IMPLEMENTING ACCRUAL REGIME IN THE
CONTEXT OF THE INDONESIAN PUBLIC
SECTOR ACCOUNTING REFORM*
(A Case Study)
H A R U N EL-RASEED
PETER ROBINSON
Simposium Riset Ekonomi II
Surabaya, 23-24 November 2005
*
The authors gratefully acknowledge the funding support from AusAID for this study in 2004 and. They also
indebt Professor Hal Hill for his encouragement comments on early preparation of this study at the
Indonesia Council Open Conference, Australian National University Canberra (29-30 September 2003).
Responses from interviewees are also highly appreciated. Finally the authors thank Ian Eggleton, former
accounting professor in Accounting and Finance Department, UWA Business School at The University of
Western Australia for his help in the preparation of this paper.
IMPLEMENTING ACCRUAL REGIME IN THE CONTEXT OF
THE INDONESIAN PUBLIC SECTOR ACCOUNTING REFORM
(A Case Study)
Abstract
Over the past eight years, significant change has occurred within the political, economic and
social institutions of Indonesia. The stimulus for these change emerged from the 1997
economic crisis and the pressure on the State to reform the electoral and political process and
to grant more autonomy to local government. Along with the implementation of
decentralisation policy, the Indonesian government has introduced accrual accounting, an
accounting technology that promises a more fulsome account of the financial performance and
position of government and that strengthens the accountability of government. By using a
contingency model this paper demonstrates how the Indonesian economic crisis, prodemocratic movement and international pressures for the reform of the Indonesian public
sector stimulated the adoption of accrual accounting. However, the adoption of accrual
accounting has been encountering significant implementation barriers: legal issues, lack of
qualified staff, low level of participation from parliament and citizens and there is no
independent accounting standards setting body for the public sector, which in turn threaten the
intended goal of the adoption of accrual accounting to facilitate improved decision-making
and accountability.
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Surabaya, 23-24 November 2005
Introduction
In many jurisdictions, public sector reforms have often been accompanied by accounting
reforms. The change from cash based or budgetary accounting to accrual accounting is often a
significant element in reforms of the public sector (Ryan 1998 and Christensen 2002). A
process which Power and Laughlin (1992) suggests is a shift to the accountingisation of the
public sector. In Indonesia, the implementation of the policy of decentralised government was
paralleled by the adoption of accrual accounting for the public sector. Accounting as an
integral measure of public sector reform, Power and Laughlin (1992) suggest that reform in
public sector as a shift toward accountingisation. The change from cash based accounting, or
budgetary accounting, to accrual accounting is part of broader public sector reform processes.
And the aims of the introduction of accrual accounting, an accounting technology, are to
facilitate more transparency in agency activities, to strengthen the accountability of
government and to improve decision-making.
This study will focus on the current public sector reform in Indonesia, which is adopting
accrual accounting as the basis for public sector financial management and reporting. Since
1998, Indonesia has experienced emerging politic and economic reforms from the fall of the
New Order, including the adoption of accrual accounting, Indonesia is also implementing
decentralisation through regional autonomy. Therefore, to investigate the adoption of accrual
accounting in the context of the Indonesian public sector reform is chosen for several reasons.
First, most studies concerning the current stage of the Indonesian public sector reform are
focused on decentralisation issues and limited studies have been focused on public sector
accounting (Alm et al 2001; Hamilton-Hart 2001; Usman 2002), Casson and Obidzinsky
2002; Firman 2002).
Second, previous studies about accounting in Indonesia, were mainly concerned with
exploring technical details on accounting practices in general, accounting education and
training and accounting and culture (Hadibroto 1975; Enthoven 1977; Abdoelkadir 1982;
Arya 1990; Briston 1990; Briston and Hadori 1993; Sudarwan and Fogarty 1996; Rosser
1999; Saudagaran and Diga 2000). Although a study by Hutagaol et al (2000) attempts to
investigate the role of the Indonesian Government Financial Supervisory Board in the
development of accounting and regulation, in fact it focused on accounting in general. A study
by Prodjorharjono (1999) only examined Indonesian public sector accounting at the level
local of local government.
In addition, little of the existing literature focused on the role of government and state in
accounting in Indonesia, despite the perceived importance of examining such a role in
international accounting studies (Choi and Mueller 1992; McKinnon 1986). Therefore, the
contribution of this study is not only to provide knowledge and understanding of accounting
regulations in Indonesia, but also to investigates the contextual variables affecting the pace
and extent of Indonesian public sector reform through the adoption of accrual accounting
which is intended to facilitate improved decision-making and accountability. The rest of the
paper is presented in the following sections: (1) related literature, research question and
methodology, (2) the adoption of accrual accounting in the Indonesian public sector, (3)
discussing the evidence and (4) conclusion and limitation.
