ANALYSIS PSAK 24 (2013) IMPLEMENTATION IN INTERIM FINANCIAL REPORT 2015   Muhammad Adri Hakim and Dwi Martani

Agenda Introduction Literature Review Research Method Result and Analysis Conclusion and Implication

Introduction – background PSAK 24 Employee Benefit – changes in 2013 and effective in 2015. PSAK 24 (2013) is the adoption of IAS 19 Revised 2011. Each company have employees, so this standard relevant for all companies. PSAK 24 had an impact on the presentation of reclassification and so the company had to apply the new method retrospectively. the company would present three statements of financial position comparative year are 2015, 2014 and early comparative period of 2014. Changes in PSAK 24 will also produce other comprehensive income (OCI) that reported in statement of income and other comprehensive income and also OCI in equity. Based on PSAK 24, gain or loss of actuarial recognized in OCI.

Introduction – background Fasshauer et al., (2008) conducted a study on the implementation of accounting standards, IAS 19 Employee Benefit, on companies in 20 European countries. The companies are analyzed using three methods in the measurement of employee benefits: full recognition through the Statement of Recognized Income and Expense (SORIE) (ie through shareholders’ equity) full recognition through Profit & Loss (P&L), or the ‘standard’ corridor approach The results of these studies show that companies that apply IAS 19 that uses the latest full recognition method through the Statement of Recognized Income and Expense (SORIE) better in disclosing information related to employee benefits.

Introduction – background Harahap (2010) had research about the decision to adopt and implementing PSAK 24 (1999). Larger company tends to be faster in applying PSAK 24 Estimated implementation cost later applying Debt agreement does not affect the timing of adoption Companies with positive changes ROE would be faster to apply PSAK 24, and Company that audited by big public accounting firms (Big 4), faster in adoption of PSAK 24.

Literature Review – PSAK 3 Interim report is a financial reporting that have shorter periode than a full financial year. According to PSAK No. 3 (2010) Interim Financial Reporting, interim financial report is a financial report that contains either a complete financial statement (as described in PSAK 1 (2009) Presentation of Financial Statements) or a financial report summary (as described in this Statement) to an interim period. Based on PSAK 3, the interim financial statements are prepared using the same accounting policies with the annual financial statements. The new standard should be implemented on first interim report not only for the annual financial report.

Introduction – research objective This research aims to analyze how the implementation of PSAK 24 changes in the interim financial report 2015. Using interim financial report will be interesting because there are many companies that turned out to not apply it in the beginning of the interim period, even though the application of IAS 24 Revised 2013 effective starting January 1, 2015. Based on Hararap (2010), this paper will analyze the companies characteristic that influence of PSAK 24 implementation.

Literature Review Employee Benefit Employee benefits are all forms of benefits granted an entity in exchange for services rendered by employees or for the termination of the employment contract. Employee benefits include benefits granted to workers or their dependents or beneficiaries and may be settled by payments (or the provision of goods or services). The type of employee benefit: Short tem employee benefit Long tem employee benefit Post employee benefit Termination benefit Stock option (out of scope PSAK 24; will be regulated on PSAK 53)

Literature Review – PSAK 24 There are three major changes in the PSAK 24 (2013) – only for defined benefit plan (long term and post employee benefit) : Calculation pension cost– current cost, net interest and past service cost  using single interest cost parameter. The recognition of actuarial gains and losses – part of the other comprehensive income Additional disclosures. Revised PSAK 24 will have an impact on the presentation of reclassification and so companies should apply retrospectively using the new method. According to PSAK 25 (accounting policies, changes in accounting policies, estimates and correction of errors), the companies should restate financial statements have been published .

Literature Review – research on accounting changes Investor focused on large, so companies tend to be applying accounting policies early (Castello et al. 1994). Companies that have larger debts will perform faster adoption of standards (Sami and Welsh, 1992) but according Castello et al. (1994) actually found the opposite - contracting theory Company audited by big four - (Trombley, 1989). Harahap (2010) found that the total assets, changes in ROE and auditors have a positive influence on the early adoption of accounting standards.

Literature Review – hyphotesis 1 Investors generally invest focused on the companies that have big capitalization. Financial statement including interim financial report are very important information in the decision making for investors and prospective investors. The company should pay more attention to information presented in the interim financial statements if they have a big market capitalization. H1: Companies with larger market capitalization have the possibility in implementing PSAK 24 (2013) earlier

Literature Review – hyphotesis 2 Companies with a large number of employees, tend to spend more for employee expense and have more liability related to employee benefit. PSAK 24 more relevant to companies that have more employees. Companies with larger number of employees is expected to be faster in applying PSAK 24 (2013) because the standard is closely related to the company's obligation to its employees and also government regulations relating to the welfare of employees. H2: Companies with a larger number of employees have possibility in implementing PSAK 24 (2013) earlier.

Literature Review – hyphotesis 3 To run its business activities the company needs funds from creditor. The companies that have high debt equity ratio should have more accountability and transparency, because creditor need the information to analyze the credit investment. The application of IAS 24 Revised 2013 influence to changes in the value of liabilities and equity. Companies with a larger debt to equity is expected to be faster in applying IAS 24 Revised, 2013. The companies wanted to disclose impact of changes in accounting standard earlier to creditors. H3: Companies with a larger Debt to Equity Ratio (DER) have possibility in implementing PSAK 24 (2013) earlier.

