CHAPTER 2
THEORETICAL FOUNDATION
2.1
Financial Report
Financial report is very important for any organization, profit or nonprofit entities should be able to deliver financial report. According to Weygandt,
Kieso & Kimmel (2005) accounting is an information system that identifies,
records, and communicates the economic events of an organization to interested
users. Based on this definition, accounting is not only required to identify and
records the transactions within an entity, but it also should be able to
communicate the transactions occur in an entity. Weygandt et al. also explained
accounting as process of identifying and recording activities with little use unless
the information is communicated to interested users. Financial information
through accounting reports, to most common of which are called financial
statement.
In other comments, Alexander, D., Britton, A., and Jorissen, A. (2009)
also gave a suggestion about accounting which has the provision of useful
figures to people about their resources. Based on these definitions, accounting
should be able to communicate the financial information to the interested users.
There are two kind of financial information users, internal users and external
users as explained by Weygandt et al (2006). Internal users are the users of
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financial information inside the company or entities itself. Internal users usually
involved in the planning, organizing and running the business. These include
finance directors, marketing managers, and production officers. By having the
reliable financial information through financial reports, these people behind the
company will able to deliver the appropriate decision for the business. External
users are the users of financial information for other than the operation of the
business but still closely related to the companies. If the internal users have a
centralized purpose in the company, external users usually have different interest
for the company which can be direct or indirect. Investors have the direct interest
on the company, they use the financial information to decide whether they should
purchase, hold, or sell the company’s stock. Creditor, supplier, or banks, use the
financial information to view the risks of granting credit or lending money.
Government also included in external users of the financial information, the
example is tax authorities. The Tax Authorities has the demand to look at the
company’s financial statement to evaluate whether the company is paying the tax
at the right amount or not. Customers are also the external users of the financial
information; they are interested on how the company will continuously operates,
especially if the customers have a long-term contract with the company. Labor
unions also have the interest on how the company able the pay their labor and
make sure that the labor are having the equal benefits as their workload.
Financial analyst also will need the financial information to predict the
company’s performance.
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2.2
Definition of Small Medium Entities
There are three definitions of SMEs which are from Department of
Cooperative, Small and Medium Entities of Indonesia (Departemen Koperasi dan
Usaha Kecil Menengah Republik Indonesia), IFRS for SMEs and from Bolton
Committee - Department of Employment, Workplace Relations and Small
Business.
The definition of SME may be different in each country. In Indonesia,
definitions of SME are divided to three definitions which based on the
regulations by Department of Cooperative, Small and Medium Entities of
Indonesia are micro entity, small entity, and medium entity. Micro sized entity is:
“A productive business entity that owned by individual or/and an entity
that follows the criteria provided by the government. A micro entity
should has asset maximum of Rp. 50 millon, and annual income of
maximum Rp. 300 million.”
While small sized entity is:
“ A productive business entity that established independently and done by
individual or a business entity which is not a subsidiary or a branch of an
entity which owned, controlled or a direct and indirectly related with a
medium or big entity. Small entity should has asset more than Rp. 50
million and less than Rp. 500 million, and annual income of more than
Rp. 300 million and less than Rp. 2.5 billon. “
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And for medium sized entity is:
“A productive business entity that established independently and done by
an individual or an entity which is not owned, controlled, or direct and
indirectly related to a small or big company. The amount of asset that
owned by SME should be more than Rp 500 million and less than Rp 10
billion, while for the income from sale more than Rp. 2.5 billion and less
than Rp. 50 billion” (Department of Cooperative, Small and Medium
Entity of Indonesia, 2008).
Different definition explained by SAK ETAP. Based on SAK ETAP, small
and medium-sized entities are entities that:
a. Do not have public accountability, and
b. Publish general purpose financial statements for external users.
