2nd A4-PFM Conference TRANSPARENCY AND ACCOUNTABILITY IN THE PUBLIC SECTOR: ANALYSING THE ADOPTION OF ACCRUAL ACCOUNTING IN INDONESIA Meiliana, A.K. Siti-Nabiha, Lian-Kee Phua Faculty of Economy and Business, Universitas Internasional Batam, Kepulauan Riau, Indonesia; Graduate School of Business, Universiti Sains Malaysia, Penang, Malaysia Phone no. 62-813-648-10850 or 62-778 7437-111 or 604-653-276/2443
[email protected],
[email protected],
[email protected] ABSTRACT Indonesia follows the global trend to adopt the new public management concept that focuses on the change in management practices including reform in the governmental accounting system. The adoption of an accrual accounting system by governmental agencies is mandatory due to government regulations so as improve the quality of financial reporting information and enhancing accountability and transparency. Hence, the purpose of this paper is to analyse the adoption of accrual accounting as part of the reform effort by the Indonesian government to improve transparency and accountability. This paper adopts a combination of descriptive and analytical methods by using the (Ouda, 2008) frameworks on the governmental documents and reports including the various regulations. The result shows that the adoption of accrual accounting continues to suffer from major inadequacies and challenges, and the increased of accountability and transparency is still unsatisfactory (reflected by the high corruption index and the increases of corruption cases). Keywords – Accounting Governmental, Accrual, Indonesia INTRODUCTION The Indonesian government follow the global trend to adopt the new public management concept that focuses on the change in the management practices of the public sector towards more private sector practices. Since 1998, Indonesia has experienced dramatic reforms in political, economic and public administration system (TAP MPR24 No. X, XI, and XV year 1998). This reform that encompasses all aspects of good governance practice has one established agenda, to serve the people in a more effective, efficient, responsive, transparent, and accountable 24
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manner which aims to strengthen the demand side in the public service delivery. In addition the reform also leads to more participation and empowerment of the citizenry, more democratic based on legal supremacy and respects human rights, and less corruption at the entire level of Indonesian government. In 1999, the Indonesian government issued Act No. 28 to regulate the good governance practice through anti corruption, collusion, and nepotism (Djamhuri, 2009; Harun, 2012; Harun & Kamse, 2012; Harun, Peursem &Eggleton, 2012; Harun & Robinson, 2010; Marwata & Alam, 2006; Prasojo, Kurniawan, & Holidin, 2007). The Indonesian government also has issued Act 22/1999 (replaced by Act 32/2004) that concerns with local government systems or decentralization, and Act 25/1999
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2nd A4-PFM Conference (replaced by 33/2004). It regulates the governmental financial management systems, the fund balance of central and local governments. These acts are supposed to ensure good governances of the local government in the management of resources. The decentralization of power and authority from the central to the regional and local government also leads to the demand for more specific and complex information about the public sector performances, which cannot be provided by the conventional system, namely: cash-based accounting system. The new management systems also assume an inevitable shift that the change represents progress toward a more advanced administration (Osborne & Gaebler, 1993). As mentioned in previous researches, accounting reforms have been a central element for the new public management practices (Arnaboldi & Lapsley, 2009; Christensen & Yoshimi, 2004; Ryan, 1998, World Bank, 2008). The accountability, improved transparency and disclosure of accurate and comprehensive information are considered as critical elements of NPM. One of the important elements of NPM that can be seen in the public accounting practices with a move from cash to accrual accounting, together with the adoption of management accounting techniques is measuring and monitoring of performance. Since the 1980s accounting reforms have been a central aspect in the context of the NPM philosophies (Ali, 2008; Allen, 2009; Arnaboldi & Lapsley, 2009; Broadbent & Guthrie, 2008; Eriotis, Stamatiadis, & Vasiliou, 2011; Hood, 1995; Khanagha, Farzinfar, & Feizpour, 2011; Upping & Oliver, 2011a). The traditional cash accounting system is not able to provide the required additional financial information as a result of the NPM orientation (Mare Nikitin, 2010; Oliorilanto, 2008; Ouda, 2006; Steger, 2010; Upping & Oliver, 2011). Thus, the public reform in Indonesia also requires a change in its public accounting practices. Some studies show that accrual accounting system can better support the NPM principles of efficiency, effectiveness,
