STATEMENT OF FINANCIAL ACCOUNTING STANDARD

SFAS No.

52
INDONESIAN INSTITUTE OF ACCOUNTANTS

REPORTING CURRENCY

REPORTING CURRENCY

SFAS No. 52

Statement of Financial Accounting Standard No. 52, Reporting Currency, was adopted in a meeting of the Indonesian Financial Accounting Standards Committee on August 7, 1998, and ratified by the Executive Committee of the Indonesian Institute of Accountants on August 21, 1998. It is not required to apply this Statement for immaterial items.

FINANCIAL ACCOUNTING STANDARDS COMMITTEE Jusuf Halim Istini T. Siddharta Mirza Mochtar, MBA Wahjudi Prakarsa Katjep K. Abdoelkadir Jan Hoesada, M.M. Hein G. Surjaatmadja, M.Sc Sobo Sitorus Timoty E. Marnandus Mirawati Sudjono, M.Sc. Nur Indriantoro Rusdy Daryono Siti Ch. Fadjriah Osman Sitorus Jusuf Wibisana, M.Sc. Yosefa Sayekti, M.Com. Heri Wahyu Setiyarso, MBA Chairman Vice-Chairman Secretary Member Member Member Member Member Member Member Member Member Member Member Member Member Member

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OPENING REMARKS FROM THE CHAIRMAN, INDONESIAN INSTITUTE OF ACCOUNTANTS As we approach the era of globalization, the transfer of funds is no longer limited by national boundaries. Demands for accountability in financial information are growing from those using financial statements both at home and overseas. To fulfill these ever-increasing demands, Financial Accounting Standards should have a global perspective. Despite limitations in labor, time and funds, Indonesian Institute of Accountants is making an on-going effort to raise the quality of financial accounting standards so that financial statements provided by Indonesian companies are in line with developments in international standards. Improving quality can be accomplished properly by the publishing of new standards as well as by perfecting existing norms. These efforts in the development of accounting standards naturally would not have succeeded without the support of various parties. We would like to take this opportunity to express our thanks and highest appreciation to the Directorate-General of Financial Institutions, Department of Finance, who has supported efforts in developing accounting standards through the Sub-Team for Accounting System Development in the Private Sector. We would also like to thank other government bodies and agencies, such as the accounting firm of Hadi Sutanto and Co., as well as various tertiary institutions, associations, companies and other parties who have given much input and support in the process of developing accounting standards. To all members of the Accounting Principles Committee, who have worked without profit but with a spirit of professionalism, we would like to express our thanks and highest appreciation. Jakarta, December 8, 1997

Executive Commissioner Indonesian Institute of Accountants

Soedarjono Chairman

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SFAS No. 52

CONTENTS paragraphs

Objective............................................................................... Scope ..................................................................................... Definitions...............................................................................

01 02 03

Recording and Reporting Currency .. 04-07 Functional Currency ...08-13 Determination of Beginning Balance .. 14-15 Comparative Presentation ... 16

Change in Recording and Reporting Currency 17-18 Consolidation .. 19-20 Disclosures .. Effective Date .. Appendix 21 22

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The standards, typed in bold and italics, should be read in the context of the explanatory paragraphs and implementation guidance in this Statement. This Statement is not required to be applied for immaterial items.

Objective 01 The objective of this Statement is to address the currency used by enterprises in the accounting records and financial statements. Scope 02 This Statement should be applied for all enterprises which intend to or are using a currency other than the rupiah as the reporting currency. Definitions 03 The following terms used in this Statement are defined as follows:

Functional currency is the primary currency from the standpoint of economic substance. It is essentially the primary currency reflected in the operating activities of the enterprise. Reporting currency is the currency used in the presentation of financial statements. Recording currency is the currency used by the enterprise to record transactions.

Recording and Reporting Currency 04 The reporting currency used by enterprises in Indonesia is the rupiah. Enterprises can use a currency other than the rupiah as the reporting currency only if the respective currency meets the criteria of functional currency.

05

The recording currency should be the same as the reporting currency.

06 In general, financial statements should be reported in local currency. However, if an enterprise uses a currency other than the local currency (for instance U.S. Dollar) as its reporting currency, this reporting currency should also be the functional currency. The functional currency can be the rupiah or a currency other than the rupiah (for instance U.S. Dollar), depending on the economic substance. 07 The financial statements are intended to provide financial information on results of operations, financial position, and cash flows of the enterprise. The financial statements are derived from the accounting records of the enterprise; accordingly, the currency used in the accounting records should be the same as the currency used in the financial statements. Under this concept, the procedures for remeasurement of the accounting records or translation of

