INTERNATIONAL ACCOUNTING
HARMONISATION
Harmonization
is a process for improving the compatibility (compatibility) of the accounting
practices by setting limits on how big these practices may vary. The
harmonization of of accounting includes harmonization :
1. Accounting
standards (related to the measurement and disclosure)
2. Disclosures made by
companies related to the public offer and listing of securities on the stock
exchange
3. Audit
Standards of International Harmonization Survey
Advantages
of International Harmonization :
1. Global capital markets and investment capital
can move around the world without hindrance. High-quality financial reporting
standards used consistently across the world will improve the efficiency of
capital allocation.
2. Investors can make better investment
decisions; portfolio will be more diversified and reduced financial risk.
3. Companies can improve decision making strategy
in the areas of mergers and acquisitions.
4. The best ideas arising from the activity of
the manufacture of standard pat deployed in developing global standards with
the highest quality.
Major International Organizations
Encouraging the Harmonization of Accounting
Six
organizations have become major players in the determination of the
international accounting standards and in promoting harmonization of
international accounting:
1. International
Accounting Standards Board (IASB)
2. Commission
of the European Union (EU)
3.
International Organisation of the Capital Market Commission (IOSCO)
4.
International Federation of Accountants (IFAC)
5. Intergovernmental Expertise Working Group of
the United Nations on International Standards of Accounting and Reporting
(International Standards of Accounting and Reporting - ISAR), part of the
United Nations Conference on Trade and Development (United Nations Conference
on Trade and Development -UNCTAD)
6. Working Group on Accounting Standards of
Economic Development and Cooperation Organization Working _Group OEDC).
DEVELOPMENT OF INTERNATIONAL
ACCOUNTING HARMONISATION
Efforts to harmonize international
accounting has been started a long time ago even before the formation of the
International Accounting Standards Committee (IASC) established in 1973. In
1959, Jacob Krayenhof, collegue of the founder of European independent
accounting firm mainly encouraged the making of international accounting
standards should be started. In 1976, Organization for Economic Cooperation and
Development (Organization for Economic Cooperation and Development - OECD)
issued a Declaration of Investment in Multinational Enterprises, which contains
guidelines for the "Disclosure of Information”.
In 1978, the Commission of the
European Communities issued the Fourth Decree as the first step towards
harmonization of European accounting. In 1981, IASC established a consultative
group consisting of non-member organizations to expand input in the making of
international standards. In 1984, the London Stock Exchange said that its party
expected companies listed their shares but not incorporated in England and
Ireland to adjust to international accounting. In 2001 the International
Accounting Standards (International Accounting Standards Board IASB) replaced
the IASC and took over responsibilities as of April 1, 2001. The IASB standard
is referred to International Financial Reporting Standards (Intanatioanl
Financial Report Standards-IFRS) and including IAS issued by the IASC. In 2002
the European Parliament approved a European Commission proposal that virtually
the entire EU companies with their shares listed must follow the standards of
the IASB commence no later than 2005 in the consolidated financial statements.
In the same year the IASB and FASB signed the "Norwalk Agreement"
which includes a shared commitment to the convergence of international
accounting standards and the United States. In 2008, the Indonesian Institute
of Accountants (IAI) on Tuesday, December 23, 2008 in the framework of its 51st
birthday declared Indonesia's plan for convergence to International Financial
Reporting Standards (IFRS) in the financial accounting standard setting. The
setting of accounting treatment that is converging with IFRS will be applicable
to the preparation of the entity's financial statements starting on or after January 1, 2012. This was decided after
a review of in-depth assessment and taking into account all the risks and
benefits of convergence to IFRS.
The compliance to IFRS has been
carried out by hundreds of countries around the world including Korea, India
and Canada which will perform the convergence to IFRS in 2011. Date from International Accounting Standard
Board (IASB) shows that there are currently 102 countries that have
implemented IFRS with varying degrees of necessity diverse. A total of 23
states allow the use of IFRS voluntarily, 75 countries require the use of IFRS
for all domestic companies, and four countries require the use of IFRS for
certain domestic companies. Compliance to IFRS gives
benefit for the comparability of financial reporting and increased
transparency. Compliance through the Indonesian company's financial statements
will be comparable to the financial statements of companies from other
countries, so it will be very clear which of the company's performance is
better. In addition, the convergence program is also beneficial to reduce the
cost of capital (cost of capital), increasing global investment, and
reduce the burden of preparing financial statements. International Financial
Reporting Standards (IFRS) as a reference for the development of financial
accounting standards in Indonesia because IFRS is a standard that is very
sturdy. The make-up is supported by experts and international consultative
councils from around the world. They provide enough time and supported with
literature feedback from hundreds of people from various disciplines and from a
variety of jurisdictions around the world. With the declaration of the IFRS
convergence program, then in 2012 all the standards issued by the Financial
Accounting Standards Board IAI will refer to IFRS and applied by entities.