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Related Literature, Research Question and Methodology
Related literature
The basis for the adoption of accrual accounting in the public sector is that it provides
information about financial position, that is the stock of wealth, and performance, or change in
the stock of wealth, relevant to the management of public resources.1 As an accounting
technology, accrual accounting is viewed as providing more useful information than that
provided by the earlier, cash form of government accounting. In particular, accrual accounting
is seen to provide the information that is necessary if judgments are to be made about the
efficiency, effectiveness and economy, or ‘value for money’, in the use of scarce public
resources. Adoption of the accrual accounting technique to achieve these objectives is part of
what is sometimes referred to as ‘the new financial management’ of the public sector (Rowles
2003).
The model that is used in this study is a contingency model for governmental accounting
innovation developed by Luder (1992). According to the mode, there are four contextual
variables in explaining the outcome of accounting innovations; (1) stimuli (2) social
environment of the government, (3) characteristics of the political administrative system and
(4) implementation barriers (Monsen et al 1998). The model hypothesises that the first three
types of contextual variables would positively influence the attitudes and behaviour of users
and producers of governmental financial information. However, the fourth, implementation
barriers prevent a successful outcome in the implementation of any innovation in
governmental accounting processes
According Monsen et al (1998) this model has been widely used in comparative
international governmental accounting research studies of the factors affecting adoption of
public sector accounting innovations (Monsen et al 1998). In addition, this model also has
been modified for application to developing countries (Godfrey et al 1996). Luder (2001)
suggests that the primary objectives pursued by his model were twofold. First, it was intended
to serve as a framework for empirical investigations into governmental accounting reforms
and to thereby facilitate the comparison of the findings reported by different research studies.
Second, it was meant to constitute a complex hypothesis explaining the influence of context
on a specific reform or innovation process and to trigger further research directed at
confirming, falsifying and amending the hypothesis.
Research question
Using a contingency model,2 this study focuses on the public sector reform in Indonesia,
which is progressing the adoption of accrual accounting as the basis for public sector financial
management and reporting. This study indicates that the momentum for introducing accrual
accounting was swelled by the economic crisis that befell Indonesia in the late 1990s. The
proposed research question is posed to investigate what factors that stimulated the adoption of
1
Traditionally, accrual accounting is used by commercial entities. Nowadays as part of the public sector
reform, the adoption of accrual accounting for government becomes a global trend.
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accrual accounting within the Indonesian public sector. In addition, it investigates what
implementations barriers that potentially undermine the efforts of the Indonesian government
to adopt accrual accounting for the public sector.
Methodology
By using a case study based on Luder’s model (1992) contingency model, it is suggested that
the likely success of the introduction of accrual accounting depends upon the presence of
stimuli for the reform, the relationship between users and producers of accounting information
and the significance of implementation barriers. This study investigates the contextual
variables that influence the pace of public sector reform through the adoption of accrual
accounting for the Indonesian public sector. Therefore, the data that is used in this study is
based on interviews with key individuals in their roles as the promoters, producers and users
of governmental accounting information.
During the latter part of 2003, interviews were conducted with representatives from the
Indonesian Ministry of Finance, the Indonesian Auditor Board, the Indonesian Accountants
Institute, as well as academics in Indonesia. The interviewees are grouped into three
categories on the basis of the revised contingency model (Christensen 2002). Face to face
interviews were conducted with Interviewees 1, 2, 3 and 4 while responses from Interviewee 5
and 6 were obtained through electronic mails (see Appendix Two).
However, there are critics of relying upon oral evidence: it can be self-serving to the
interests of the interviewees; contaminated by nostalgia; at the mercy of interviewees’
memories; censored by a reluctance to reveal potentially sensitive and controversial
information; influenced by the researcher’s behaviour and diluted by the act of transcription
(Hammond and Sikka 1996; Parker 1999). Therefore, this study also explores archival data
(e.g., laws, government regulations, presidential decrees, ministerial decrees, Indonesian
governmental accounting standards) and secondary data in journals and the mass media (e.g.,
newspapers, magazines and the Internet).
The Adoption of Accrual Accounting in the Indonesian Public sector
The Indonesian public sector accounting covers three areas: (1) accounting system for the
central government, (2) accounting system for local government and (3) accounting system
for non-profit organisations such as schools and hospitals owned by government (Handjari
2001). State-owned companies such as National Petroleum Company (Pertamina) or Garuda
Indonesia Airways, use the private sector’s Statement for Financial Accounting Standards.
Unlike accounting practices in the private sector, the emergence of the accrual basis
within the Indonesian public sector accounting was less developed. Most government
institutions at the central and local levels have the single entry system based on Indonesische
Comtabiliteistswet (ICW) created by the Dutch. Sugianto et al (1995) describe the main
features of old accounting system. First, there is no standard of recording, neither for
2
The contingency model suggests that there is no universally appropriate accounting system that applies
equally to all organisations in all circumstances (Otley, 1980).
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budgeting purposes or expenditures realised. Second, the grouping of accounts is not in a form
that affords the proper analysis and control of the activities or programs supporting the
provision of public sector services. Third, there is no separation between capital and
operational expenditures. Fourth, financial reporting is only developed to fulfil the internal
requirements of each governmental institution. Thus, the old governmental accounting system
could not be used as the base for planning, controlling and decision making for government
officials. To remedy this problem, two public sector accounting initiatives were introduced
over the last two decades.
