DEWAN STANDAR AKUNTANSI KEUANGAN

DEWAN STANDAR AKUNTANSI KEUANGAN (THE INDONESIAN FINANCIAL ACCOUNTING STANDARDS BOARD)

No

: 0248/DSAK-IAI/IV/2013

Jakarta, 1 April 2013

Mr. Hans Hoogervorst Chairman International Accounting Standards Board 30 Cannon Street London EC4M 6XH UNITED KINGDOM Dear Mr. Hoogervorst, Invitation to Comment: IASB ED 2012/5 Clarification of Acceptable Methods of Depreciation and Amortisation The Indonesian Financial Accounting Standards Board (DSAK IAI) as part of the Indonesian Institute of Accountants is the national accounting standard-setter in Indonesia. DSAK IAI is a proud member of the Asian-Oceanian Standards-Setters Group (AOSSG), and an active contributor in among others the Emerging Economies Group (EEG), World Standard Setters (WSS), and International Forum of Accounting Standard Setters (IFASS). DSAK IAI welcomes and appreciates the opportunity to contribute to the discussion on the IASB ED 2012/5 Clarification of Acceptable Methods of Depreciation and Amortisation. In general, DSAK IAI supports IASB’s efforts in clarifying the current requirements on the use of revenue-based methods of depreciation and amortisation. However, there are a couple of issues that we believe IASB need to consider before issuing the final decision on the clarification. Our detailed comments to the questions are set out in the Appendix. Thank you for your kind attention and consideration, and please do not hesitate to contact us should you have any queries. With best regards, The Indonesian Financial Accounting Standards Board

Rosita Uli Sinaga Chairperson GRHA AKUNTAN, Jalan Sindanglaya No. 1, Menteng, Jakarta 12120 - INDONESIA Phone: (62-21) 31904232, Fax.: (62-21) 3900016, E-mail: [email protected], Home Page: http://www.iaiglobal.or.id


APPENDIX – COMMENTS TO THE IASB ED 2012/5 CLARIFICATION OF ACCEPTABLE METHODS OF DEPRECIATION AND AMORTISATION The IASB proposes to amend IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to prohibit a depreciation or amortisation method that uses revenue generated from an activity that includes the use of an asset. This is because it reflects a pattern of future economic benefits being generated from the asset, rather than reflecting the expected pattern of consumption of the future economic benefits embodied in the asset. Do you agree? Why or why not? DSAK IAI in principle agrees with the proposed clarification. The following considerations, along with the related concerns, were considered in analysing the issue: Prohibition of revenue-based depreciation / amortisation method 1. DSAK IAI acknowledges the requirements in IAS 16 paragraph 60 and IAS 38 paragraph 98, that the depreciation / amortisation method used shall be a fair reflection of the “pattern in which the asset’s future economic benefits are expected to be consumed by the entity”. The key concept here is that it is based on the expected consumption, and not generation. Revenue-based depreciation / amortisation method focus on the generation rather than the consumption of economic benefits embodied in the asset. It also resulted in a charge that is based on the asset’s productivity, which might not necessarily coincide with the way an asset in which is being used up. 2. However, the initial requests for clarification were for the guidance on the meaning of “consumption of the expected future economic benefits embodied in the asset” when determining the appropriate amortisation method for an intangible asset with a finite useful life (Service Concession Arrangement). We believe that the ED did not address this issue clearly, and should probably do so in order to avoid potential similar concerns in the future. 3. The importance of clarifying the term above becomes more apparent when the concept of consumption is compared to generation. The concept in IAS 38 paragraph 17 seems to lean more on the generation instead of consumption of future economic benefits. Without a clear clarification, this issue will potentially comes up in scenarios where it is difficult to determine the unit of production (and volume) of certain intangible assets, which resulted in the use of revenues (cash flows) generated in deciding the amortisation method (e.g. franchise right). Exception to the prohibition (Basis for Conclusions) 4. DSAK IAI understands that the exception raised in the BC is based on the concept in FASB’s Topic 920, which generally applies to the broadcasting industry. However it seems that the example included in the Topic is more relevant to blockbuster films (or others similar in nature), where generally drives greater amortisation during the early screenings, because they generate higher advertising revenues. GRHA AKUNTAN, Jalan Sindanglaya No. 1, Menteng, Jakarta 12120 - INDONESIA Phone: (62-21) 31904232, Fax.: (62-21) 3900016, E-mail: [email protected], Home Page: http://www.iaiglobal.or.id


5. The point is that, if IASB decides to include an exception, DSAK IAI believes that the explanation and the example provided should be more principle-based in nature, and not limited to just a certain industry. Also, taking into consideration that the BC is not part of the amendments, the exception should be included as part of the amendments. In particular, IASB should consider including the statement in BC3 that the limited circumstances when revenue could be used is when the use of revenue-based method gives the same result as the units of production method. In other words, there is a strong linear relationship between revenues derived from the asset and actual usage of the asset. Thus, it will enrich the amendments instead of adding unnecessary complexity to the clarification. Do you have any other comments on the proposals? Retrospective transition 6. With regard to the proposed retrospective transition, DSAK IAI supports this proposition. The proposed change is closer in nature to that of a change in accounting policy rather than estimate, and should be treated retrospectively according to IAS 8. Although DSAK IAI acknowledges the practical difficulties associated with this transition, we believe that there is a practicability limitation which could limit the potential difficulties. This will also promote comparability. 7. Another point to consider is referring to IAS 16 paragraph 61 that recognises significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, which leads to change in depreciation method, to be accounted as a change in accounting estimate. However, DSAK IAI believes that the proposed change is only a change of accounting policy / treatment, and does not qualify as a change in economic event which leads to significant change as required in paragraph 61.

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GRHA AKUNTAN, Jalan Sindanglaya No. 1, Menteng, Jakarta 12120 - INDONESIA Phone: (62-21) 31904232, Fax.: (62-21) 3900016, E-mail: [email protected], Home Page: http://www.iaiglobal.or.id