KADV RESEARCH

THE IMPLEMENTATION OF PSAK 71, 72,73

& THEIR IMPACT ON COMPANY FINANCES

Elevating Knowledge

Phone: +6221-7593-1165
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K-Advisory Research Division

 Contents

PSAK 71 3

PSAK 72 7

PSAK 73 11

Case Example 16

Tax Implications 20

K-Advisory Research Division 2

 PSAK 71

❏ What is PSAK 71
❏ Why change is needed
Financial Instruments: Recognitions
❏ Recognitions in previous regulations
& Measurements ❏ Recognitions and influence of the regulations after
PSAK 71

K-Advisory Research Division 3

 PSAK 71

● Regulating about the guidelines on Financial Instruments: Recognitions & Measurements

What is PSAK
● Refers to IFRS 9
71
● Replace the previous standard that applies which is: PSAK 55

● The previous applicable regulations were considered too complex and inconsistent with how the
businesses manage risks
Why Change is
● The new regulations provides room for companies to record existing risks before anything
happens, compared to the previous regulations that recorded losses when it already happened. Needed
● The existing regulations have been a subject of debate, but the economic crisis has made these
regulations a priority.

K-Advisory Research Division 4

 PSAK 71
Recognition in Previous Regulations
➔ The recognitions of financial institution’s loss reserves is only
done based on incurred loss.
➔ Incurred Loss within a financial institution can be recognized
only when there are indications/incidents that causes the
risk of default from debtors.
Rules in
➔ This implementation provides flexibility to financial institutions to
dynamically allocate bank financial provisions (procyclical)
PSAK 55
➔ When the economic conditions are improving, companies are
able to reduce their financial provisions of financial institutions,
allowing them to channel more credit.

➔ In the other side, procyclical could gives a negative effect when

the economic condition is deteriorating.
➔ When deteriorating, financial institutions must set aside more
financial provisions, thus negatively impact the financial
performance and also capital adequacy ratios.

K-Advisory Research Division 5

 PSAK 71
Recognitions and Influence of the Regulation after PSAK 71

➔ The recognition on loss reserves by financial institutions is only

done based on expected loss.
➔ Expected loss within banks is recognized since the beginning of
credit formation based on projection about the current asset
condition, historical loss data, and future economic condition. Rules in
➔ The implementation of expected loss is considered to be able to
address the procyclical approach of financial institutions, PSAK 71
because all provisions for financial instruments are reserved at
the beginning of the period. Financial institutions are better
prepared when there are a disruptions causing debtors to have
difficulty paying due to larger reserve amount.
➔ On the other hand, implementation of expected loss also gives
pressure to financial institutions due to the increase of
company loss reserves. The increasing amount of company loss
reserves will lead to a decrease in the operating profit and a
decline in capital coverage ratios.

K-Advisory Research Division 6

 PSAK 72

● What is PSAK 72
Recognition of Revenue Contracts ● Why Change is Needed
with Customers ❏ Recognitions in previous regulations
❏ Recognitions and influence of the regulations after
PSAK 72

K-Advisory Research Division 7

 PSAK 72

● Regulating on Recognition of Revenue Contracts with Customer

What is PSAK ● Refers to IFRS 15
72
● Replace the previous standard that applies which is : PSAK 34, PSAK 32, ISAK 10, ISAK 21, dan ISAK 27

● There is a need for deeper clarification regarding the obligations that needed to fulfilled within
the contract, as well as the role of each party outlines in the employment contract.
Why Change is
● There is also a need to reiterate how the company recognized revenue from the employment Needed
contracts.
● Both point above will clarify how the company allocate their expenses related to the contracts.

K-Advisory Research Division 8

 PSAK 72
Recognition in Previous Regulation

➔ The previous PSAK uses a rule based approach.