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the financial statements are no longer required, except for comparative periods when the enterprise adopts this Statement (see paragraph 16) and for financial statements which are consolidated (see paragraph 19), because, in essence, the financial statements have been presented in the functional currency. Functional Currency 08 A currency is the functional currency if it fulfills the following indicators in the aggregate: (a) Cash flow indicator: cash flows related to the enterprises main operating activity are dominated by the particular currency, (b) Selling price indicator: the selling prices of the enterprises products in the near term are significantly affected by fluctuations in the exchange rates of the particular currency or the enterprises products are predominantly for the export markets, and (c) Cost indicator: the enterprises costs are significantly affected by fluctuations in the exchange rates of the particular currency. 09 The selling prices or costs of the enterprise are significantly affected by fluctuations in the exchange rates of the particular currency when such selling prices or costs are calculated based on the exchange rates of the particular currency. 10 In order to determine the functional currency, an enterprise should evaluate the indicators described under paragraph 8 above. In addition, for an enterprise which has more than one subsidiary or separate and distinct operations, such as a branch or division, where the operations can be viewed as a separate company or operating activity, it is possible that several different functional currencies could be applicable such that each of the respective currencies should be evaluated during the process of determining the enterprises functional currency. In determining the functional currency, relevance and reliability can be achieved through the process of weighting each of the indicators above, and after weighting each of the indicators individually, an overall weighting process is performed. In this process, cash inflows have the highest weighting. Besides this weighting process, other factors which could influence the long-term economic condition should also be considered. 11 The main factors influencing the determination of functional currency should be defined so as to enable the enterprise to have a consistent unit of measure. When the factors above cannot be clearly linked to a particular currency, professional judgement should prevail by means of a detailed evaluation of the operations and activities of the enterprise, and evaluated based on the highest level of relevance and reliability. 12 The accounting treatment for transactions and balances denominated in nonfunctional currencies is addressed in SFAS No. 10, Transactions in Foreign Currencies. 13 The implications under paragraph 12 above are that currencies other than the functional currency are considered non-functional currencies, while the functional currency should be considered the base currency in determining the exchange value or calculating the exchange rate differences. For instance, based on the economic substance concept, the enterprises functional currency has been determined to be the U.S. Dollar; hence, currencies other than the U.S. Dollar are considered non-functional currencies and all transactions

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denominated in non-functional currencies should be translated into the functional currency. Determination of Beginning Balance 14 The determination of beginning balances for recording purposes is performed by remeasuring the financial statement accounts as though the functional currency has been used since the transaction originated. The remeasurement procedures are as follows: (i) (ii) Monetary assets and liabilities are remeasured using the balance sheet date rates; Non-monetary assets and liabilities as well as share capital are remeasured using historical rates, or prevailing rates at the transaction dates for the acquisition of fixed assets, incurrence of liabilities or contribution of capital; The difference between the assets, and liabilities and share capital in the new reporting currency, as a result of procedures (i) and (ii) above, is recorded in retained earnings or accumulated deficit at that date; Income and expense items are remeasured using the weighted average rates for the period, except for depreciation expense on fixed assets or amortization of nonmonetary assets which are remeasured using historical rates for the related period; Dividends are remeasured using the rate prevailing at the date of the recording of the dividends; Procedures (iv) and (v) above will result in a remeasurement adjustment which is recorded in retained earnings or accumulated deficit at that date; The remeasurement adjustment is a result of the following calculation: retained earnings (accumulated deficit) at the end of the year (the result of procedure (iii)) plus dividends (the result of procedure (v)) minus net income (loss) for the period (the result of procedure (iv)).

(iii)

(iv)

(v) (vi) (vii)

15 The remeasurement procedures described under paragraph 14 are performed up to the earliest period the particular functional currency was effective. Comparative Presentation 16 The financial statements for comparative periods, where the reporting currency was not the functional currency, should be measured and restated in accordance with the procedures described under paragraphs 14 and 15. Change in Recording and Reporting Currency 17 An enterprise should change its recording and reporting currency to the rupiah when the functional currency changes from a non-rupiah currency to the rupiah. The change in recording and reporting currency should be made at the beginning of the fiscal year, not during the fiscal year. 18 The enterprises decision to change the reporting currency can only be made due to changes in economic substance relating to the functional currency. During the operating life of the enterprise, the functional currency can change when there are changes in the enterprises operations or markets. Consolidation

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19 The consolidated financial statements are presented in the functional currency after evaluating the indicators discussed in paragraph 8 for the parent company and all of its subsidiaries. The translation of the subsidiaries financial statements to the functional currency of the consolidated financial statements is performed as follows: (i) (ii) (iii) (iv) (v) Assets and liabilities are translated using the balance sheet date rates; Equity accounts are translated using historical rates; Income and expense accounts are translated using weighted average rates; Dividends are measured using the rate prevailing at the date of the recording of the dividends Procedures (i) through (iv) above will result in a translation adjustment which is presented in an equity account called Translation Adjustment.

20 The recording currency for the parent company should be the same as the reporting currency used in the consolidated financial statements. Disclosures 21 (a) The enterprise should disclose the following: The reasons for determining the reporting currency based on the indicators under paragraph 8; The change in reporting currency and reasons for the change : (i) (ii) (iii) the reasons for the change based on the indicators under paragraph 8, exchange rates (historical, current, or average) used in remeasurement or translation, condensed balance sheet and income statement, presented in the previous reporting currency, for comparison purposes.

(b)

Effective Date 22 This Statement is effective for the preparation and presentation of financial statements beginning on or after January 1, 2000. Earlier application is encouraged.

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APPENDIX REMEASUREMENT TO FUNCTIONAL CURRENCY The remeasurement process is intended to achieve the same results as if the accounting records of the enterprise have been maintained in the functional currency. The remeasurement process is performed using historical rates, current rates, and average rates. The following are examples of accounts using historical rates, current rates, and average rates. A. Accounts Remeasured Using Historical Rates Balance sheet accounts Securities carried at acquisition cost Inventory carried at acquisition cost Prepaid costs, such as insurance, advertising and rent Fixed assets Patents, trademarks, licenses, and formulas Goodwill Other intangible assets Deferred costs and credits, except policy acquisition costs for the insurance industry Deferred income Common shares Preferred shares based on issuance price Income statement accounts Income and expenses related to non-monetary assets and liabilities Cost of goods sold Depreciation of fixed assets Amortization of intangible assets Amortization of deferred income B. Accounts Remeasured Using Current Rates Assets and liabilities other than those mentioned above are measured using the current rates. In general, current rates are used for monetary asset and liability accounts. C. Accounts Remeasured Using Weighted Average Rates Income statement accounts should, in theory, be measured using historical rates. However if applied literally, it may not be practical in the preparation of financial statements. Alternatively, using a weighted average rate would reflect the fluctuations in the exchange rate for the reporting period.