A company has public accountability if:
a. Its debt or equity instruments are traded in a public market or it is in
the process of issuing such instruments for trading in a public
market (a domestic or foreign stock exchange or an owner-thecounter market, including local and regional markets), or
b. It holds assets in a fiduciary capacity for a broad group of outsiders
as on of its primary businesses. This is typically the case for banks,
credit unions, insurance companies, securities brokers/dealers,
mutual funds and investment banks.
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The same definition is stated by IFRS for SMEs on its standards. This is
because SAK ETAP is referring to the IFRS for SMEs (Ikatan Akuntan
Indonesia Website, 2009).
Other definition of SME is as defined by Bolton Committee (1971) –
Department of Employment, Workplace Relations and Small Business (1999)
define SME based on number of employees, sales revenues or turnover, total
assets and net worth. These descriptions then come with two characteristics
which are qualitative definition and quantitative definition.
- Qualitative definitions
The Bolton Committee (1971) defined the three qualitative definitions of
SME:
1. A small firm is one that has a relatively small share of its market.
Because of this, SMEs generally do not have the capacity to
influence market prices or product quantities.
2. An SME is managed by its owners or part-owners in a
personalized way, and not through the medium of a formalized
management structure. This generally means that SMEs lack a
formal segregation of duties or decision making, which can
manifest as a lack of objectivity.
3. An SME is also independent, in the sense that it does not form part
of a larger enterprise and the owner-managers should be free from
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outside control in taking their principal decisions. This ultimate
authority, however, can also be a potential source of subjective
decision making.
- Quantitative Definitions
Bolton Committee (1971) also published their quantitative definitions for
SMEs; they provide wide descriptions and comparisons to be view in the
measurement. The common measures include:
• Number of employees
• Total Assets
• Sales Turnover
By having these measures, it allows wide descriptions of SMEs through
comparisons them. The comparisons may include:
a) Quantification of the small firm sector as a whole, and its
contribution to economic aggregates such as gross domestic
product (GDP), employment, exports and innovation
b) Assessment of changes to this economic contribution over time
c) Comparisons between the contributions of small firms in one
country with those of other nations.
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2.3
SAK ETAP
(Standard Akuntasi
Keuangan untuk
Entitas Tanpa
Akuntabilitas Publik)
On July 2009, IAI (Ikatan Akuntan Indonesia) released the SAK ETAP or
Accounting Standards for Non-Public Accountability Entity (Ikatan Akuntan
Indonesia Website, 2009). This standard is expected to be implemented on
January 1st 2011, but it is permitted for SMEs to apply the standard from January
1st 2010. As mentioned by IAI, this standard is referred to the entity with nopublic accountability. The standard is the simplification of full PSAK or
Indonesian GAAP. The SAK ETAP is also based on the exposure draft of IFRS
for SMEs which is published by International Accounting Standard Board
(IASB) (E. Triwahyuningsih, personal communication, May 2010).
2.4
Elements of Financial Statements
Income statement presents revenues and expenses and resulting net
income or net loss for a specific period of time (Weygandt et al, 2005).
According to SAK ETAP 3.12, a complete set of financial statements consist of
a. Balance sheet (neraca)
b. Income statement (laporan laba rugi)
c. Statement of changes in equity (laporan perubahan ekuitas) which include:
d) All changes in equity, or
e) Changes in equity which arise from transactions from the owners in its
capacity as an owner
d. Statement of cash flow (laporan arus kas)
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e. Notes to financial statement which consist of summaries of significant
accounting policies and other explanatory information.
