IIEffective Insolvency and Creditor Rights Systems
Prior to August 20, 1998, Indonesian corporate and personal bankruptcies were governed by a 1905 Bankruptcy Ordinance enacted during the Dutch colonial period. The Bankruptcy Law of 1998 aimed to modernize the bankruptcy system and promote the fair and expeditious resolution of commercial disputes. In 2004, a new Law on Bankruptcy and Suspension of Payment was adopted which established the criteria for who can file bankruptcy petitions. In his 2006 publication, S. Mandala of the Ministry of Law and Human Rights notes that the new law has yet to be legitimized, due to problems with the legislation itself as well as to weaknesses in the judicial system. He also notes that, on August 2, 2005 a Judicial Commission was created to address these issues. The 2009 Country Commercial Guide by the U.S. Department of Commerce notes that problems with the judiciary persist. The nominally independent judiciary is subject to influence by irregular payments and collusive practices, and the court system is inadequate to the task of dealing with commercial issues. However, there is insufficient information publicly available as to Indonesia's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.
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IDInternational Financial Reporting Standards
As noted in the 2003 Asian Development Bank (ADB) report, prior to 1994, Indonesian Accounting Standards (PSAKs) were based on the U.S. Generally Accepted Accounting Principles (GAAP) in effect as of 1965. In 1994, the Seventh National Congress of the Indonesian Institute of Accountants (IAI) endorsed the International Accounting Standards (IASs), now International Financial Reporting Standards (IFRSs), as the basis for domestic financial reporting. However, differences persisted. In 2005, the World Bank conducted an assessment of accounting and auditing practices in Indonesia and recommended that Indonesia improve its national accounting standards and practices by fully adopting IFRSs, issuing related guidelines, and providing necessary training for the practitioners. It was noted that the authorities were planning to fully adopt IFRSs by 2008. More recently, per an October 2009 Action Plan prepared for the International Federation of Accountants, the IAI notes that it issued a formal statement on December 23, 2008 announcing that the Indonesian GAAP will be fully converged with IFRSs by January 1, 2012. The IAI in its action plan asserts that it remains committed to convergence and, therefore, is in the process of revising existing accounting standards as well as issuing new ones in line with IFRSs. As far as the oversight of the profession is concerned, the World Bank pointed out its fragmented nature and suggested reorganizing and enhancing the existing system with a view to strengthening enforcement. At the time of the World Bank assessment, the Ministry of Finance had prepared a draft of the Public Accountancy Law, which was expected to address the issue of legal liability of accountants and independent public oversight system. There is, however, no further information on whether the draft law has been
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ENPrinciples of Corporate Governance
According to the World Bank's 2004 Report on the Observance of Standards and Codes (ROSC) on Indonesia's compliance with the Organisation for Economic Co-operation and Development’s (OECD) Corporate Governance Principles, Indonesia has an elaborate system of corporate governance rules. This system includes the original Code of Good Corporate Governance developed in 2001, which was updated and re-issued by the National Committee on Governance in 2006. The principal law governing stock corporations in Indonesia is the Limited Liability Company Law No. 40 of 2007, whereas stock markets are mainly regulated under the 1995 Capital Market Law No. 8, which is expected to be amended by a draft law under development. However, the ROSC notes that actual corporate governance practices in Indonesia often fall short of OECD's recommendations. Business culture in Indonesia is based on relationships rather than rules, largely as a result of the high incidence of concentrated ownership, family-owned businesses, and controlling shareholders. In its 2004 ROSC, the World Bank recommended improving the effectiveness of implementation and enforcement of legislation and regulations to improve the corporate governance framework. It further advised establishing nomination committees and a cumulative voting system, ensuring disclosure and transparency in annual reports and financial statements, and improving the roles and responsibilities of the audit committees. A 2006 OECD report “Implementing the White Paper on Corporate Governance in Asia” states that awareness of the importance of corporate governance has increased considerably in Indonesia. Regulations regarding roles of independent commissioners (supervisory directors) have been introduced to improve board practice and strengthen the protection of non-controlling shareholders.