Early reforms in public sector accounting
In 1992, with the promulgation of Presidential Decree 35, accounting was developed for
central government. This government accounting initiative had three objectives: (1) to
develop a new governmental accounting system; (2) to develop new accounting standards and
principles for the public sector and (3) to form the Accounting Development Board Center
within the Ministry of Finance. Based on the powers delegated by Presidential Decree 35, the
Ministry of Finance developed the State Financial Accounting Agency (BAKUN) and this
agency was assigned the responsibility of moving the cash basis system of accounting towards
a more informative system. The project to develop a more informative system of accounting
was funded by the World Bank (Dewi 2001).
However, progress in implementing Central Government Accounting (1992) was
relatively slow. So slow was the implementation process that President Abdurrahman Wahid
issued a Presidential Decree in 2000 (Presidential Decree 17) requiring all government
institutions to submit budget realised reports and balance sheets. The Minister of Finance
(2001) gave three main reasons for the failure of the Central Government Accounting System
(1992). First, the nation’s lack of qualified human resources in accounting and information
technology meant that the Indonesian public sector lacked the personnel to successfully
implement the reforms. Second, as senior government officials were familiar with the old
system of government accounting and held a widely shared opinion that what worked before
would continue to work in the future, the level of political support from the top was
insufficient to advance the central accounting initiative within the public sector. Finally, as
government had yet to officially adopt Generally Accepted Government Accounting
Standards (GAAS), there was no tool that could serve as a basis for the uniform treatment of
economic transactions and standardisation of government reporting.
Current reforms (post-1997)
Since the monetary crisis in 1997 that was in turn followed by the economic, social and
political crisis of 1988, reform of public sector accounting became a priority on the nation’s
political agenda. Public demand for good governance increased and the push for the adoption
of accrual accounting for the public sector strengthened (Ministry of Financial, 2001b). With
the collapse of the rupiah during 1997 and 1998, the pressure on the Indonesian government
to improve the quality of public sector financial reporting increased further. Interviewee 5
noted that democratisation and the need for accountability and good governance, promoted a
greater interest within government to improving the system of public sector accounting.
Interviewee 6 placed some emphasis on the fact that the slow pace of reform achieved within
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the government accounting system over the past 20 years, including the failure of the Central
Government Accounting System (1992), the impact of corruption in both the public and
private sectors and the global trend towards the adoption of International Public Sector
Accounting Standards (IPSAS), all became critical factors that pushed the central government
toward the reform of public sector accounting.
In early 1998, the International Monetary Fund (IMF) provided two resident fiscal and
budget advisers to help the Indonesian government to formulate strategies and policies for
solving the nation’s economic crisis and to start reforming the public sector’s financial
management system. Based on the studies and observations of these advisers and the IMF’s
mission team to Indonesia, the IMF produced two papers on “Fiscal Management,
Decentralization, and Organization of Ministry of Finance” and “Budget Management in the
Short and Medium Term” (1998). At the same time, the World Bank (WB) produced papers
on “Public Expenditure Reviews” (1998 and 1999), and the Asian Development Bank (ADB)
produced a paper on “Decentralisation: Implication of Good Governance on Project
Implementation”. To support the government’s efforts at reforming the management of public
finances and improving the transparency and accountability of public resource usage,
including in-government procurements, the WB and the ADB jointly produced the Country
Financial Accountability Assessment Review (CFAAR) and Country Procurement
Assessment Review (CPAR) in January 2001. At the Consultative Group of Indonesia
meeting in Tokyo, the government made specific commitments to reforming the financial
management and public procurement systems along the lines of the CPAR and CFAA
(Ministry of Finance 2001b).
To assist the government in implementing its public financial management and accounting
reforms, the Indonesian government and ADB agreed in February 2001 to include technical
assistance within ADB’s 2001 Technical Assistance program. The program specifically aimed
at (1) assisting in the forging of a robust political and technical consensus across concerned
government institutions about the measures to be adopted and the related action plan for
achieving the reforms; (2) preparing a human resource development plan for the Ministry of
Finance and a new treasury organisation to actually implement the reforms; (3) drafting the
necessary implementing regulations and a blueprint of systems and procedures; and (4)
recommending a uniform accounting system and public accounting standards to enable
effective implementation of the State Finances laws (Ministry of Finance 2001b).
With the support of international donors, Law 22 (1999) and Law 25 (1999) were passed
so as to strengthen the political and financial autonomy of local government. The laws sought
to devolve to the local level, greater responsibility for all governmental matters such as public
administration, economic institutions, human resource development, natural resource
utilisation, strategic technologies and conservation. Local governments were to be given
control over their finances, their civil services and their organisations. In addition,
Government Regulation 105 (2000) on the financial responsibility of local governments also
required local governments to present annual reports that comprised a budget realisation,
balance sheet and statement of cash flows.3 The two laws emphasised the need for local
government to accept greater responsibility for planning and implementing their development
3
Government Regulation 105 (2000) gives the technical details promulgated by the government to
implement Law 25 (1999) about the fiscal balance between the central and local governments.