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transparency and accountability. This system will also be able to show the organization’s performance-including the financial statements of the public institutions (Mardiasmo, Barnes, & Sakurai, 2008; Mardiasmo, 2002). Public sector’s performance means managerial and financial efficiency, improvement in decision-making process for resources economist, reporting efficiency, control, and accountability (good governance) (Christiaens & Vanhee, 2001; Eggleton, Harun, & Peursem, 2011; Gray & Laughlin, 2012; Pettersen & Nyland, 2011). While generally recognizing that the accrual-based accounting basis is superior to the cash basis, opponents tend to raise concerns about the adoption cost and difficulties, which it entails numerous, often complex, assumptions about future events, and the assumptions are subject to judgment and manipulation. It is more difficult for ordinary people (taxpayers, media, etc.) to understand accrual than cash basis. They also argue that only a few countries have implemented, and the accrual-basis does not remedy the “Off-Balance Sheet” problems. The emphasis should be on getting the basics right first (Athukorala & Reid, 2003). However, at the practical level, the adoption of the new policies including the introduction of a new accounting system is not a simple process (Dambrin, Lambert, & Sponem, 2007; Nor-Aziah & Scapens, 2007). A wide gap exists between the ideal concept of formal accounting change and its ultimate development and between the newlydeveloped accounting instruments and their actual application (Bogt, 2006; Helden, 2008). Investigations in accounting system are developed, adopted and practiced within an organization as a basic need and fundamental resource (Eggleton et al., 2011; Harun & Kamase, 2012; Nor-Aziah & Scapens, 2007; Siti-Nabiha & Scapens, 2005). As such it is imperative to analyze the adoption of accrual accounting in Indonesia using the framework developed by the New Zealand government (Ouda, 2008). Hence, the purpose of this paper is to analyze the adoption of accrual accounting as part of the
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2nd A4-PFM Conference reform effort by the Indonesian government to improve transparency and accountability This paper is structured as follows: Section 2 provides the literature review that focus on lesson learned in implementing accrual-based accounting system in the public sector of some countries. These experiences are used as a benchmark in evaluating Indonesian contexts. Section 3 discusses the method used in this paper. Section 4 provides review of the adoption of accrual accounting in Indonesia. Section 5 discusses the implication of the governmental reform, specifically on the adoption of accrual accounting in terms of the improvement of transparency and accountability. The final section is conclusion.
LITERATURE REVIEW Governmental Accounting System There are some bases of accounting system for government agencies, i.e, the cash based, the modified cash accounting and the modified accrual accounting and the accrual accounting system. In the Cash basis accounting system, the revenue or expenditure is recorded when cash is received or paid. It has some limitations, such as not able to fulfill the NPM practice and the international fund organization needs on more comprehensive information; Modified cash accounting recognize the transaction and other events on a cash basis during the year. Any unpaid accounts and receivables are taken into account for a month after the yearend. Modified accrual accounting, transactions and other events are recognized on accrual basis, but certain classes of assets or liabilities are not recognized. A typical example is the expensing of all non-financial assets at the time of purchase. In the Accrual accounting, economic events are recognized when they occurred, meaning matching revenues to expenses at the time in which the transaction occurs to recognize economic events. Under this method, revenues are recognized when income is earned, and expenses are recognized when liabilities are incurred or resources are consumed (Athukorala & Reid, 2003; Khan & Mayes, 2009; MOF, 2010).