➔ The previous PSAK divides the recognition of revenue and
expenses based on the type of business, either services or
goods.
Rules in the ➔ Because the previous PSAK having more rules, business owners
are able to recognized their revenue according to their
expertise.
Previous PSAK
➔ However, the abundance of rules in the previous PSAK caused
more inconsistency when business conditions have become
increasingly complex. Therefore, the revenue and expenses
recognitions became more difficult to align with evolving
business models.

K-Advisory Research Division 9

 PSAK 72
Recognition and Influence of the Regulation after PSAK 72

➔ PSAK 72 used principle based approach on the recognition of

revenue contracts with customers.
➔ PSAK 72 divides revenue and expense recognition based on
contract duration, which is:
◆ Revenue recognized over the time
◆ Revenue recognized at a point in time Rules in
➔ This PSAK provide a common ground and broader opportunity for
business to recognize the arising revenue and expenses, as PSAK 72
recognition of revenue and expenses can be acknowledged
using an adaptive framework of thinking, rather than rigid
regulations.
➔ However, the regulations from PSAK have caused some types of
business to face difficulties, especially in sectors involving long
term risk transfer such as real estate. For instance, revenue
recognition from the real estate sector cannot be recognized if
the handover process of the building has not been completed
because it is deemed that there has been no substantial transfer
between the seller and the buyer.

K-Advisory Research Division 10

 PSAK 73

● What is PSAK 73
● Why Change is Needed
Leasing ● Before After of PSAK 73 on Financial Report
● PSAK 73 Case Example
● Impact on Balance Sheet and Ratio
● Tax Implication

K-Advisory Research Division 11

 PSAK 73

● Regulating Leasing activities conducted by companies

What is PSAK
● Refers to IFRS 16
73
● Replace the previous standard that applies which is : PSAK 30, ISAK 23 dan ISAK 25

● There are more than 1.25 Trillion US dollars stated as off balance sheets.
● This raises concerns from the International Accounting Standard Board (IASB) regarding the Why Change is
transparency of information to investors regarding leasing. Needed
● The incomplete informations prevent investors from comparing existing companies without prior
adjustments.

K-Advisory Research Division 12

 Before After PSAK 73

Previous PSAK PSAK 73

Position in the
Balance Sheet
Finance Lease Operating Lease All Lease

Assets in a form of finance lease are All assets ownership in all forms of leasing
Assets
recorded are recorded in the financial statements

The remaining amount of the existing All liabilities ownership in all forms of leasing
Liabilities
leasing is recorded as a liability are recorded in the financial statements

All ownership of assets and liabilities in

Off Balance Sheets / the form of operating leases are recorded
Obligations outside the financial statements and
disclosed in the notes

K-Advisory Research Division 13

 Before After PSAK 73

Previous PSAK PSAK 73

Position in the
Profit and Loss
Statement
Finance Lease Operating Lease All Lease

The amount needed to be paid each

Operating Expenses
month is recorded as operating expenses

Depreciation and The amount of leasing is reduced through The amount of leasing is reduce through
Amortization depreciation depreciation

The interest from leasing is recorded as Interest from leasing is recorded as financial
Financial Expenses
financial expenses expenses

K-Advisory Research Division 14

 PSAK 73 Case Example

Company X enters a lease contract for equipment for

a duration of 3 years. The annual lease payments are
20 million, 24 million, and 28 million. There are no
purchase option and other incentives in the contract.
The implicit interest rate is 4.235%, resulting in a
present value of 66 million. Depreciation is calculated
using the straight line method.