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programs. Thus, local government was under increasing pressure to adopt good financial
management systems.
Pilot project implementation
As part of the decentralisation policy, some local governments at the district level participated
in implementing the accounting draft as a pilot project4. Semarang City (the capital of Central
Java province) was chosen to adopt the draft in 2001. In 2002 the draft was fully applied
based on accrual principles. The system has also been applied in Slemen (Yogyakarta
province). Dissemination and replication processes are also being conducted in nine other
cities: Sawahlunto, Sukabumi, Metro Lampung, Solo, Probolinggo, Sumbawa, Kendari,
Gorontalo and Mataram in collaboration with the UNDP.5
However, the adoption of the new accounting standards has never been applied at national
level. As stated by Interviewee 2: “Until this year (2003), generally the annual government
financial accountability report only consists of budget realisation report, although some
departments also use additional reports such as cash-flows.” Meanwhile, Interviewee 3 argues
that the root of the failure is the inability of a donor (WB) appointed international consultant
firm to develop applicable accounting standards for government. As stated by Interviewee 3:
“The World Bank has been actively supporting the development of an accounting system,
including the accrual aspect of it, even though it is not in 100 percent, the project has failed
and does not work. It is because the World Bank brought consultants who could not really do
well here.”6 Furthermore, Wahyudi Prakarsa, a professor of accounting at the University of
Indonesia observed that although the government had been given both the opportunity and
funding from the WB to develop accounting standards for the public sector, its efforts just
ended-up as pilot projects (Handjari 2001).
Paralleling the implementation of the decentralisation policy, the Indonesian government
through Financial Minister Decree 308 (2002) established the “Committee for Accounting
Standards for Central and Local Government” (KSAPD) that was assigned the responsibility
for drafting a set of accounting standards for the public sector. The members of the committee
were drawn from the Ministry of Finance, State Board Audit, Ministry of Internal Affairs,
Audit and Development Supervising Agency (BPKP), Indonesian Accountants Institute and
4
The pilot project was supported by a semi-government organisation, Partnership (Kemitaraan) led by
Indra Bastian, a senior accounting lecturer at Gadjah Mada University. The Partnership coordinated the
support of the international community in initiating a long-term process to improve governance in
Indonesia in a durable way. The Partnership committed itself to bringing together the Indonesian
government, parliament, legislature, judiciary, civil society, corporate sector and the international
community to improve the standard of governance within Indonesia, that was to be vital to the nation’s
social, economic and political progress. The UNDP, the ADB and the WB actively support Partnership’s
programs <www: kemitraan.or.id> (accessed on January 26th 2004).
5
The adoption of accrual-based accounting in Semarang has improved cash utilisation by 40%. A study
conducted by USAID states that as Semarang City had effectively applied International Public Sector
Accounting Standards (IPAS), it was now eligible for international loans (Bastian 2003).
6
According to Interviewee 3, in the past, the government had no power to choose a consulting firm to work
with in the setting of government accounting standards. He states that in the loan agreement with the WB,
the creditor was in charge of selecting the consultant.
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universities. The KSAPD prepared a draft entitled “Accounting Standards for the Central and
Local Governments” (2002). Following the launching of the draft, the Department of Finance
in cooperation with the WB held several seminars about the urgent issues confronting public
financial management reforms in Indonesia.
After receiving comments and views from the State Board Audit, Indonesian Accountants
Institute, universities and others, the Ministry of Finance through Financial Minister Decree
337 (2003) promulgated “Accounting Standards for the Central and Local Governments”
(2003). Importantly, Law 17 (2003)7 that later required all government institutions to adopt
accrual accounting added significant support to the provisions of Financial Minister Decree
337.
The standards require all government institutions at central and local levels to implement
the system in 2004. However, as stated by the Interviewee 3, the standards will to be
implemented gradually in accordance with the capacity of each institution, and are only
expected to be fully implemented by budget year 2008-09.
The new standards
The new accounting standards have many methodological differences to the previous system
inherited from the Dutch. However, these standards are essentially a modification of the
Central Government Accounting Standards (1992). According to the new standard, financial
statements must be presented at least annually. As stated by Interviewee 2: “The new system
has very much improvement although it is difficult to implement.” The comparison of the
systems is presented in Exhibit Three. The main objective of the standards is to provide
information that will be useful to a wide range of users in making and evaluating decisions
about the allocation of resources.
Accounting Standards for the Central and Local Governments (2003) consist six
components of financial statements that have to be provided by the central government and
local governments. Compared to the cash basis system which only requires the budget
realisation report, the new standards require six reports: budget realisation, balance sheet,
financial performance statements, changes in equity, cash flows and notes to the financial
statements. Comparison of the old and the new Indonesian public sector accounting system is
presented in Exhibit One.
[Insert Exhibit One about here]
7
Law 17 (2003) requires that governments’ financial reporting to at least consist of budget realisation,
balance sheet, cash flows, notes to the financial statements and financial statements of local government
owned-enterprises. In addition, the law requires the form and content of the state budget realisation must
be in accordance with governmental accounting standards that are promulgated by an independent
committee.