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The positive impact of the adoption of accrual-based accounting rule has been widely acknowledged by researchers. The accrual-based accounting rule contributed significantly in improving the quality of decision making for the efficiency and effectiveness of public expenditure through accurate financial information and transparency, and improve resource allocation by informing the costs arising from a policy and transparency of the success of a program. The financial information prepared on the basis of accrual system will make it easier for users to compare the balance between the use of alternative resources, assessing performance, financial position, and cash flows from the government entities, to evaluate the ability of the government to fund its activities as well as the ability for to fulfill its obligations and commitments, evaluating the cost, efficiency, and achievement of the government's performance, understand the success of in managing resources (Deloitte, 2004). In addition, the use of accrual-based accounting rule in many developed countries has shown various benefits which include the support to performance management, facilitate better financial management, improve the understanding of the program costs, expand and improve resource allocation information, improve financial reporting, as well as facilitate and improve management of assets including cash (Van Der Hoek, 2005). However, accounting is not an autonomous phenomenon; other social factors are able to provide bases for accounting change and vice versa; accounting can lead to organizational change. The accounting and organizational change are inter-related (Eggleton et al., 2011; Harun, Peursem, & Eggleton, 2012; Harun & Robinson, 2010; Hopwood, 2000; Hoque & Moll, 2001; Nor-Aziah & Scapens, 2007; Norhayati & Siti-Nabiha, 2009). Accounting plays three role in organizational change process. It includes creating particular visibility in organization to facilitate organizational control, functioning calculative practice that make appear real the abstract
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2nd A4-PFM Conference things, and creating a domain of economic action to be operationalized to shape organizational agenda, concern and choices (Hopwood, 2000). The challenges experienced in those countries were supported by the views of some accounting and public administration scholars such as Ellwood & Newberry, 2007; Wynne, 2007) that disagree with the full implementation of accrual-based accounting system in the public sector. They questioned the scope and benefits of the implementation of the accrual-based accounting system, the purpose of its use in the public sector, its impact on the relevance, reliability and understandability of the resulting financial information for the public sector (Kober, Lee, & Ng, 2010). Other criticisms include the costbenefit analysis of the implementation of this system.
Lesson Learned from Other Countries in Implementing Accrual Accounting The application of the accrual-based accounting rule in many developed countries has thrived and brought benefits, such as support to system of performance management, facilitate better financial management, improve the understanding of the program costs, expand and improve resource allocation information, improve financial reporting, as well as facilitate and improve management of assets including cash (Van Der Hoek, 2005). Several international experiences show different stages in implementing the accrual-based accounting system. The U.S. government produces audited consolidated financial statements for the budget entities. It excludes several bodies such as Army Force Exchange Service, Board of Governors of the Federal Reserve System, and USA Education Inc. The U.K. government adopted accrual accounting in phases, not through the big-bang approach. It worked on a project to produce consolidated financial statements of the central government during 2001-2006. The Australian government produces audited financial statements for the federal government as a whole, including analysis of the key
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aggregates related to: general government entities, public nonfinancial corporations, and public financial corporations that are controlled by the federal government. The New Zealand government produces audited financial statements for the government as a whole (Athukorala & Reid, 2003, Khan & Mayes, 2005, 2009). Although there is an increase in the number of countries adopting accrual accounting systems in the public sector, however, there is argument that the benefits from adopting the system have not been achieved. A study in New Zealand about accounting systems and systems of accountability transformation of public service institutions into “successful businesses” showed that the process is still uncompleted (Lawrence & Doolin, 1997). Another study that examined the accrual accounting and public sector reform based in Northern Territory shows that the reform has not achieved its intended objective of increasing accountability (Ali, 2008). The small private sector in the Northern Territory has not supported the creation of a competitive market for most government goods and services. Although accrual accounting has been able to provide full cost information, the heterogeneity of some government services has resulted in a questionable full cost figure. The use of full cost in pricing has not achieved its intended benefits because of the absence of competitive market pressures. Also, the use of cost information in benchmarking has been fragile, mainly because higher costs of services are the result of ‘capital cost disabilities’ that exist in the Northern Territory and may have nothing to do with performance efficiency. Furthermore, accrual budgeting has not been used properly and therefore it has failed to achieve its objectives. Finally, accrual reporting has improved the completeness of the availablity accounting information at the entire government level. But it has not changed much from cash reporting in discharging good governance practice at the organizational and governmental levels. New Zealand’s experience has been