2.4.1 Balance Sheet
Statement of financial position or balance sheet deals with the economic
resources controlled by an entity, its financial structure, its capacity to adapt to
changes in its environment, and its liquidity and solvency (Hogget, Edwards,
Medlin, 2006). Based on SAK ETAP 4.2, the items that should be disclosed in
the balance sheet are:
a. Cash and cash equivalents
b. Trade and other receivables
c. Inventories
d. Investment property
e. Fixed asset (property, plant and equipment)
f. Intangible asset
g. Trade and other liabilities
h. Asset and liabilities
i. Deferred liabilities
j. Equity
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2.4.2 Income Statement
Income statement reports the revenues earned by an entity and the expenses
for a period of time (Weygandt et al., 2005).As mentioned in SAK ETAP 5.3, the
items that should be disclosed in the income statement are:
a. Revenue
b. Finance cost
c. Share of profit or loss from investment for using equity method
d. Tax expense
e. Net profit or loss
2.4.3 Statement of changes in equity
Statement of changes in equity serves as connecting link between the balance
sheet and the income statement, and explains the changes that took place in
equity during the period (Hogget et al, 2006). Based on SAK ETAP 6.3,
statement of changes in equity consists of:
a. Profit and loss for the period
b. Revenue and expense recognized in equity
c. For each component of equity, the effect of changes in accounting policy and
correction recognized in accordance in Section 9 Accounting Policy,
Estimation and Errors.
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d. For each component of equity, a reconciliation between carrying amount at
the beginning and the end of the period, separately disclosing changes
resulting from:
i. Profit or loss
ii. Revenue and expense recognized in equity
iii. Amount of investment, dividends and other distribution to owners,
showing separately issues of shares, treasury share transactions, dividends
and other distributions to owners, and changes in ownership interest in
subsidiaries that do not result in a loss of control.
2.4.4 Statement of cash flow
Statement of cash flows is prepared to report necessarily represent cash
flows in and out of the entity (Hogget et al., 2006). Statement of cash flows also
provide information about the changes in cash and cash equivalents of an entity
for a reporting period, showing separately changes from operating activities,
investing activities and financing activities.
I.
Operating activities
As explained by SAK ETAP 7.4, cash flow from operating activities is
income which earned from the main business activity of the entity. The
examples of cash flow from operating activities are:
a. Cash receipts from the sale of goods and the rendering of services
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b. Cash receipt from royalties, fees, commission and other revenue
c. Cash payment to supplier for goods and services
d. Cash payments to and on behalf of employees
e. Cash payments or refunds of income tax, unless they can be
specifically identified with financing and investing activities
f. Cash receipts and payments from investments, loans, and other
contracts held for dealing purposes, which are similar to inventory
acquired specifically for resale.
II.
Investing activities
Investing activities include cash flows related to the acquisition or
sale of the company’s productive assets (Short et al, 2007). This also
relates to the acquisition and disposal of long-term asset and other
investments not included in cash equivalents. The minimum items that
should be informed in the investing activities section based on SAK
ETAP 7.5 are:
a.
Cash payments to acquire property, intangible asset, and other longterm assets
b. Cash receipt from sale of fixed asset, intangible asset, and other longterm asset
c. Cash payment to acquire equity or debt instruments of other entities
and other interest in joint venture (other than payments for those
instruments classified as cash equivalents or held for dealing or
trading)
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d. Cash receipt from sales of sales of equity or debt instruments of other
entities in joint ventures (other than receipts for those instruments
classified as cash equivalents or held for dealing or trading)
e. Cash advances and loans made to other parties
f. Cash payment from repayment of cash advances and loans made to
other parties.
III.
Financing activities
Cash flow from financing activities relates to the financing of the
enterprise itself. They involve the receipt or payment of money to
investors and creditors (Short et al., 2007). Financial activities are the
activities that result in changes in the size and composition of the
contributed equity and borrowings of an entity (IASB, 2009). Based on
SAK ETAP 7.6, the items that should be disclosed in financing activities
are:
a. Cash proceeds from issuing from issuing shares or other equity
instruments
b. Cash payments to owners to acquire or redeem the entity’s shares
c.
Cash proceeds from issuing loans and other short-term or long-term
borrowings
d. Cash repayments of amounts borrowed
e. Cash payments by a lessee for the reduction of the outstanding
liability relating to finance lease.