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IDInternational Standards on Auditing
The Indonesian IAI has been committed to raising professional standards to international levels. Most Public Accounting Professional Standards (SPAPs) issued by the IAI and developed by the Institute of Certified Public Accountants (IAPI) are based on the U.S. Statements on Auditing Standards and some International Standards on Auditing (ISAs) developed by the International Auditing and Assurance Standards Board (IAASB). According to the 2005 World Bank assessment of the accounting and auditing practices in Indonesia, the IAI decided to implement ISAs effective 2007. However, in a 2007 self-assessment prepared by the IAI as part of the International Federation of Accountants' Member Body Compliance Program, the IAI stated that it was still in the process of translating ISAs, and that the final adoption of the international standards had been postponed until 2009. In the most recent update, the IAI in an October 2009 action plan indicates that the IAPI stands firm on its convergence plans and is scheduled to adopt ISAs by 2011. Furthermore, the IAPI plans to adopt IAASB pronouncements as issued in the 2009 IAASB Handbook and the action plan specifies that modifications, if any, will be in line with the International Federation of Accountants’ 2006 modifying policy. As far as the enforcement of the existing financial reporting requirements is concerned, the 2005 World Bank assessment concluded that the compliance was weak and professional training required further improvement.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
In 2002, Law No. 15 concerning the Crime of Money Laundering was enacted in Indonesia. This law was amended in 2003 by Law No. 25, imposing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) requirements on financial institutions. The Asia/Pacific Group on Money Laundering (APG) conducted a mutual evaluation on Indonesia’s AML/CFT regime against the Financial Action Task Force (FATF) 40 recommendations and 9 special recommendations. The APG findings were published in a 2008 report, which notes that while Indonesia’s AML regime has made significant progress in recent years, relatively little implementation of CFT measures have taken place. The report deems Indonesia “partially compliant” with all the FATF Core Recommendations, with the exception of recommendation 10 on record-keeping which received a “largely compliant” rating. Overall, Indonesia was found to be either “partially compliant” or “non compliant” with 36 recommendations and all 9 special recommendations, with 1 recommendation not being applicable in the Indonesian context. According to the APG report, some of the more significant deficiencies in Indonesia’s AML/CFT regime include: (1) insufficient legal basis to effectively combat terrorist financing; (2) inadequate law enforcement capabilities in investigating, prosecuting, and convicting money laundering/terrorist financing crimes; and (3) not being yet party to the United Nations (UN) Convention against Transnational Organized Crime. A 2009 U.S. Department of State report recommends that Indonesia continue strengthening the country's AML/CFT regime. A proposed amendment to the AML law, although still falls short of international standards, will provide the country’s Financial Intelligence Unit with more investigative powers and the authority to block transactions suspected to be related to money laundering. Indonesia is a member of the FATF and in its 2008-2009 Annual Report, the FATF named Indonesia as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.
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IDCore Principles for Systemically Important Payment Systems
Bank Indonesia categorizes its Real-Time Gross Settlement (BI-RTGS) system as the country's systemically important payment system (SIPS), and other systems such as the clearing system and card-based instruments as system wide important payment systems (SWIPS). The Executives' Meeting of East Asia-Pacific Central Banks and Monetary Authorities (EMEAP) in a 2002 report notes that in general, the BI-RTGS largely complies with the Committee on Payment and Settlement System's Core Principals for Systemically Important Payment Systems (CPSIPS). In a 2007 report, however, the BI observed that it conducted a self-assessment of the BI-RTGS system in which it concluded that several of the CPSIPS were not being observed. Since the self-assessment is not publicly available, we are unable to provide the specific findings and corresponding remedies found in the report. The BI's 2007 through 2009 Financial Stability Reviews, however, have indicated the Bank’s intent and efforts to work towards complying with the CPSIPS, including improving payment system regulations, enhancing the BI-RTGS system security, and promoting communication between BI and other participating banks. On the regulatory framework, the BI's role was redefined to that of a regulator, administrator, and supervisor. A 2008 report by Cirasino and Garcia evaluates several countries payment systems against four distinct sub components broadly based on the CPSIPS. This report, in general, gives a favorable rating to Indonesia's payment system framework. However, the information contained in this report, although informative, does not directly address Indonesia’s compliance with the CPSIPS.
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