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2nd A4-PFM Conference chosen to assist in developing the generic model of the government sector reform. The reasons, New Zealand has been successfully implemented the accounting reform in big bang approach and applied bold ideas and innovative theories to undertake the reform. The reform started in May 1986 by controlling its State-Owned Enterprise. Then the reform was followed by management reform; include financial reform by changing the input to an output-based budget, and shifting the cash to accrual accounting system in 1989. Empirical evidence shows that it is not easy to adopt new public management in developing countries. It depends on the background and unique characteristics of each developing country (Mimba, Helden, & Tillema, 2007). The developing countries confront obstacles not faced by developed countries do not face, such as (1) capacity constraints can be overwhelming; (2) there may be more urgent priorities than improving public accounting practicces; (3) corruption and vested interests can undermine efforts; (4) donor activities may reduce coherence of the reform; (5) reform fatigue may impede efforts; (6) limited technological infrastructure may reduce options and raise costs; and (7) supreme audit institutions (SAIs) may have limited capacity (Athukorala & Reid, 2003). Other factors identified as influening NPM reforms in developing countries include: (1) Low institutional capacity; relates to lack of necessary infrastructure and ability to achieve the goals set (Eggleton et al., 2011; Marwata & Alam, 2006); (2) Limited involvement of stakeholders; only pays attention to the more powerful stakeholders, such as the public sector officials and civil servants (internal), or the international funding agencies (external); (3) High levels of corruption; weak control systems and gaps between the needs and incomes of civil servants, and (4) High level of informality, culture context. The accounting reform in Fiji (Sharma & Actrence, 2009) and Nepal (Adhikari & Mellemvik, 2011) faced difficulties and they are the unsuccessful stories. Nepal has been acquainted with the notion of accrual accounting since the late 1980s. The interest of
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international organizations and the involvement of professional accountants (consultant) have been the two main factors driving the adoption of accrual accounting. The implementation of the accrual accounting in the Nepalese central government has been an unsuccessful mission. While empirical evidence from two-public sector organizations in Fiji that underwent structural reforms is used to illustrate the difficulties of transformation; and how the local needs were not met for the purpose for which the organizations were established. Similar findings were drawn from the public reforms in Sri Lanka. These reforms demand new skills and attitudes on the part of both bureaucrats and politicians. New initiatives to improve transparency in the public sector management need to be developed and implemented, but it is questionable whether the necessary political commitment exists for such reforms (Samaratunge & Bennington, 2002). Study from Malaysia compare to accounting practice in UK done by (Saleh & Pendlebury, 2006). It is argued that in the UK the principles of accruals accounting were introduced primarily for managerial accounting and control purposes. Malaysia has also focused primarily on management accounting initiatives for the development of the governmental accounting. Now Malaysia is considering the use of accruals accounting in an attempt to improve further its financial management procedures. Financial management in the government includes the planning processes, implementation and control on the use of assets and public financial resources. To increase the efficiency in financial management, the Malaysian public services has strengthened the implementation of the micro accounting system, implement a standard computerized accounting, follow up actions on the Auditor’s General Report (Saleh & Pendlebury, 2006).
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2nd A4-PFM Conference METHOD This paper adopts a combination of descriptive and analytical methods. It is conducted by examining secondary data and information as well as a review of the strategy of accrual accounting adoption in Indonesia based on the framework used by the New Zealand government (Ouda, 2008). The secondary data in the form of regulations or documents have been examined in this study as presented in Table 2 (refer to Appendix 01). The framework is used because it is a more comprehensive tool as compared to the ADB framework (Athukorala & Reid, 2003) or IMF (Khan & Mayes, 2009). The following factors must be simultaneously and in parallel be available if the government wants to implement the accrual accounting in the public sector in an efficient, effective and economic way and to attain the target benefits from the reform. The assumptions that underlie the development of the framework are stimuli (driving force) and reform decision must be strong, i.e. more than one or two-stimuli are required to adopt the change (Ouda, 2005, 2006, 2007, Ouda, 2008). (a) Management culture change: internal management changes-NPM; focus on output, efficiency and effectiveness; (b) Political and bureaucratic support from the legislative and executive; (c) Professional and academic (advisory) support in the fields of accounting and auditing; (d) Communication strategy: Extensive communication strategy is a key factor in shaping the understanding of the essential principles of accounting change for politicians and parties involved in the implementation process; (e) Willingness to change: Willingness and qualifications of staff needed to develop and implement accounting changes is crucial for successful implementation; (f) Consultation and coordination with relevant government entities that adopt accrual accounting; (g) Budgeting adoption cost: Estimated cost is very important in determining the necessary funds for the implementation process; (h) Tackling of specific accounting issues: identification and valuation of assets, assets registration, the reporting entity, etc; (i)
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Information technology capability: in the era of IT, the reform process should involve increase of computerized information system as a key of accounting, budgeting, and financial management; (j) Accounting and budgeting consistency (integration): will help in dealing with the obstacles in the process of implementation; (k) International Financial Support: adequate financial and technical support especially for developing countries.