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Implementation constraints: s repeat of the old issues
In implementing the Accounting Standards for the Central and Local Governments (2003)
there is no doubt that the Indonesian government is still confronted with significant
implementation barriers that undermines its effort in developing a more transparent and
reliable public sector accounting system. A system requiring the strictest disclosure
requirements, the maintenance of international-standard auditing and accounting practice and
accurate information (Hill 1999: 115). The barriers are as follows:
Standard setting issues. Although Law 17 (2003) supports the adoption of accrual accounting
within the Indonesian public sector, Accounting Standards for the Central and Local
Governments (2003) have yet to be set by an independent body. It is apparent that the Central
and Local Government Accounting Standards Committee remains a government-backed
organisation. As with the Indonesian government’s failure in having the Central Government
Accounting System (1992) implemented, it would appear that the absence of an independent
body for the setting of public sector accounting standards is retarding the development of
Generally Accepted Government Accounting Standards (GAAS). In criticising the fact that
the government always sets their own accounting standards for the public sector, Zaki
Baridwan, a professor of accounting at Gadjah Mada University states: “It is not fair if any
government institutions create the standards for themselves (Hanjari, 2001). To remedy this
problem, Dewi (2001) suggests that the government allow an independent standard setter,
such as the Indonesian Accountants Association, to develop and promulgate governmental
accounting standards.
Legal issues. It is important to note that Law No. 17 (2003) that supported the adoption of
accrual accounting runs counter to Law 22 (1999) that grants local autonomy. Law 22 (1999)
and Law 25 (1999) in giving autonomy to local government for the management of their own
development programs, including monitoring and financial reporting, implies that local
government has the right to choose whatever type of accounting standards they wish to
implement. Such an interpretation of the effect of Law 22 weakens the power of Law 17
(2003) and Financial Minister Decree (2003) in directing the types of accounting practices to
be implemented by local government. This contradiction between the two laws potentially
weakens the efforts of central government in its attempt to implement uniform accounting
standards throughout the nation.8
Lack of political will. This factor will potentially undermine any attempt to improve the
accountability of financial management in the public sector. As stated by Interviewee 1, this
problem ultimately led to the failures of the prior public sector accounting reforms that were
undertaken during President Soeharto’s era. While Indonesia has entered a new economic,
social and political era, central government remains somewhat reluctant to embrace a greater
8
In 2001, a province in Kalimantan developed its own computerised local government accounting system.
However, the system is the replication of a single entry accounting system. The development of this
system of accounting is in conflict with the directions given to local government by the central
government for the implementation of accrual-based accounting (Dewi 2001).
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level of responsibility for reforming public sector accounting. Interviewee 2 claims that the
government has failed to follow up the audit findings and recommendations of the State Board
Auditor. 9 Interviewee 2 stated: “It is the task of auditor to state their findings and to give
recommendations and it is the responsibility of the government to implement the
recommendations. However, since Habibie, including the current President Megawati, the
government simply lacks the will for improving government accountability.”
The resistance of the government to the implementation of a more informative accounting
system is also fuelled by the low commitment of government bureaucrats towards
accountability. Interviewee 3 states: “The problem is the high level managers and of course
ministers in all departments have low commitment to accountability. For one thing they do
not know the importance of accountability but for another, that almost nobody has much
interest in accountability since the money is not there any longer. So if we look at the
management process, the commitment of people, including the ministers, when they are at the
budget stage are really high. Also when they are executing the budget the commitment of
many parties including the ministers are no doubt really high. But when they are at the
accountability level, when the money has gone, they just forget it (the accountability).
Although I have never done any empirical research, generally I believe that probably they
spend about 10 to 20% of their time for budgeting, lets say, 70 or 75% for the budget
execution but it will be very fortunate if they spent up to 5% of their time on accountability.”
Lack of response from society and parliament. It is important to acknowledge that the
previous Indonesian public sector accounting reforms were initiated by the central
government. Both the Central Government Accounting System (1992) and Accounting
Standards for the Central and Local Governments (2003) were established by a committee
under the coordination of the State Accounting Agency at the Department of Finance. While
Indonesian society seems to be concerned about reforms intended to improve the
accountability of government, it is less bothered about the reform of public sector accounting
practices. As Interviewee 4 states “Now we have a board in the Indonesian Accounting
Institute that develops accounting standards for the public sector. However, Indonesian
society is not concerned about participating by responding to the exposure draft promulgated
by Indonesian Accountants Associations. The Parliament also lacks concern about accounting
issues.”
Interviewee 3 notes, “Somehow the parliament is also concerned with this issue, however
they do not exactly know what it is. Accountability report is not really what they would like to
see. They know the importance of accountability but they could not understand and could not
comprehend the accounting process. Even if we use the term like accounting system or
accounting standards, it is something outside their capability.”