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2.5
Concepts and Pervasive Principles
On the application of SAK ETAP, there are some concepts and accounting
principles that should be apply by SMEs that are looking forward to use SAK
ETAP as their accounting standard. There are four concepts that will be
discussed in this paper which are:
1. Revenue recognition
2. Measurement of assets
3. Materiality.
2.5.1 Revenue Recognition
There are several definitions of revenue. According to SAK ETAP 2.22,
the definition of revenue is.
“Revenue is income that arises in the course of the ordinary activities of an entity
and is referred to by a variety of names including sales, fees, interest, dividends,
royalties and rent.”
While IFRS in IAS 18 (para.7) defines revenues as follows:
“Revenue is the gross inflow of economic benefits during the period arising in
the course of the ordinary activities of an entity when those inflows result in
increases in equity, other than increases relating to contributions from equity
participants.”
Revenue can be assumed as the most crucial factor to determine an
entity’s profit (Alfredson, et al., 2007). Most invariably the higher an entity’s
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revenue, the greater will be its profits. Revenue usually becomes the largest
single item in financial statements. The users of financial statements uses
revenue to assess trends, growth, and other revenues components as a variable to
identify an entity’s past performance and future prospect.
Based on SAK ETAP 2.33, an entity should prepare its financial
statement using accrual basis (except for cash flow information). On the accrual
basis, items are recognized ass asset, liabilities, equity, income or expenses when
they satisfy the definitions and recognition criteria for those items. The revenue
recognition principle dictates that revenue should be recognized in the
accounting period, in which it is earned (Weygandt et al,). In a service entity like
PT. Tata Cipta Swara, revenue is earned at the time the service is performed.
Along with revenue recognition principle, there is also matching principle.
Accountants follow the approach of “let expenses follow revenues”. This is
based on how the expense makes its contribution to revenue. The matching
principle dictates that effort (expenses) should be matched with accomplishment
(revenues).
On SAK ETAP 20.1, there are several kinds of transactions that can be
categorized as revenues:
a. The sale of goods (whether produced by the entity for the purpose of sale
or purchased for resale).
b. The rendering of services
c. Construction contracts in which the entity is the contractor
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d. The use by others of entity assets yielding interest, royalties or dividends.
Since PT. Tata Cipta Swara is a service provider entity, then we will discuss
about how the standard determine the revenue recognition for rendering of
service. SAK 20.12 explains about the criteria that should be fulfilled to identify
service as revenues which are:
a. The amount of revenue can be measured reliably
b. It is probable that economic benefits associated with the transaction
will flow to the entity
c. The stage of completion of the transaction at the end of the reporting
can be measured reliably.
d. The cost incurred for the transaction and the cost to complete the
transaction can be measured
In order for revenues to be recorded in the same period as the service is
rendered, and for expenses to be recognized in the same period as they incurred,
adjusting entries are made at the end of the accounting period (weygandt et al.,
2005). The adjusting entries are made to ensure that the revenue recognition and
matching principle are followed. There are two categories of adjusting entries
that may occur in PT. Tata Cipta Swara business process which are:
a. Unearned revenues, cash received and recorded as liabilities before
revenue is earned.
b. Accrued revenues, revenues earned but not yet received in cash or
recorded.
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Unearned revenues which can also called as prepayment is recognized when
payment is received for services that will be provided in a future accounting
period (Weygandt, 2005). When the payment is received, an unearned revenue
account (a liability) should be recorded to recognize the obligation in future
period. When the service is already done or revenue is earned, the adjusting entry
for unearned revenues results in a decrease (debit) to increase in service revenue
account in credit. Weygandt et al (2005), give an illustration for this explanation:
Pioneer Advertising Agency received $1,200 on October 2 from R. Kox for
advertising services expected to be completed by December 31. The payment
was credited to unearned revenue; this account shows a balance of $1200 in the
October 31 trial balance. Analysis reveals that $400 of those fees was earned in
October. The following adjusting entry is made.
