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STATEMENT OF SFAS No.
FINANCIAL ACCOUNTING STANDARD
52
INDONESIAN INSTITUTE OF ACCOUNTANTS
REPORTING CURRENCY
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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 Chairman
Istini T. Siddharta Vice-Chairman
Mirza Mochtar, MBA Secretary
Wahjudi Prakarsa Member
Katjep K. Abdoelkadir MemberJan Hoesada, M.M. Member
Hein G. Surjaatmadja, M.Sc Member
Sobo Sitorus Member
Timoty E. Marnandus Member
Mirawati Sudjono, M.Sc. Member
Nur Indriantoro Member
Rusdy Daryono Member
Siti Ch. Fadjriah Member
Osman Sitorus Member
Jusuf Wibisana, M.Sc. Member
Yosefa Sayekti, M.Com. MemberHeri Wahyu Setiyarso, MBA Member
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REPORTING CURRENCY SFAS No. 52
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 thoseusing 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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CONTENTS
paragraphs
Objective............................................................................... 01
Scope ..................................................................................... 02
Definitions............................................................................... 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 .. 21
Effective Date .. 22
Appendix
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REPORTING CURRENCY SFAS No. 52
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. Underthis 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 theaggregate:
(a)Cash flow indicator: cash flows related to the enterprises main operating activity aredominated by the particular currency,
(b) Selling price indicator: the selling prices of the enterprises products in the near termare 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 theexchange 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 respectivecurrencies 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 non-
functional 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, currenciesother 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 byremeasuring the financial statement accounts as though the functional currency has beenused since the transaction originated. The remeasurement procedures are as follows:
(i) Monetary assets and liabilities are remeasured using the balance sheet date rates;(ii) 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;
(iii) The difference between the assets, and liabilities and share capital in the newreporting currency, as a result of procedures (i) and (ii) above, is recorded in
retained earnings or accumulated deficit at that date;
(iv) Income and expense items are remeasured using the weighted average rates for theperiod, except for depreciation expense on fixed assets or amortization of non-
monetary assets which are remeasured using historical rates for the related period;
(v) Dividends are remeasured using the rate prevailing at the date of the recording ofthe dividends;
(vi) Procedures (iv) and (v) above will result in a remeasurement adjustment which isrecorded in retained earnings or accumulated deficit at that date;
(vii) The remeasurement adjustment is a result of the following calculation: retainedearnings (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)).
15 The remeasurement procedures described under paragraph 14 are performed up tothe 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) Assets and liabilities are translated using the balance sheet date rates;(ii) Equity accounts are translated using historical rates;(iii) Income and expense accounts are translated using weighted average rates;(iv) Dividends are measured using the rate prevailing at the date of the recording of the
dividends
(v) Procedures (i) through (iv) above will result in a translation adjustment which ispresented 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 The enterprise should disclose the following:
(a) The reasons for determining the reporting currency based on the indicators underparagraph 8;
(b) The change in reporting currency and reasons for the change :(i)
the reasons for the change based on the indicators under paragraph 8,(ii) exchange rates (historical, current, or average) used in remeasurement ortranslation,
(iii) condensed balance sheet and income statement, presented in the previousreporting currency, for comparison purposes.
Effective Date
22 This Statement is effective for the preparation and presentation of financialstatements 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. Theremeasurement 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 costPrepaid 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 currentrates. 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.
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