9
The Jakarta Post newspaper (September 25th, 2003) stated that that the BPK, B. Jodono, had again blasted
the government’s lacklustre effort in combating corruption, saying most of the suspected corruption cases
discovered by the agency have been ignored. In 2001, the agency reported to the Attorney General's
Office and the National Police a total 6,162 suspected corruptions cases. However, only 505 cases or 8%
of those reported had been investigated by either law enforcement agency. The agency also reported that
it had discovered 174 cases of irregularities between January and June 2003 that had potentially caused
total losses to the state of Rp 233 billion.
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Lack of qualified staff. It is widely recognised that local governments, due to the lack of
skilled staff, have a limited capacity to manage previously centrally controlled functions for
which they are now responsible (e.g., data processing, personnel management, procurement
and contracting). At the moment, there are only a few districts that can absorb all of their new
duties quickly and that are able to meet appropriate standards in terms of the quality of the
public services provided (Robinson and Harun 2003).
Recruiting new personnel is somewhat difficult because government policy is to reduce
the number of government employees. Furthermore, the disparity in remuneration rates for
accountants in the public sector when compared to their private sector counterparts induces
many accountants to seek better paid jobs in the private sector. Whilst training existing
personnel is one solution to the problem of insufficient public sector accountants, it is process
that takes time and the outcome may not be as effective as recruiting new skilled personnel
(Ministry of Finance, 2001a).
Discussing the Evidence
On the basis of evidence presented above, this section examines the adoption of accrual
accounting in the context of broader public sector reforms within Indonesia. We employ
Luder’s model (1992) and other related studies that focus on governmental accounting change
(Christensen 2002; Khumawala 1997).
Contextual variables
Stimuli
It is found evidence that the initiative to reform Indonesian public sector accounting had
existed since Soeharto’s era in the early nineties. This is consistent with the policy adopted by
the Soeharto administration in the late sixties to implement a free market economy policy by
encouraging foreign investment in Indonesia. For much of the Soeharto administration,
accounting reforms were not intended to make the government more accountable but was the
result of international pressure. As stated by Rosser (1999: 2) “… accounting reform in
Indonesia was not the product of rational choices by wise technocrats or neo-colonial
domination but rather of structural pressures generated by periodic economic crises. It is also
argued that accounting policies in developing countries have, for the most part, been imposed
by developed countries initially through colonialism, and then through the influence of
transnational corporations, foreign aid donors, and professional accounting institutes.”
However, current public sector accounting reforms in Indonesia cannot be isolated from
the broader reforms occurring within Indonesia’s economy and political system that followed
the resignation of Soeharto in 1998. While the role of donor countries and international
pressure are still influential in directing public sector accounting reforms, domestic forces are
also exerting some influence. Therefore, it was not only the economic crisis, but also the prodemocratic movement and pressure from the international donors that further stimulated the
Indonesian government’s attempts to reform public sector accounting.
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Promoters of change
In relation with the promoters of change, it is found evidence to support the view that, since
the early nineties and in spite of the failure of the early reforms sought by the IMF and the
WB (Interviewees 3 and 6), international donors continued to be active promoters of public
sector accounting reform. However, there is little evidence to suggest that members of
parliament (Interviewee 3) have been active promoters of public sector accounting reform in
Indonesia10.
International accounting firms do not appear to be actively participating in the process of
reforming Indonesia’s public sector accounting or in ensuring compliance with those public
sector accounting reforms in the form of the ASCLG (2003). The Indonesian Accountants
Institute (IAI) and university academics have supported the process of reforming public sector
accounting. Press reports and conference papers indicate their continuing support for the use
of accrual accounting within the public sector. As noted by Interviewees 2 and 4, the IAI
commented on drafts of public sector accounting standards. Thus, this evidence indicates that
international donors, the IAI and university academics were the main promoters of accounting
reforms for the Indonesian public sector.
Implementation barriers
Currently, the conflict between legal requirements and how those laws are implemented
constitutes a serious barrier to the successful implementation of accrual accounting at all
levels of government. As discussed above, Law 17 (2003) is in conflict with Law 22 (1999).
Law 17 (2003) requires government agencies to adopt accrual accounting while Law 22
(1999), in delegating responsibility to local government for the management of their own
development programs, suggests that local government is under no obligation to implement
any particular form of accounting practice as part of their own administrative systems (e.g.,
accrual accounting). Furthermore, while Law 17 assigns the responsibility for the setting of
governmental accounting standards to an independent body this has yet to occur. Accounting
Standards for the Central Local Governments (2003) have been set by a committee within the
Ministry of Finance and not by an independent body as required by Law 17.
Finally, the adoption of accrual accounting by central and local governments in Indonesia
will be retarded by the lack of suitably qualified accountants (Interviewee 5). Given the
greater complexity of accrual accounting, central and local government require accountants
with sufficient skill and experience in applying accrual accounting. Thus, the lack of skilled
and experienced accountants within local government represents a serious threat to the
successful adoption of accrual accounting (Robinson and Harun 2003).
Exhibit Two presents the contextual variables that we regard as pivotal to the adoption of
accrual accounting in the Indonesian public sector.
