FINANCIAL STATEMENT PRESENTATION CURRENCY
PSAK 10 – The Effects of Changes in Foreign Exchange Rates should be effectively applied for financial statements whose annual periods begin on or after 1 January 2012. There are some changes and amendment in this new standard. This article will be focus on one interesting issue of this new standard, Presentation Currency.
The new standard provides guidelines of the hierarchy factors to determine the functional currency of the entity and also providemethod how to translate financial statements into a presentation. The most significant change of this new standard is that an entity may present its financial statements in any currency (s). It means that the presentation currency may differ from the entity’s functional currency. For illustration, an entity in Indonesia can present its financial statements in Euro currency, even if the currency of the primary economic environment in which the entity operates is Indonesian Rupiah and a company only has few transactions and insignificant Euro transactions on its operation.
When the presentation currency differs from the entity’s functional currency, it translates its results and financial position into the presentation currency. The standard gives us the procedures to translate the financial position when the presentation currency differs from the functional currency. This rule accommodates an entity whose parent company or foreign operation division is using other currency than the entity’s functional currency. It also facilitates the entity during the consolidation purpose.
Rupiah and US Dollar
However, in doing a business, an entity in Indonesia is also bounded with other rules and regulations. There are many rules and regulations that should be complied by every company in Indonesia. Regarding this currency issue, besides the accounting principles, at least there are three other regulations which stipulate rules related currency, especially the presentation currency.
First, based Law No.8/1997 on “Company’s Documents”, in Article 8 it is stated that each company must make the records of financial statements in accordance with company requirements, using the Latin alphabet, Arabic numerals, the currency of the Indonesian Rupiah, and arranged in the Indonesian language. In the event that there is consent from the Minister of Finance, the records referred can be arranged in a foreign language. The Indonesian Law No.28/2007 on third amendment to Law No.6/1983 on “Tax general rules and procedures”, Article 3 point 1 states that each Taxpayer must fill out the Notice correctly, completely, and clearly, in the Indonesian language using Latin letters, Arabic numerals and the currency of Indonesian Rupiah. However, for companies having consent from the Minister of Finance, it may use other currency and other language for its financial statements. Thus, by the consent from the Minister of Finance as regulated by these Laws, for those who want to use other currency and language than Indonesian are given a way out. Moreover, this option is regulated in the Minister of Finance’s Regulation (PMK) No. 196/1997 on “Procedures for the Implementation of Bookkeeping with Foreign Languages and Foreign Currency Unit and Tax Notice Submission Obligation of Annual Income Tax”. In Article 2, it is stated that a Taxpayer can maintain bookkeeping with the use of foreign languages and the currency unit other than Indonesian Rupiah by using English and U.S. Dollar currency.
Those regulations create a border for the implementation of PSAK 10, especially for the presentation currency issue. From the accounting side, an entity will be free to choose in whatever currency its financial statement will be presented. But, from the other sides, an entity can only present its financial statements by using Indonesian Rupiah currency or U.S. Dollar currency (if has the consent), moreover, the language used option are Bahasa Indonesia or English.
Public listed company and Public Company
Badan Pengawas Pasar Modal (The Capital Market Supervisory Agency) or Bapepam regulates some rules and regulation that should be complied by all Public listed companies and Public companies in Indonesia. Bapepam rule No: VIII.G.7 from Bapepam gives us the Guidelines for Financial Statements Presentation. Based on the Bapepam’s Regulation No: VIII.G.7, section 2 – Particular, point (c) Presentation Currency: Presentation currency used by Public Listed Company and Public Company in Indonesia is Indonesian Rupiah. These companies may use other currency as its presentation currency, only if the currency meets the criteria of functional currency. The consolidated financial statements are presented in functional currency, after considering the functional currency indicators on the parent company and subsidiaries. Moreover, the PSAK 10 explains the criteria and factors in determining functional currency. In Section 2 – Particular, Point (b) in Bapepam rule No: VIII.G.7 states that financial statements should be presented in Bahasa Indonesia, but if it is presented in another language, the information should be the same if it is in Bahasa Indonesia.
In other words, the Bapepam rule above accommodates a entity’s need as long as the presentation currency is the same with the functional currency. Therefore, it could not be in Indonesian Rupiah or US Dollar only. Furthermore, for use of language, as long as a entity has the permit, the entity may use any language as its presentation language of financial statements.
How to use the other currencies and languages?
Since a entity should comply with every rule and regulation that binds, it should consider all possibilities to ensure that the policies and operations accommodates its needs and requirement. For companies whose presentation currency is expected in US Dollar and its financial statements language is in English, they can apply the consent from the Minister of Finance, as stipulated in the Minister of Finance’s Regulation (PMK) No. 196/1997. For companies whose presentation currency is expected in other than Indonesian Rupiah and US Dollar and its financial statements language is in Bahasa Indonesia or English, the best solution is to perform dual language and dual currency on their bookkeeping and the financial reporting. The good news is that, PSAK 10 gives us the guidelines for using a presentation currency other than the functional currency (translation to the presentation currency).