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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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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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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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