PSAK 71 Regulatory Compliance

Every business ventures and companies that exist in a competitive economy field will have to follow a set of regulations. This set of regulations manage the way these ventures file up their financial statements for the sake of transparency and legality. Commonly called as the accounting standard, all business ventures from small and midsized business to larger business must follow this standard, albeit to a different degree. Moreover, for larger business ventures, the accounting standard that they must comply with is usually more rigid than the smaller ventures.

This condition applies as well to conventional banks. In Indonesia, conventional banks that are under the Financial Services Authority or Otoritas Jasa Keuangan (OJK) must file relevant financial statements as per the rules. Usually, these banks follow a guideline called as Pedoman Akuntansi Perbankan Indonesia (PAPI) that serves to maintain the transparency and presentation of the financial statements. By following this guideline, Indonesian conventional banks are expected to present accurate and high-quality financial statements for the interest of all of the concerned parties.

Every year, financial authorities update the existing standards and guidelines to better suit the ever-changing needs of the economic market. For Indonesian financial bodies, they commonly a standard called as Indonesian Financial Accounting Standards or Pernyataan Standar Akuntansi Keuangan (PSAK). By the Institute of Indonesian Chartered Accountants or Institusi Akuntan Indonesia (IAI), several different accounting standards cover different accounting fields. Currently, there are 73 different accounting standards as of January 2020.

One of the most recently implemented accounting standards from IAI is the PSAK 71 regulation. Despite being ratified officially in 2017, this regulation has just recently take place in 2020. According to Sardjito, a commissioner deputy of OJK, PSAK 71 will amend several shortcomings from the previous regulation. Given that all conventional banks in Indonesia must follow this new regulation starting from 2020, the enactment of PSAK 71 is inevitable. In short, PSAK 71 discusses about financial instruments within business ventures and firms.

According to IAI, PSAK 71 provides a guideline for financial instruments’ recognition and measurement. Since PSAK 71 is consistent to IFRS (International Financing Reporting Standard) 9, PSAK 71 discuss the same financial instruments’ matter. In this new financial regulation, corporations and banks must provide allowance for impairment losses, or CKPN (cadangan kerugian atas penurunan nilai kredit) for all credit categories. All credit categories are covered under PSAK 71, be it the performing, underperforming or the non-performing credits.

The reason behind the implementation of PSAK 71 is to ensure that banks and business firms are capable to provide additional backup credit for unforeseen crisis. Inspired from the 2008 economic crisis, multiple accounting bodies created new accounting standards to counter sudden changes in the global economic scene. Furthermore, the underlying risk of default on credit situations prompted the standard’s continuous update by the International Accounting Standard Board (IASB). 

Many banks in Indonesia have reacted to the implementation of this new standard in several ways. PT Bank Rakyat Indonesia (BRI) Tbk, for example, has made several calculations of the possible short-term CKPN numbers in 2019. This is caused by the fact that CKPN has to be assessed since the early year period (expected loss) and not in the events of bad debts (incurred losses). As a result, BRI has to include the assessment result of CKPN implementation as well in the comprehensive financial statement from BRI in that year. 

In a nearly similar case, PT Bank Tabungan Negara (BTN) Tbk has also prepared for PSAK 71 in the same year. According to BTN’s Financial and Treasury Director Nixon LP Napitupulu, BTN has performed several changes for its Bank Business Plan or Rencana Bisnis Bank (RBB) and its business focus. In his statement, BTN has prepared a 100% backup rate of potential credit losses in 2020. With this renewed focus and plan, BTN expects to be able to fully comply with PSAK 71’s standards in the targeted year.

However, the ongoing COVID-19 pandemic in 2020 has forced several changes to this standard in Indonesia. To mitigate possible financial losses from the pandemic, OJK has urged banks to identify debtors who performed diminutively due to the pandemic. This will be done by accurately assessing all debtors whose business companies are suffering in the past few months. Once assessed, banks will have to create a restructuration scheme to point out business ventures that are consistently underperforming.

In the end, the implementation of PSAK 71 greatly depends on the performance of the current economy. In normal times, banks will have to present the most accurate financial statements from companies regardless of their business scope. However, in the urgent times, several compromises have to be made to lessen the burden of the underperforming companies. With this in mind, authorities expect to fully enact the implementation of this new standard in a more adaptable and suitable manner.

Fund Reserve for impairment loss in not a new thing. OJK and other government regulation compliance is adjusted in CONFINS. ARS as a part of CONFINS is a business intelligence software that comply and up to date to all of regulation to give you insight on your financial status of your company and give you recommendation for further adjustments.