ADOPTION OF THE ACCRUAL ACCOUNTING IN INDONESIA The Road Map of the Accrual Accounting The regulations on decentralization force the central government to give more power to local authorities. It drives local governments to implement good governance in managing the resources effectively and efficiently. The objective is to fulfil the interest of the local communities. Consequently, the new local governments must have higher awareness in giving more space to all stakeholders to be involved in decision making and the development process (Harun, 2012; Mardiasmo, 2002; Marwata & Alam, 2006). To promote good governance especially accountability and transparency in the public sector, Indonesian government issued various regulations and technical guidelines as presented in Table 2 (refer to Appendix 01). In year 2000, the government issued GR 105/2000 (amendment by GR 58/2005) with regards to local government financial management and responsibility and GR 108/ 2000 on the accountability procedures for head of local authorities. To support all the needs and regulations mentioned, the Indonesian government has issued Act 17/2003 (article 36 paragraph 1), and Act 1/2004 (article 70 paragraph 2) about the recognition and measurement of government revenue and expenditure using accrual basis. Act No. 17 Article 36 paragraph (1) required revenue and expenditure to be recognized and measured on accrual basis and the accrual-based system to be implemented no later than five-years (by year 2008). Moreover, Act 1/2004 on state treasury,
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2nd A4-PFM Conference article 70 paragraph (1), Act 32/2004 on regional government and Act 15/2004 on audit of state financial management and accountability also enforced similar requirements. Act 17/2003 (article 32 paragraph 1), and Act 32/2004 (article 184 paragraph 1 and 3 require (central/local) government to prepare an accountability report for budgeting implementation that is in line with the governmental accounting standards (GAS). In consideration of the readiness of the resources and existing capabilities, the governments through The Governmental Accounting Standards Committee (KSAP)25 did not adopt directly the accrual-based accounting system, but rather used the cash-based, modified cash towards accrual-based accounting system. After having a reviewed or suggestion from the Supreme Audit Body (BPK RI26), KSAP issued the first governmental accounting standard (GAS) that use cash toward accrual-based system, (Government Regulation No. 24/2005). The Indonesian GAS was developed with reference to the International Public Sector Accounting Standards (IPSAS). The GAS regulates the basic framework in preparing of government accountability report regarding budget implementation. The reports are in the form of financial statements that consist of the budget realization (LRA)27, balance sheet, statement of cash flows, and notes to financial statements. In addition, Indonesian government also 25KSAP:
Komite Standar Akuntansi Pemerintahan (Governmental Accounting Standards Committee) was established by President Decree 84/2004 (amended by Decree 2/2005). These regulations strengthened the KSAP position that initially been formed by the Minister of Finance (statement 308/KMK.012/2002 concerning about Accounting Standards Committee of Central and Local Government). 26 BPK RI: BadanPemeriksaKeuanganRepublik Indonesia is an independent body at national level has the authority to audit and investigate the accountability reports (financial report) and accounts of the Indonesian government at the national and local level 27
LRA: LaporanRealisasiAnggaran (Budget realization)
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issued Act 15/2004 concerning audit and accountability on financial and performance of government. These regulations also have strengthened the control of the central government over local officials and budgets. In order to improve the quality of accountability reporting or information from the financial reporting, it is imperative to implement the accrual accounting system because it may facilitate financial and asset management to be more transparent and accountable. In year 2010, GR 24/2005 was superseded by GR 71/2010. It requires that financial reports of the governmental agencies to consist of budget realization (LRA and SAL), Statement of Cash Flows, Balance Sheet, Statement of Financial Performance (LO), Statement of Changes in Equity (LPE), and Notes to Financial Statements (CaLK), The important objective of the accrual-based accounting implementation is to improve the transparency, accountability, and also to determine the cost of service (efficiency). The new GAS requires full adoption of the accrual-based accounting by both central and local governments. However, cash toward the accrual system is still allowed to be continually used if the respective governments are not ready for full adoption of the accrual-based accounting system. The time frame given for full adoption is fiveyears from the establishment of the GR (year 2015). As agreed by the government, the parliament and the KSAP, the adoption of the accrual-based accounting in the public sector is to be implemented in phases as given in Table 1 (please see Appendix 01). Review on Accrual Accounting Implementation A formal adoption of the accrual accounting would not automatically bring intended outcomes as officially stated or planned. Experiences from the developing countries show that technical and institutional problems could potentially hamper the government's efforts in reforming the public sector accounting to improve efficiency. Moreover, recent literature in the public sector accounting critically questioned the