IFRS
HARMONIZATION IN INDONESIA
Accounting standards in
Indonesia is not currently using (full adoption) of the international
accounting standards or International Financial Reporting Standard (IFRS).
Indonesian accounting standards in force today refers to US GAAP (Generally
Accepted Accounting United Stated Standard), but in some of the provisions it
has already adopted IFRS as its harmonization. The adoption by Indonesia at
this time is in nature of not completely changed, only some (harmonization).
This current era of globalization requires an international accounting system
that can be applied internationally in every country, or required the
harmonization of international accounting standards, with the aim to produce
financial information that can be compared, facilitate the competitive analysis
and good relations with customers, suppliers, investors, and creditors.
However, this harmonization process has constraints namely nationalism and
cultural barriers in each country, the differences of government system in the
country, the difference between the interests of multinational corporations
with national companies which influence the process of harmonization between
countries, and the high cost to change the accounting principles.
Importance
of Accounting Standards Harmonization in Indonesia
Indonesia needs to
adopt international accounting standards to facilitate foreign companies to
sell shares in this country, or vice versa. However, to adopt international
standards is not easy because it requires understanding and expensive
dissemination costs . Indonesia has already done so but its new and further
harmonization will be carried out over the full adoption of the present
international standards. The adoption of international accounting standards is
especially for public companies. This is because public companies are companies
that conduct transactions not only nationally but also internationally. In case
of a share purchase in Indonesia or otherwise, it will no longer be disputed the
difference in accounting standards used in preparing the report. There are
several options for adoption, use IAS as it is, or harmonization. Harmonization
is that we are the one who determine which ones should be adopted, in
accordance with needs. An example is the PSAK No. 24, it was fully adopting IAS
Number 19. The standard number associated with employee benefits or employee
benefit. Bapepam has given a signal to all companies going public about the
loss will be encountered if we do not harmonize. In its statement, Bapepam
explained that the losses associated with the capital market into Indonesia, or
Indonesian companies listing on the stock exchanges in other countries. Foreign
companies will find it hard to translate the financial statements as out
national standard conversely, Indonesian companies listing in other countries,
it is also quite difficult to compare financial statements according to
standards in the country concerned. This will hamper the world economy, and the
flow of capital will be reduced and not globalized.
Phar Mor Inc, is included as the largest company in the
United States which was declared bankrupt in August 1992 under the law of U.S.Bangkruptcy
Code. Phar mor was a retail company that sold products quite varied,
ranging from medicines, furniture, electronics, sports clothes to videotape. At
the peak of its glory, Phar Mor had 300 large outlets in nearly every state and
employed 23,000 employees based in Youngstown, Ohio, United States. Phar-Mor
was established by Michael I. Monus or so-called Mickey Monus and David S.
Shapira in 1982. Some stores used Pharmhouse name and Rx Place. The slogan of
Phar-Mor was ”Phar-Mor power buying gives you Phar-Mor buying power”.
Phar Mor Inc, was a dry goods retailer headquartered in
Youngstown, Ohio, founded in 1982 by David Shapira and Michael I Monus. Monus
as the President of Phar-Mor and heavily involved in the operations. Shapira,
CEO of supermarket chain Giant Eagle, the largest shareholder of Phar-Mor and
became CEO. The company grew quickly from one store in 1982 to more than 300
stores with sales of approximately $ 3 M in 10 years. The characteristic of the
Phar-Mor stores, is that they always deliver discount goods with a large number
of purchase. The merchandise such as video tape to prescription of drugs. In
the 1980s, Youngstown was still shaken by the restructuring of the steel
industry. Nearly 50,000 jobs were lost and many businesses were left downtown.
Under the leadership of Monus, Phar-Mor became Youngstown biggest supporters
and employees. Monus started by taking over two empty buildings in downtown,
operated stores of Phar-Mor first and converted into other forms by means of
emptying department stores, into the headquarters of Phar-Mor. The head office
became the focal point of events in the city. Monus also supported the
activities of fireworks at the center of the city and Camp Tuff Enuff, a
risky program for children in that city. Monus represented University of Youngstown, where each family was
assigned a business seat. Monus persuaded Ladies Professional Golf
Association to hold a championship in Youngstown for people who are
enthusiastic and sports fans. Then she tried to pull Denver Rockies after
failing to persuade Major League Baseball as the franchise for a trophy of Youngstown. In 1987, Monus started a world
basketball league, which consisted of 10 teams from each city.