[Insert Exhibit Two about here]
Overall assessment
10
Interviewee 3 also believes that Law 17 (2003) that required government to adopt accrual accounting was
mainly drafted by the Government itself. According to the Indonesian legal system, a law comes into
effect only after being agreed to by both the central government and the legislature.
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The financial crisis of 1998, the emergence of the pro-democratic movement and the views of
international donors have stimulated reforms that have sought to have accrual accounting
adopted by the Indonesian public sector. However, conflicts in laws, the lack of suitably
qualified accountants and minimal parliamentary and community interest in accrual
accounting represent serious obstacles to the successful introduction of this reform. Therefore,
we argue that for the foreseeable future, these factors will limit the capacity of government to
have accrual accounting widely adopted throughout the Indonesian public sector.
Conclusion and Limitation
This study demonstrates how the Indonesian economic crisis, pro-democratic movement
begun in the late 1990s and international pressures for the reform of the Indonesian public
sector stimulated the adoption of accrual accounting. However, the accrual accounting reform
in the Indonesian public sector has been encountering significant implementation barriers:
legal issues, lack of qualified staff, low levels of participation from parliament and citizens
and there is no independent accounting standards setting body for the public sector, which in
turn threaten the intended goal of the adoption of accrual accounting to facilitate improved
decision-making and accountability.
However our study has several limitation. First, this study examines efforts to adopt
accrual accounting in the Indonesian public sector by analysing what we believe to be the
significant historical events surrounding the reform process. As Christensen (2002) suggests,
the history that has been analysed by way of a modified version of Luder’s (1992)
contingency model may be criticised as being “doctrinal” in approach. Secondly, the model
that has been employed to inform this study of the adoption of accrual accounting in Indonesia
is too coarse in its analysis. Thus, subsequent studies could examine the introduction of
accrual accounting through the perceptions of public servants at the level of central and local
government. Furthermore, specific manifestations of the introduction of accrual accounting in
specific settings (e.g., Semarang City) could be examined and its impact on government
performance identified.
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Exhibit One
Comparison on the Indonesian Public Sector Accounting Systems
Accounting system
Features
Implementation
•
Budget realisation.
•
Still in use by most
government institutions at
all levels.
Central and Local
Government Accounting
Standards (2003)
•
Budget realisation.
•
Has been implemented as
pilot project in several
local governments.
Standard Setter:
•
Balance sheets.
•
Planned to be
implemented in 2005.
The Government of
Indonesia
•
Financial performances.
•
Planned to be fully
implemented in 2009.
•
Changes in equities.
•
Cash flows.
•
Notes on financial
statements.
Indonesische
Comtabiliteists Wet
(ICW, 1925)
Standard Setter:
The Dutch Colonial
Government
Source: Harun and Peter (2004: 120)
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Exhibit Two
Application of Luder’s contingency model to Indonesia (adapted)
Contextual variables
Hypothesis proposed
Evidence found
Stimuli for public
sector accounting
reform
•
Users of information
(UoI) as promoters of
public sector
accounting reform
•
International donors.
• International donors.
•
Members of parliament.
• IAI.
•
International accounting
firms.
• Academics.
•
IAI.
Economic crisis.
• Economic crisis.
• Pro-Democratic movements.
• International pressure.
• Academics.
Implementation
barriers to public
sector accounting
reform
• Decentralisation Law 22
• Impact of delegated
(1999).
responsibilities as reflected in
Law 22 (1999)
• Lack of qualified staff.
• Lack of qualified staff.
• Low levels of participation
from parliament and citizens
• No independent public sector
accounting standard setting
body.
Overall assessment
The process for the implementation of accrual accounting by the
Indonesian public sector will take many years for its full adoption
to be achieved throughout all levels of government.
Source: Harun and Peter (2004: 132)
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Appendix One
Abbreviations
ADB
Asian Development Bank.
ASCLG
Accounting Standards for the Central and Local Governments
(Standard Akuntansi untuk Pemerintah Pusat dan Daerah).
BAKUN
Badan Akuntansi Keuangan Negara (State Financial Accounting
Agency).
BPK
Badan Pemerika Keuangan Negara (State Audit Board).
BPKP
Badan Pengawas Keuangan dan Pembangunan (Audit and Development
Supervising Agency).
CGAS
Central Government Accounting System (Sistem Akuntansi Pemerintah
Pusat).
IAI
Ikatan Akuntan Indonesia (Indonesian Accountants Institute).
KSAPD
Komite Standard Akuntansi Pemerintah Pusat dan Daerah (Committee
for Accounting Standards for Central and Local Government).
LoI
Letter of Intent.
MoF
Ministry of Finance.
PAI
Prinsip Akuntansi Indonesian (Indonesian Accounting Principles).
OECD
Organisation of Economic Cooperation and Development.
PSAK
Pernyataan Standar Akuntansi Keuangan (Indonesian Financial
Accounting Standards Statement).
WB
World Bank.
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Appendix Two
Interviewees
Cohort
Interviewee
Relevant roles of interviewee
(at the time of interviews)
Users of
1. Professor Satrio B. Joedono, PhD
Chair of the State Audit Board of the Republic of Indonesia.