Literature Review – hyphotesis 4 Harahap (2010) found that companies that have large changes of return on equity (ROE) would adopted PSAK 24 earlier. PSAK 24 result significance change in equity because unrealized gain or loss actuarial will present as part of equity. If the company have unrealized actuarial losses, the total equity will decrease. The company with the change of positive ROE (favorable) is expected to be faster in applying PSAK 24 (2013). H4: Companies with a larger change in Return On Equity (ROE) have possibility in implementing PSAK 24 (2013) earlier.

Literature Review – hyphotesis 5 Harahap (2010) also mentions that companies audited by public accounting firms were great also faster in applying PSAK 24 (2013). Large public accounting firm will generally be offered to clients to implement the new standards as soon as possible, due to maintain its reputable and quality of services to client. Large public accounting firms have a better understand of new accounting standards than small ones. Generally big four accounting firm issue module and give a training of the new standards The companies audited by big four accounting firms are expected to be faster in implementing PSAK 24 (2013). H5: Companies audited by a public accountant's office "Big 4" have possibility in implementing PSAK 24 (2013) earlier.

Research Method Descriptive analysis This research uses regression model similar to the regression model on research Harahap (2010) with modifications. Adoption Timingi = α0 + α1CAPi + EMPLOYEEi + α3DERi + α4ROECHANGEi + α5AUDITORi + εi Adoption Timing : Dummy variable, the value 1 to companies that adopt PSAK 24 (2013) of the interim financial statements and the value 0 for companies that do not adopt in the interim financial report 2015 CAP The market capitalization value in 2015 EMPLOYEE The number of employees of the company in 2014 DER Debt to Equity Ratio 2014 ROECHANGE Return On Equity change from 2013 to 2014 AUDITOR Dummy, value 1 to companies audited by audit firms "Big 4" and the value 0 for companies that are not audited by audit firms "Big 4"

Result and Discussion - Data Criteria Amount of Companies Companies listed in the Indonesia Stock Exchange until December 31, 2015 518 The company which is newly registered in 2015 13 Companies that do not submit the Financial Statements 2014 15 Companies with incomplete data 3 Total Observations (Sample) 487 The research use the listed companies in the Indonesia Stock Exchange (IDX) until December 31, 2015. Purposes sample with criteria: Listed from Jan, 1 2015 and 2014 Have financial statement and interim report

Result and Analysis - Variabel N Mean Standard Deviation Minimum Maximum Independent Variable: CAP (Jutaan) 487 9.211.790 35.842.644 10.200 437.355.969 EMPLOYEE 3.577,40 10.287,56 2 156.097,00 DER 1,49 5,22 -64,71 28,19 ROECHANGE 0,52 66,14 0,01 946,3 Variabel Dummy: Variabel N Sample Conditions Amount Percentage Dependent Var - Adoption Q1 487 Applied (1) 72 14,80% Not yet Applied (0) 415 85,20% Q2 115 23,60% 372 76,40% Q3 194 39,60% 293 60,40% Independent Variable: AUDITOR Audited by BIG 4 (1) 191 39,20% Not Audited by BIG 4 (0) 296 60,80%

Data and Analysis Description Q1 Q2 Q3 B Sig CAP 0,458 0,000** 0,452 0,372 EMPLOYEE 0,051 0,134 0,066 0,035** 0,054 0,083* DER -0,010 0,847 -0,030 0,534 -0,022 0,590 ROE 0,008 0,492 0,002 0,826 0,000 0,972 AUDITOR 0,393 0,183 0,060 0,812 0,275 0,202 Observation 487 Prob>Chi-Square N R-sq   22,10% 23,00% 20,20%

Data and Analysis - sensitivity Description Q1 Q2 Q3 Coefficient P value EMPLOYEE 0,137 0,000** 0,152 0,135 DER 0,002 0,962 -0,016 0,718 -0,013 0,730 ROE 0,001 0,935 -0,003 0,712 -0,005 0,565 AUDITOR 0,716 0,011** 0,393 0,097* 0,537 0,008** Observasi 487 Prob>Chi-Square N R-sq   13,50% 13,10% 11,7 20,20%

Conclusion Conclusion There are many companies that have not applied PSAK 24 (2013) in interim financial statements, even until the third quarter (Q3) 2015. In Q1 there are 72 companies; Q2 cumulatively there are 115 companies that have applied, while 372 companies have yet to implement. In Q3 cumulatively There are 194 companies that have applied and 293 companies have not implemented. Despite the increase of the company applying the PSAK 24 (2013) in an interim financial report in 2013, but the company did not apply the amount still greater. Market capitalization and number of employees have significant effect on the application of PSAK 24 (2013) in the interim financial statements of 2015. The results of the sensitivity test showed that the auditor has significant influence in the company's consideration to apply PSAK 24 (2013) in interim financial statements.

Conclusion Implication Regulators should provide more oversight or, if necessary sanctions for companies that do not implement the standard as appropriate. The standard setters are expected to promote new standard to financial statements prepare Further Research Analyze PSAK 24 on annual financial statement 2015 Impact the changes in the quality of financial statement Value relevance of changes in PSAK 24

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