Phar-Mor began to experience a loss in 1987. The loss was
hidden from the monitoring of Monus and several subordinates did an increase in
inventory, other assets, liabilities and other charges to cover the profit
margins which kept on continuing to shrink. Two sets of books were stored, the
company great books that contained false statements and great books hidden
which kept on posting false alarms. Such measures to cover losses and allow
them to ask for a bonus of performance as well as maintain access to capital
markets and credit application. The financial statements which were incorrectly
used for the purpose of credit worth $ 1 billion as additional capital from
investors, including Sears, Roebuck & Co, Westinghouse Electric
Corp; some developers of mall
Mr Edward DeBartolo; and corporate partners as an affiliate from Lazare Freres.
As the company's financial condition worsens, they depended on the payment from
suppliers to hide the company's losses. Suppliers such as Coca Cola
Enterprises Inc, Fuji Photo Co and Gibson Greetings Inc paid amounted to $138 million between
1988 and 1992 in exchange for Phar-Mor's for not being their brand competitor.
Phar-Mor bought some of its goods with suppliers known or have a relationship
with the executives or directors of Pahr-Mor. For example, the company hired a
number of telephone equipment from a company partly owned by Monus. Sold
sportswear from the presemce of World Basketball League. Costume jewelry
purchased from Jewelry 90, Youngstown purchased some jewelry from wholesale in New York. Jewelry 90 was owned by David Karzmer, a business colleague of
Monus. Michael Monus’s father,
was the director of Phar-Mor,
working as a consultant from
Jewelry 90. He was paid
$354,754 to work for six
months in 1992. If Phar-Mor purchased directly from wholesale in New York, then
it will save $ 2.1 B. During the summer of 1992, Youngstown travel agent
told Edward DeBartolo as the independent shareholders that the unit of Phar Mor
has made payments totaling $ 80,000 for completing the World Basketball League
delinquent accounts. DeBartolo forwarded the information to Shapira, to perform
an internal investigation to Phar-Mor. Investigations revealed that DeBartolo
only looked at the peak of a problem. For several years, Monus has distributed
a number of funds of about $ 10 million to the World Basketball League. As a
general partner in the league, 60% of her as a controller of each team, thus
Monus was responsible for financing the league. The team owner said that every
time they needed money, they will contact the financial director Phar-Mor or
contacts to the small business division and the money will be sent. Monus was
also using as much as any money for personal use, including $ 180,000 for a
house with an area of 18,000 square feet anew he built, complete with
basketball court. A number of other officers and directors have benefited at
the expense of Phar-Mor. History records the case as a case of Phar mor inc
legendary among financial auditor. Phar Mor executives intentionally committed
fraud to obtain financial benefits coming into the pocket of private
individuals in the ranks of top management of the company.
Analysis :
In the case
of Phar Mor Inc the
company committed a fraud, top
management of Phar Mor made two financial statements namely,
inventory statement and
monthly financial report. And the two reports were then doubled by the
management. One set of inventory report containing inventory report that was
true, whereas one set of other report containing inventory information adjusted
and addressed to external auditor. As well as with the monthly financial
report, the true financial report contained losses experienced the
company intended only for executives. The other is a report that has been
manipulated so as if the company gained enormous profits. In preparing these
reports, the management of Phar Mor deliberately recruited staff of public
accountants (KAP) Cooper & Lybrand, those staff then helped
played in the fraud and in return has made multiple statements they were given
a position of importance. In the case of Phar Mor, the function of control
environment was
developed. Control environment was greatly determined by attitude from the management. The idea is that, a management must
support fully an audit internal activity and declare that particular support to
all operational personnel of the company. The top management of Phar Mor did
not show good attitude. The management then actually recruited staff of
auditors from KAP Cooper & Librand to also played in fraud to obtain
financial benefits coming into the pocket of private individuals in the ranks
of top management of the company.
References :
Choi, Frederick. D. S. dan Gary K. Meek.
2010. International Accounting Edisi 6 Buku 1. Jakarta:Salemba Empat.
Frederick D.S. Choi, dan Gary K. Meek.
2005. International Accounting, Buku 2
Edisi 5. Jakarta: Salemba Empat.