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2nd A4-PFM Conference claimed benefits of the accrual reports (Carlin 2005; Christensen 2007; Christensen & Rommel 2008; Connolly & Hyndman 2008). A critical assessment run counters the globalization movement towards the adoption of business-style practices that continues (Broadbent & Guthrie 2008). This trend indicates that the public sector accounting policy makers around the world have paid little attention to the potential obstacles in the implementation stage (Harun & Kamase, 2012). Based on the framework used by the New Zealand government (Ouda, 2008) , our analysis on the adoption of accrual-based accounting in Indonesia are presented as follows. (a) Management change: the adoption of the accrual accounting in Indonesian government is implemented gradually in phases. This accounting reform took place following the public reform in Indonesia in 1998. It can be concluded it is the right timing for the change. To support the reform, new regulations were issued by the government, for instances, the statement of the Ministry of State Apparatus KEP/26/ M.PAN/2/2004 on improving public services and Statement No 10/2010 on Roadmap of bureaucracy reform 2010-2014; Act 25/2009 on the public services, and Act 14/2008 on public information. These regulations are one of the government's efforts to manage the changes (reform). It is used as reference for all public agencies to provide better service quality, to improve transparency and accountability. (b) Political and bureaucracy support or political ownership/commitment: It can be seen in the implementation of the package of Acts and Regulations on the management of public finances such as Act 17/2003, 1/2004, 15/2004, GR 24/2005 (altered by GR 71/2010), and so on. The issuance of regulations shows the support of the state legislature, and its application evidenced the support and commitment of the government executives. (c) Professional and academic support: It can be seen in the process of GAS setting
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that was conducted by the KSAP and in the process of setting the budget of local governments based on Discussion Memorandum Implementation of Accrual Basis in Governmental Accounting in Indonesia in 2006 conducted by accommodating the opinions of professionals and academics related to governmental accounting and financial reporting, etc. Based on the Statement of MoHa No 13/2006, annual budget setting must involve all stakeholders include the professionals and academics at Musrenbang28. (d) Communication strategy: As mentioned in GR 71/2010, the Ministry of Finance (MoF) is responsible for the implementation of the accrual-based accounting at the central government level, while MoHA is responsible for the local governments. They have engaged certain media to communicate about the reform, the system, and all details of the implementation, such as through internet (http://www.perbendaharaan.go.id/ or http://www.span.depkeu.go.id or www. ksap.org or http://www.sai.depkeu.go. id/), monthly magazine/bulletin (Panduan Teknis Akuntansi Pemerintah Pusat29), workshop, seminar, etc. Those facilities are provided to discuss any arising issues in the accrual accounting implementation. (e) Willingness to change: It can be argued that the public reform in Indonesia and also accounting reform is initially imposed by the international donor agencies. The desire for change towards the accrual accounting has been clearly written in Act 17/2003 and Act 1/2004. MoF and MoHA conducted some trainings and workshop to support the adoption of the new system. But they are not sufficient to cater for all staff in the governmental agencies. There is also problem in getting enough professional accountants to work for local governments. Musrembang: Musyawarah Perencanaan Pembangunan (a meeting conducted by central and local government as part of budget setting to gather public interest) 29 Panduan Teknis Akuntansi Pemerintah Pusat = Guideline of Technical Accounting for Central Government 28
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2nd A4-PFM Conference Then the recruitment system and job analysis are not worked properly in getting the professional staffs needed. (f) Consultation and Co-ordination: It can be seen in the GAS, statement or regulation from MoF (Per-55/2012) and MoHA (13/2006) are regarded as the general guidelines of the governmental accounting system regulation. The MoF, KSAP and MoHA coordinate with each other in setting the GAS and guidelines. Technical consultancy related to the implementation of accrual accounting has been facilitated by the Directorate General of Financial of Local Governemt of MoHA (for local government), and the Directorate General of Treasury of MoF (for central government). KSAP roles as the facilitator in socialization of GAS and its implementation. (g) Adoption of cost budgeting: Indonesia is still applying cash-based budgeting despite that accrual basis of accounting