Oct. 31 Unearned revenue
Service Revenue
400
400
(to record revenue for services provided)
Illustration 1.1 – Adjusting entry for unearned revenue, (Accounting Principles pg. 98, 2005)
After adjusting the entry is posted, the T-account shows:
Illustration 1.2 – T-accounts after the adjusting entry, (Accounting Principles pg. 98, 2005)
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The liability Unearned Revenue now shows a balance of $800. This amount
shows the remaining liability by Pioneer that will be performed in the future. On
the other side, Service revenue shows total revenue of $10,400 earned in
October.
Other adjusting entry for accrual basis is accrued revenues. Accrued
revenue is when revenue is earned but not yet received in cash or recorded at the
statement date (weygandt et al., 2005). This may result from services that have
been performed but are neither billed nor collected. An adjusting entry is
required for two purposes: (1) to show the receivable that exists at the balance
sheet date, and (2) to record the revenue that has been earned during the period.
The illustration for accrued revenue is explained below by Weygandt et al.
(2005).
In October Pioneer Advertising Agency earned $200 for advertising
services that have not been recorded. The following adjusting entry is made on
October 31.
Oct. 31 Accounts Receivable
200
Service Revenue
200
(to record revenue for services provided)
Illustration 1.3 – The adjusting entry for accrued revenues, (Accounting Principle Pg.
100, 2005)
After adjusting entry is posted, the T-account shows:
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Illustration 1.4 – The T-account after adjusting entry, (Accounting Principle Pg. 100,
2005)
The $200 increase in Accounts Receivable shows the amount owed by client.
The balance of $10,600 in service revenue represents the total revenue earned
during the period.
On November 10, Pioneer receives cash of $200 for the services performed
in October. Therefore below journal entry is made
Nov. 10
Cash
200
Accounts Receivable
200
(to record cash collected on account)
Illustration 1.5 – adjusting entry to record cash payment from client, (Accounting
Principle, Pg. 101, 2005)
2.5.2 Measurement of Asset
Since PT. Tata Cipta Swara provides audio system and band equipment
rental service, it is important for the entity to be able to fulfill the demand from it
clients by having a complete list of needed equipment. Looking at the nature of
its business which rely on its asset or equipment, measurement of assets become
very important. As stated in SAK ETAP 15.6, at the initial recognition of fixed
asset, assets are measured based on its cost which is cash price equivalent at the
recognition date. In SAK ETAP 15.7, there are several factors that affect
measurement of costs of asset:
a. Purchase price, including legal and brokerage fees, import duties and
non-refundable purchase taxes, after deducting trade discounts and
rebates.
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b. Any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner
intended by management. These include costs of site preparation,
initial delivery and handling, installation and assembly, and testing of
functionality.
c. The initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located, the obligation for which
an entity incurs either when item is acquired or as a consequence of
having used the item during a particular period for purposes other
than to produce inventories during that period.
The SAK ETAP requires entity to make fixed asset measurement after
initial recognition. In the standard, entities are required to the value their fixed
asset using cost model. As mentioned in the factors of cost above, in point b,
which includes any outlays incurred up to the point where the asset is at the
location and in the working condition to be capable of operating in the manner
intended by management (Alfredson, K et al,2007) .In order to make the
equipments working well with appropriate condition, management may need to
undertake certain outlays to keep the equipments running efficiently at desired
level. To make sure the equipments operate well, the equipments need to be
regularly serviced and any other routine check. The costs associated with
keeping the fixed asset at the required working condition are expensed, and not
added to the depreciable costs of the asset. These costs are generally referred to
as repairs and maintenance.
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In SAK ETAP 15.14, the standard stated that an entity should measure all
fixed asset after initial recognition at cost or purchase price less any accumulated
depreciation and any accumulated impairment losses. Under cost model, amount
of asset should be adjusted by calculating its depreciation and impairment losses.