Information
2. Seno, Drs. MSc
Secretary General of the State Audit Board of the Republic of
Indonesia.
(UoI)
Producers of 3. Hekinus Manao, PhD, MAcc., CGFM
Information
Head, Centre of Accounting and Financial Reporting, Department of
Finance of the Republic of Indonesia.
(PoI)
Former Director of Accounting Development and Evaluation,
Directorate-General of Financial Institution, Ministry of Finance,
Republic of Indonesia.
4. Kartono Wirybroto
Promoters of 5. Sofyan S. Harahap, PhD
Change
(PoC)
6. Indra Bastian, PhD
Registered public accountant and senior member of the Indonesian
Accountants Association.
Senior lecturer in public sector accounting, Gadjah Mada University,
Indonesia.
Source: Harun and Peter 2004: 139)
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Appendix Three
Selected regulations and events related to the developments of accounting in Indonesia
Year
Regulation/Events
Motivation
Type
Content
1884
Wetboek van Koophandel 1884 (the
first commercial law)
To determine the rights and
obligations of any person
who carries on a business at
any time.
Private sector
accounting.
Requirement for any person to record
their business.
1907
(Belasting Accountantdienst) in 1907
To form and check
companies books.
Private and public sector
accounting.
The establishment of state accounting
bureau.
1917
Tax accounting bureau
To enhance auditing in
governmental tax.
Public sector accounting.
Auditing regulations.
1954
Law 5 (1954)
To regulate the use of
accountant title.
General application.
To regulate the use of the title of
accountant.
1973
The establishment of the Indonesian
Accountant Institute as the first
Indonesian accountants association.
Response to government calls
to revive the domestic
securities market
Private sector
accounting.
To lift the professional status of private
sector accounting.
The promulgation of PAI by IAI
To strengthen the accounting
profession.
Private sector
accounting.
Accounting standards for private sector.
President Decree 35 (1992)
To improve the cash based
system of public sector
accounting that had been in
use from the Dutch colonial
era.
Public sector accounting.
The President’s instruction to reform
public sector accounting.
1992
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Appendix Three (continued)
Selected regulations and events related to the developments of accounting in Indonesia
Year
Regulation/Junctures
Motivation
Type
Content
1992
The promulgation of CGAS (1992)
To replace the cash based
system of public sector
accounting that had been
in use from the Dutch
colonial era.
Public sector
accounting.
Improved accounting standards for the public
sector.
1994
Statement of Financial Accounting
Standards (PSAK), 1994
To improve the quality of
financial reporting.
Private sector
accounting.
Accounting standards for private sector.
Standards setter: IAI
1995
Companies Law (1995) replaced the
Wetboek van Koophandel (1984)
To Support the Indonesian
capital
market.
Business
scandals
related
to
the
weakness in PSAK.
Private sector
accounting.
All companies have to prepare their annual
accounts in accordance with PSAK. Publicly
listed-companies to have their accounts
audited by a public accountant. Company
directors and commissioners personally liable
for any losses as a result of misleading
information contained in financial reports.
2002
Financial Minister Decree 308 (2002)
To reform public
accounting standards.
sector
Public sector
accounting.
The adoption of accrual accounting for
central and local governments.
2003
Law 17 (2003)
Response
to
international
pressure (IMF, World Bank,
donors), Law 22 (1999) and
Law 25 (1999).
Public sector
accounting.
All government institutions at all levels are
required to adopt accrual accounting as part
of their annual accountability report.
Financial Minister Decree 337 (2003)
Source: Peter and Harun (2004: 160)
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About the Authors
I. H a r u n El-Raseed
HARUN IS A LECTURER AND RESEARCHER OF ACCOUNTING AND MANAGEMENT IN THE
PUBLIC SECTOR AT ACCOUNTING DEPARTMENT, ECONOMICS FACULTY, TADULAKO
UNIVERSITY, PALU (INDONESIA). HE WAS GRADUATED FROM MASTER OF ACCOUNTING
(MACC) PROGRAM AT THE UNIVERSITY OF WESTERN AUSTRALIA (SEPTEMBER 2004).
II. Peter Robinson
PETER IS A SENIOR LECTURER IN ACCOUNTING IN THE SCHOOL OF ECONOMICS AND
COMMERCE, UWA BUSINESS SCHOOL, THE UNIVERSITY OF WESTERN AUSTRALIA. PETER
TEACHES AND UNDERTAKES RESEARCH IN PUBLIC SECTOR FINANCIAL MANAGEMENT
AND PERFORMANCE MEASUREMENT AND EVALUATION. HE HAS BEEN ACTIVELY
INVOLVED
IN
PROFESSIONAL
DEVELOPMENT
ACTIVITIES FOR
THE
AUSTRALIAN
ACCOUNTING PROFESSION COMMERCE AND INDUSTRY AND THE PUBLIC SECTOR.
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The authors address:
Harun El-Raseed, SE, MAcc
Perum Bumi Anggur Blok C 1 No. 4
Jl Banteng Palu Indonesia.
Ph: +62 – (0811) 451771
Emil: harunak2001@yahoo.com
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