is the underlying financial reporting basis as required by the government agencies. (h) Specific accounting issues: Specific Accounting Issues (SAI) have been described in detail under Regulation number 71 of 2010. One of the important issues is the identification and evaluation of assets, contained in the Supplement Sheet PP 71/2010, i.e Statement of Standard No. of Fixed Assets and No. 8 of the Construction in Progress. Classification of Convestruction in Progress on Kepmendagri 29/2002 Assets are grouped at the, and stated at cost and depreciation is calculated. Basically, recording and recognizing the Construction in Progress on PP 71/2010 is the same, but if the depreciation cannot be done, it must be disclosed in the Notes to the Financial Statements (CaLK). (i) Information technology capacity or financial management information system: The Indonesian government develops some system to implement the accrual accounting, but they are not integrated systems. These include free and open source SIM from MoHA (http://www.djkd. kemendagri.go.id), SIMDA that is provided
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by the BPKP (http://www.simda.org), and SPAN which is provided by the Director General of Treasury MoF (http://www. span.depkeu.go.id/). (j) International financial support: Indonesia has received many supports from various international organizations for its accounting reform to provide better governance, this includes funding from the World Bank, assistance from IMF, Asian Development Bank, USAID, fund from SECO to train local government staffs at related accounting department, etc.
DISCUSSION There are three main principles underlying the good governance, namely participation, transparency, and accountability. The participation talks about the involvement of people in decision-making and delivery of the government services to the users. Transparency is to disclose of information, and accountability is to prepare information or report accurately and timely. It can be concluded that the participation goes for transparency, and the accountability will be improved if it is supported by an accounting system that produces timely information and reliable. The result of the Indonesia public sector reform in ensuring good governance, transparency and accountability together with effective and efficient service delivery are far from satisfactory. It can be seen on the achievement of key performance indicators (refer Table , as stated in the President Regulation 80/2010 on issues such as as corruption cases, the audit opinion of central and local government from the Supreme Audit Body (BPK), are still lower than the set targets (please refer Table 4-Appendix 02). The Central Government still continues to introduce bureaucratic reform and practices of good governance. As mentioned by President Susilo Bambang Yudhoyono in his State of the Nation address on August 16, 2012 that bureaucratic reform and governance as the first priority of national development in 2013 to improve the investment climate.
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2nd A4-PFM Conference In addition, several corruption data show similar evidence. Data from Transparency International demonstrates that Indonesia is still at the ranking of corrupt country in the world, which is inversely proportional to accountability and transparency (please refer to Table 5). In year 2011, Indonesian CPI was 3.0, which was still far from the targeted index 10 by the year 2014. It was also below Thailand (3.4) or Malaysia (4.3) or Brunei (5.2), and Singapore (9.2, the fifth rank). While highest CPI was 9.5 out of 10 for New Zealand (http://www.ti.or.id/ index.php/publication/). The corruption cases handled by the Commissioner of Indonesian Corruption Eradication Commission (KPK30) have also increased yearly, for example increase of 49% in 2009 as compared to 2008 (please refer to Table 6 and 7). Among those corruption cases from 2004 to 2009, there were many varieties against high-ranking officials, included: 17 members of parliament; five ministers or heads at ministerial level; five provincial governors; One governor of the central bank, and four deputy governors; 18 mayors and heads of regents/ districts; six commissioners of general elections, judicial figures, antimonopoly commissioners; three ambassadors and four consul-generals, including a former chief of the National Police; Senior prosecutors, the KPK’s own investigators, many government officials at echelon I & II; High-ranked private sector executives involved in corruption in the public sector (Jasin, 2009). From 245 corruption cases handled by the KPK since 2004 to 2010, of 30 cases (12.24%) were the cases that involved the Head of Regions, of which 8 cases involving the Governor and remain 22 cases 30
KPK: KomisiPemberantasanKorupsi, was established by Act 30/2002 (followed the Act 31/1999, and Act 20/2001). It is an independent body, and alsoauthorized to conduct pre-investigation, investigations, and prosecutions against corruption cases. KPK is led by 5 Commissioners, a collegial leadership. Financially, KPK is audited by the Indonesian Supreme Audit Body (BPK) and should be responsible to the public. In doing the tasks, KPK has the authority to supervise and coordinate with the Attorney General Office as well as the National Police in handling corruption cases.