2.5.2.1 Depreciation
Depreciation is a systematic allocation of the cost of an asset over the
different periods benefited by the use of the asset (Skousen, E. Stice, J. Stice,
2000). Other explanation about depreciation is that, depreciation is a process of
cost allocation, not a process of asset valuation (weygandt et al 2005). Asset by
definition are expected future benefits and, as noted in SAK ETAP 15.4, the
initial recognition of an item of fixed assets requires that it is probable that the
future benefits will flow to the entity. Depreciation expense is the recognition
of the usage of the service potential of an asset. As stated in SAK ETAP 15.17,
the depreciation expense for each period should be added in income statement
unless another section of the standard requires the cost to be recognized as part
of the cost of an asset.
There are several factors that affect the calculation of asset depreciation:
•
Asset cost
Asset cost includes all expenditures spent by an entity that related to the
acquisition and preparation for the asset (Skousen et al, 2000).
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•
Residual or salvage value
Residual value is an estimation of how much an entity will obtain from
the asset’s disposal (Alfredson et al, 2007). The estimation is based on
what could be obtained from disposal of similar assets that are currently,
at the date of estimate, at the end of their useful lives, and which have
been used in a similar fashion to the asset being investigated.
•
Useful life
Useful life is determined by the management’s estimation. Based on SAK
ETAP 15.21, there are several factors that can be used as an estimation
base to estimate asset’s useful life:
a. The expected usage of the asset. Usage is assessed by reference
to the asset’s expected capacity or physical output
b. Expected physical wear and tear, which depends on operational
factors such as the number of shifts for which the asset is to be
used and the repair and maintenance program, and the car and
maintenance of the asset while idle.
c. Technical or commercial obsolescence arising from changes or
improvements in production, or from a change in the market
demand for the product or service output of the asset
d. Legal or similar limits on the use of the asset, such as expiry
dates of related leases.
The primary functional factor limiting the useful lives of assets are useful is
obsolescence (Skousen et al, 2000). An asset will lose its function when as a
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result of changed business demand or technological improvement and it no
longer able to be used as a source of sufficient revenue for the entity. Both
physical and functional factors must be considered in estimating useful life of
an asset. This recognition requires entity to estimate the events will take on
future period and required a prudent judgment from the accountant. Physical
factors are more readily apparent than functional factors in predicting asset life.
However when functional factor tend to hasten the retirement of an asset, this
factor should also be considered.
According to SAK ETAP 15.22, there are several depreciation methods
that an entity can use as their depreciation base, which are straight-line method,
diminishing balance method, and sum of the unit of production method.
a.) Straight – Line method
Straight line method is used where the benefits are expected to be
received evenly over the useful life of the asset (Alfredson et al, 2007).
The formula for straight line method depreciation is calculated as:
Figure 1 – Straight line method, (Applying International Financial Reporting Standards
pg 394)
Alfredson et al (2007), give the illustration as below
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If an item of plant had an original cost of $ 100,000, a residual value of
$10,000, and a useful life of four years, the depreciation charge per
annum is
Illustration 2.1 – straight line method calculation, (Applying International Financial Reporting Standards
pg 394)
The journal entry is:
Illustration 2.2 – Journal entry for straight line method,
(Applying International Financial Reporting Standards pg 395)
2.5.3 Materiality
On SAK ETAP 2.4, the standard stated about materiality issue in a
financial report of an entity. According to SAK ETAP 2.4, information is
considered as material if when its omission or misstatement could influence the
economic decision of an entity. The materiality level of a transaction depends on
the size and nature of omission or misstatement judged in the surrounding
circumstances. By considering both size and nature of the item, then the
accountant and the management can assess the materiality level of information.
