potential Benefits of Adopting
IFRS
• Potentially lower cost of capital
 Potential Benefits of Adopting
IFRS
• Increased flexibility in choosing
accounting policies that match the
economic substance of particular
transactions
 Potential Challenges When Adopting
IFRS
• Training
• IT system changes
• Changes to policies, procedures and controls
• Contractual and legal obligations
• Different type of professional judgment
• Communications with users
• Compensation plans and performance measurement
• Accounting policy selection issues
• Divergent management, income tax and inter-group
reporting bases
• Corporate governance issues
• Risks of short-term financial reporting quality shortfalls
• Increased risk of misstatement, error, omission and fraud
• A learning curve
 Costs Should be Considered
• Costs will vary considerably among companies
who adopt IFRS
• Migration to IFRS will probably result in sizable
cash outlays and resource dedication for:
 IT systems
 Training
 Retooling of policies, processes and controls
 Personnel costs
 Outside advisory fees
 Risk mitigation
 Opportunity costs
 Implications
• Auditor Independence Concerns
 System modifications
 Accounting and Disclosure Compilation
 Involvement in Project Management
• Board members may be asked to provide oversight
outside of their traditional “comfort zones”
• Audit committees need to become sufficiently
educated and knowledgeable about IFRS
• Many risks will need to be reassessed:
 Risks of misstatement,
 Inability to report in a timely fashion
 Injudicious accounting policy selections
 Fair Value Concept
• Fair values are relevant and reliable
enough to be reflected in investors’
valuations
• Reliability of changes in fair values can
be eroded by estimation error
• Managers opportunistically exercise
discretion
• Changes in fair value of liabilities can
be important to investors
 Fair Value (continued...)
• Effects on management discretion in
determining fair values
• How will use of more fair values affect
investor or management behaviour?
• What are implications of incorporating
more expectations about the future in
financial statements today?
• What does profit or loss mean in such
a world?
 How Is Indonesia?
Indonesia  2012 will fully adopt
and implement IFRS

Compared to some coutries:

• Korea 2011: IFRS mandatory for listed businesses –2009: IFRS
permitted
• Japan Goal of full convergence by 2011
• China Align Chinese GAAP with IFRS by 2011
• Israel Required for public companies from 2008
• India Convergence with IFRS for public companies for 2011
• Brazil Banks to be required to use IFRS starting from 2010
• Canada Timeframe set –2011: Reporting under IFRS for publicly
accountable entities
 Constraint for Adopting and
Implementing IFRS
• Training programs and university are not ready
yet.
• Lack of communication between DSAK and the
accounting society
• Lack of Expertise in IFRS
• Accounting policy selection issues
• Risks of short-term financial reporting quality
shortfalls
• Increased risk of misstatement, error, omission
and fraud
IFRS/IAS that have been adopted to PSAK until
December 31, 2008 

1.  IAS 2 Inventories

2.    IAS 10 Events after balance sheet date
3.    IAS 11 Construction contracts
4.    IAS 16 Property, plant and equipment
5.    IAS 17 Leases
6.    IAS 18 Revenues
7.    IAS 19 Employee benefits
8.    IAS 23 Borrowing costs
9.    IAS 32 Financial instruments: presentation
10.  IAS 39 Financial instruments: recognition
and measurement
11.  IAS 40 Investment property 
IFRS/IAS that will be adopted to PSAK during
2009

1.    IFRS 2 Share-based payment

2.    IFRS 4 Insurance contracts
3.    IFRS 5 Non-current assets held for sale and discontinued operations
4.    IFRS 6 Exploration for and evaluation of mineral resources
5.    IFRS 7 Financial instruments: disclosures
6.    IAS 1 Presentation of financial statements
7.    IAS 27 Consolidated and separate financial statements
8.    IAS 28 Investments in associates
9.    IFRS 3 Business combination
10.  IFRS 8 Segment reporting
11.  IAS 8 Accounting policies, changes in accounting estimates and errors
12.  IAS 12 Income taxes
13.  IAS 21 The effects of changes in foreign exchange rates
14.  IAS 26 Accounting and reporting by retirement benefit plans
15.  IAS 31 Interests in joint ventures
16.  IAS 36 Impairment of assets
17.  IAS 37 Provisions, contingent liabilities and contingent assets
18.  IAS 38 Intangible assets  
IFRS/IAS that will be adopted to PSAK during
2010

1.   IAS 7 Cash flow statements

2.   IAS 20 Acc. for government grants and
disclosure of government assistance
3.   IAS 24 Related party disclosures
4.   IAS 29 Financial reporting in
hyperinflationary economies
5.   IAS 33 Earning per share
6.   IAS 34 Interim financial reporting
7.   IAS 41 Agriculture  
 Current Condition?

By the end of 2007:

• 28 standards based on IAS/IFRS
• 20 standards based on US GAAP
• 8 standards self-developed
• 1 standard in Shari’a Banking (based on
AAOIFI and Local Regulations)