K-Advisory Research Division 15

 PSAK 73 Case Example
Previous PSAK PSAK 73
Position in the Balance
Sheet
Operating Lease Operating Lease

(+) Leasing Asset 66 Million; (-) The reduction each year through
depreciation based on the straight line method:
Assets
Year 1 – 3 = 66 Million/3 Years

Total Assets + 66 Million

(+) Liabilities Leasing 66 Juta + Total Leasing Interest (-) Each year
will decrease in line with the specified payments:
Liabilities
Year 1 : 20 Million, Year 2 : 24 Million,
Year 3 : 28 Million

Total Liabilities + 66 Million and Leasing Interest

Ownership of assets and liabilities in the form of operating

Off Balance Sheets / lease are recorded outside the financial statements and
Obligations disclosed in the notes.
(+) Leasing Asset and Leasing Liabilities 66 Million

K-Advisory Research Division 16

 PSAK 73 Case Example

Previous PSAK PSAK 73

Position in the Profit and
Loss Statement
Operating Lease Operating Lease

Total that needed to be paid:

Operating Expenses
Year 1 =20 Million, Year 2 = 24 Million,
Year 3 = 28 Million

(+)Depreciation based on the straight line method:

Depreciation and
Year 1 – 3 = 66 Million/3 Year
Amortization

(+) The interest expenses is calculated based on the Present

Value of the Leasing x Interest Rate (4,235%):
Year 1 = 2,8 Million; Year 2 = 2,07 Million; and Year 3 = 1,13
Financial Expenses
Million

K-Advisory Research Division 17

 Important Point of the PSAK
73 Case Example
• With the implementation of PSAK 73, entities engaging in a leasing are required to
record the amount of leasing liabilities arising from lessors in the balance sheet, and
there are slight changes in the recognition of profit and loss.

• This can result in changes to the composition of the balance sheets, especially in assets
and liabilities, which become larger compared than before.

• The difference in recognition in the profit and loss statement also have some
significant implications for the company’s performance.
• The recognition of depreciation causes the company’s EBITDA to appear larger than the
previous recognitions.

• However, due to the recognition of leasing interest, the company’s financial expenses
will increase.

K-Advisory Research Division 18

 Impact on Balance Sheet and Ratio

Previous PSAK PSAK 73 Implementation

Return on Assets (ROA) Higher ↑ Lower ↓

Interest Coverage Ratio Higher ↑ Lower ↓

Debt to Equity (DER) Lower ↓ Higher ↑

EBITDA Margin Lower ↓ Higher ↑
Net Income Margin Same Same
Operating Margin Lower ↓ Higher ↑
Total Liabilitas Lower ↓ Higher ↑
Total Asset Lower ↓ Higher ↑

K-Advisory Research Division 19

 Tax Implication

Until now, Tax regulation regarding leasing are regulated in On the other hand, Article 4 stated that the definition of
1 Decision of the Minister of Finance of the Republic of Indonesia 4 an operating lease as follow:
Number: 1169/KMK.01/1991
● The total lease payments during initial lease
term cannot cover the acquisition cost of the
leased asset plus the profit calculated by the
lessor.
In Article 2, it stated that lease activities are divided into 2: finance
2 lease and operating lease.
● The lease agreement does not include
provisions regarding options for the lessee.

In Article 3, the definition of finance lease with a option which is With this rules, it can be concluded that even though
3 finance lease, as follow: 5 PSAK 73 provides different recognition, from a tax
perspective, the treatment of lease agreement by
● The total lease payment during the initial lease term,
companies still refers to the previous PSAK, following the
plus the residual value of the leased asset, must be
sufficient to cover the cost of acquiring the asset and statutory regulations until changes are made.
the lessor’s profit.
● The lease term is determined to be at least 2 years for
Class I assets, 3 years for Class II and Class III assets, and
7 years for buildings.
● The lease agreement includes provisions regarding
options for the lessee.

K-Advisory Research Division 20

 Contacts
KADV RESEARCH

Wahju Tjahjo Wibowo

wahju.t.w@[Link]
+62 813 9919 6914

Putri Tunggal Dewi

Putritunggaldewi@[Link]
+62 857 4312 2165

The material and information contained on this publication is

for general information purposes only.
You should not rely upon the material or information on the
publication as a substitute for consultations with
professional advisors.

K-Advisory Research Division