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2.6
Differences of SAK ETAP and IFRS for SMEs
Even though SAK ETAP is formed based on IFRS for SMEs, but there are
still differences between both standards. The complete differences are attached
on the appendix; these are the highlights of the differences from SAK ETAP and
IFRS for SMEs (Triwahyuningsih, 2009):
a. In IFRS for SMEs, the complete set of financial statements includes a
comprehensive income statement, while SAK ETAP only required
income statement
b. SAK ETAP does not includes several items in the balance sheet as
required by IFRS for SMEs, which are:
i. Financial asset
ii. Investment property measured at fair value
iii. Biological asset
iv. Financial liability
v. Deferred tax asset and liability
vi. Non-controlling interest
c. In the statement of cash flow SAK does not recognized some items as
required by IFRS for SMEs, these includes:
i. Cash flow in direct method
ii. Foreign currency cash flow
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d. SAK ETAP does not arrange any standards about consolidated and
separate financial statement
e. SAK ETAP does not arrange about business combinations and goodwill
f. SAK ETAP does not arrange any standard for government grants
2.7
Implementation of SAK ETAP
According to Winkeljohann, Klop, & Vandenplas from Price Water House
Coopers UK (2005), their firm has the implementation phases which have been
applied in several SMEs.
Figure 2 – Implementation Phases (Price Water House Coopers UK,
2005.)
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Phase 1: Preliminary study
•
The first step is informing the company a high level of understanding on how
the standards will impact on key numbers and ratios, and highlights key
accounting issues and any potential “surprises”. On this research this includes
retrieve the complete financial statements from the entity. By having this step
we can analyze the current reporting process of the entity. Since this still a
research and use for study, then author’s will use the 2009 financial report
and its daily transactions from through out the year.
Phase 2: Initial conversion
•
Project set-up
This is to make sure that the operation of the firm still can run effectively
while the implementation process is managed to a successful conclusion.
•
Component evaluation and issues resolution
This step will inform the IFRS accounting policies that will be used and the
conversion strategy, as well as on operational and system changes.
•
Initial financial reporting conversion
This step will start the preparation of comprehensive IFRS financial
statement (without publishing it to external parties). This will enables the
firm to see the context of the new IFRS for the first time.
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Phase 3: Embedding
•
This last phase allows the firm to implement change in a smooth transition to
a new culture of operating, using the IFRS language with full understanding
and authority.
While this implementation phase is for IFRS for SMEs, these phases can also
be implemented for applying SAK ETAP on an entity. For the purpose of this
thesis research, the phases that will be done are only from Phase 1 (Preliminary
study) and Phase 2 (Initial Conversion). This is aligned with the purpose of this
paper which is to give a recommendation to an entity about the usage of SAK
ETAP on their company.
2.8
Benefit and cost of application of SAK ETAP
The application of SAK ETAP has several benefits and costs for the entity.
The benefits of applying SAK ETAP for SMEs are:
1. According to Hidayat Arief (2010), SAK ETAP is less complicated than the
full PSAK. This will enable SMEs to apply the accounting standards.
2. Financial statement based on SAK ETAP will give SMEs bigger chance to
earn financial fund or loans from external parties, for example banks and
other financial institutions (Djazuli A., Jurnal Bogor, 2009).
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3. SAK ETAP will help SMEs in preparing a reliable financial report without
caught up in the complexity of full PSAK which based on IFRS (Hadibroto
A., 2010)
4. SAK ETAP is simple, easy, and efficient to implement, without reduce it
reliability and relevance (Wibisana Jusuf, n.d)
The application of SAK ETAP in a company also may come with cost for
the company:
1.
The minimum awareness of SME’s in Indonesia about the presence SAK
ETAP made it is difficult for SME’s to understand about the content of the
standards (Hidayat A, 2010). IAI (Ikatan Akuntan Indonesia) should be more
aggressive on making training and seminar of SAK ETAP so that SME’s will
have a better understanding about the standards and understand the benefits
that will gain from implementing it
2. There will be a substantial amount of work to convert the accounting records
and supporting systems, as well as to prepare the financial statements
(PriceWaterHouseCoopers UK, 2005). Since SME’s usually having a
minimum number of staff on their management, the application process of
SAK ETAP may interrupt the daily operation of the company. The
accountant should be able to manage the conversion of the existing
accounting process while it should also make sure that the daily transactions
on the conversion process are recorded properly.