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involving the Regent/Mayor (Kurniawan, 2011). Another study in 41 districts/municipals across Indonesia conducted by KPPOD in year 2010, showed that cost of corruption has been included as infrastructure project cost. The corruption also has affected on quality of infrastructure. The corruption tends also to occur in situation where the monitoring effort of central bureaucrat did exist while participation of local civil society was low. This unfair process was suspected to take place since the budgetary process-taking place at legislative where political bargaining was massive and the planning process (Musrenbang31) apparently was characterized as just a formality (Murwito, Rheza, Mulyati, Karlinda, & Muyanto, 2012). More over, based on President Regulation No. 80/2010, the quality of public accountability in finance management still needs many improvements included the presentation of financial statements in accordance with GAS. The audit opinion from the Supreme Audit Body also still needs many improvements in order to qualify the opinion. In year 2012 (please refer Table 8), most Indonesian local governments had qualified opinion (67%). Only 13% had unqualified audit opinion, 18% disclaimer, and 2% adverse (BPK RI, March 2013). The majority of qualified opinion was caused by many local governments that have cases in non-conformity with governmental accounting standards, the adequacy of disclosure, and compliance to regulations, and the effectiveness of internal control systems. Many local governments have weaknesses and are not ready for adopting or implementing the new accounting system (BPK_RI, 2013). The existence of Government Regulation No. 71/2010 about a new Indonesian GAS effort in achieving the objectives of public reform objectives, i.e, a more accountable and 31
Musrembangkab: Musyawarah Musyawarah Perencanaan Pembangunan Kabupaten, is a formal meeting, as part of the process in preparing budget of local government. In this meeting the representative of all stakeholders be invited and can rise a comment to the proposed of local government budget (RAPBD).
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2nd A4-PFM Conference transparent public service. It is also to support good governance practices in the Indonesian government by providing more accurate and comprehensive information, and to combat the corruption. However it can be argued that successful management change os not solely rely on the regulations issued by the government. The change also needs cultural change and an adequate incentive system. The support and commitment from leaders of executives and legislatures is very important. Improvement in the incentive system is needed given that the issue of incentive system has not been seen in the amendment process. The human resources capability and capability in technical skills are important factors too. The number of government accountant or staff trained to do accounting work is still insufficient. The communication strategy about the adoption of accrual based system still needs improvement. More trainings and workshops should be conducted.
CONCLUSION This paper analyses the adoption of accrual accounting as part of the reform effort by the the Indonesian government to improve transparency and accountability. A combination of descriptive and analytical methods is used in the analysis. The frameworks adopted by the New Zealand government (Ouda, 2008) is used in the analysis. The main findings of this paper are as follows. First, Indonesia implement a new public management that focuses on the change in management practices including reform in the governmental accounting system. The aim of the reform is to serve people more effective, efficient, responsive, transparent, and accountable. This paper argues that the increased of accountability and transparency of financial statements information as the benefits of accrual accounting adoption is still far from satisfactory, particularly given the high corruption index. The current practices
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continue to suffer from major inadequacies and limitations, especially in culture change, human resource capacity, incentive system, communication strategy, and integrated information technology and communication infrastructure.
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