SEOJK Regarding Accounting Guidelines for Indonesian Sharia Banking for Sharia Rural Banks

PART II FINANCIAL STATEMENTS OF SHARIA BANKS

II.1. GENERAL PROVISIONS

A. Purpose of Financial Statements
Financial Statements are presented to:

1. provide information regarding financial position, financial performance, changes in equity, cash flows, and other information useful to users of the Financial Statements in making economic decisions and demonstrating management's accountability for the use of resources entrusted to management;
2. enhance compliance with the fulfillment of Sharia Principles in all transactions and business activities;
3. provide information on compliance with the fulfillment of Sharia Principles, as well as information on assets, liabilities, income, and expenses that do not comply with Sharia Principles, if any, and how they were obtained and used;
4. provide information regarding management's fulfillment of trust responsibilities in safeguarding funds and investing them at a reasonable rate of return;
5. provide information on the rate of return on investment obtained by investors and owners of temporary partnership funds; and
6. provide information on the fulfillment of social function obligations, including the receipt and disbursement of zakat funds, as well as the management of infak, sedekah, and waqf funds.

B. Responsibility for Financial Statements
The Board of Directors of the Bank is responsible for the preparation and presentation of the Financial Statements.

C. Components of Financial Statements
The Components of Financial Statements consist of:

1. Balance Sheet;
2. Income Statement;
3. Statement of Changes in Equity;
4. Statement of Cash Flows;
5. Statement of Revenue and Profit-Sharing Reconciliation;
6. Statement of Sources and Disbursement of Zakat Funds;
7. Statement of Sources and Use of Benevolence Funds; and
8. Notes to the Financial Statements.

D. Language of Financial Statements
Financial Statements must be prepared in the Indonesian language.

E. Reporting Currency

1. The reporting currency is the Rupiah. If the Bank's transactions use a currency other than the Rupiah, the value of the currency in reporting must be converted into Rupiah using the exchange rate established by Bank Indonesia.
2. Gains or losses in the current period related to transactions in currencies other than the Rupiah are valued using the exchange rate established by Bank Indonesia.

F. Accounting Policies

1. The Bank's accounting policies must reflect the principle of prudence and cover all material matters and comply with the provisions in SAK ETAP and PSAK Syariah.
2. In the event that SAK ETAP and PSAK Syariah do not yet regulate the recognition, measurement, presentation, or disclosure of a transaction or event, management must establish policies to ensure that the Financial Statements present information that:
   a. is relevant to the needs of report users in decision-making; b. is reliable, which:
   1) reflects the honesty of the presentation of the Bank's performance and financial position;
   2) portrays the economic substance of an event or transaction and not merely its legal form;
   3) is neutral, i.e., free from bias;
   4) reflects prudence; and
   5) covers all material matters.
3. In establishing accounting policies, consideration must be given to:
   a. requirements and guidelines in SAK ETAP and PSAK Syariah related to similar and related matters; b. definitions, recognition criteria, and measurement concepts of assets, liabilities, income, and expenses in pervasive principles (having broad benefit impact for stakeholders) of SAK ETAP; and
   c. requirements and guidelines in non-ETAP SAK related to similar and related matters.

G. Presentation

1. Financial Statements must fairly present the financial position, financial performance, and changes in financial position, accompanied by disclosures required by applicable regulations.
2. Assets are presented based on their characteristics according to liquidity order, liabilities are presented according to maturity order, and temporary partnership funds are presented as separate elements.
3. Transaction balances related to the Bank's normal operating activities are presented and disclosed separately between related parties and non-related parties. Related parties include related parties as referred to in applicable regulations regarding the maximum limit of fund disbursement.
4. The income statement portrays income and expenses according to their characteristics, grouped in a multi-step manner from the Bank's main activities and other activities.
5. Notes to the financial statements must be presented systematically in the order of their main components, which are an integral part of the Financial Statements. Information in the notes to the Financial Statements relates to items in the Balance Sheet, Income Statement, Statement of Changes in Equity, and Statement of Cash Flows that provide explanations, both qualitative and quantitative, including commitments and contingencies as well as other transactions.
6. In the notes to the Financial Statements, the use of qualitative expressions such as the word "majority" to describe a portion of an amount is not permitted but must be stated in nominal amounts or percentages.
7. On each page of the Balance Sheet, Income Statement, Statement of Changes in Equity, and Statement of Cash Flows, a statement must be included that "Notes to the Financial Statements are an integral part of the Financial Statements."
8. In addition to the above, the presentation of Financial Statements must follow applicable regulations.

H. Accounting Changes

1. Changes in accounting estimates
   a. Accounting estimates may be changed if there is a change in the carrying amount of assets and liabilities or the periodic utilization amount of assets arising from current status testing and future benefit expectations from assets and liabilities. b. Changes in accounting estimates are applied prospectively.
2. Changes in accounting policies
   a. Accounting policies may be changed if:
   1) required by SAK ETAP, namely:
   a) the impact of changes in accounting policies must follow the transition provisions in SAK ETAP. b) in the event that transition provisions are not regulated in SAK ETAP, then the impact of changes in accounting policies is applied retrospectively; or
   2) will result in more relevant and reliable information as a result of changes in accounting policies being applied retrospectively.
   b. The retrospective impact of changes in accounting policies is done by restating all presentation periods and reporting its impact on periods prior to the presentation period. The presentation period is the period that must be presented in the preparation of Financial Statements, which generally includes 2 (two) most recent comparative financial report periods.
   c. In the event that retrospective treatment is not practicable, after making all reasonable/rational efforts, such changes in accounting policies are applied on the date the policy becomes possible to implement.
3. Prior period errors
   Correction of prior period errors is done retrospectively by restating all presentation periods and reporting its impact on periods prior to the presentation period.

I. Consistency of Presentation

1. The presentation and classification of items in Financial Statements across periods must be consistent, unless:
   a. there is a significant change in the nature of the Bank's operations, as far as permitted by applicable regulations; b. there is a change aimed at producing better presentation according to the criteria for selection and application of accounting policies; or
   c. required by SAK ETAP.
2. If the presentation or classification of items in Financial Statements is changed, the presentation of previous periods needs to be reclassified to ensure comparability. In addition, the reason for the reclassification must also be disclosed. In the event that reclassification is considered impracticable, it is sufficient to disclose the reason.

J. Materiality and Aggregation

1. The presentation of Financial Statements is based on the concept of materiality.
2. Items with material amounts are presented separately in the Financial Statements, while those with immaterial amounts may be combined as long as they have similar characteristics or functions.
3. Information is considered material if the omission or misstatement of such information could influence decisions made.

K. Offset

1. The amounts of assets and liabilities presented on the Balance Sheet must not be offset against other liabilities or assets unless legally permitted and such offset reflects the estimated realization or settlement of assets or liabilities.
2. Income and expense items must not be offset, unless they concern assets and liabilities that are offset as referred to above.

L. Reporting Period

1. Financial Statements must be presented annually based on the calendar year.
2. In the event that the Bank is newly established, Financial Statements may be presented for a period shorter than one calendar year. In addition, for the interest of other parties, the Bank may prepare two reports in the calendar year and the effective period by stating:
   a. the reason for using a reporting period other than the annual period; b. the fact that the amounts stated in the Balance Sheet, Income Statement, Statement of Changes in Equity, Statement of Cash Flows, Statement of Revenue and Profit-Sharing Reconciliation, Statement of Sources and Disbursement of Zakat Funds, Statement of Sources and Use of Benevolence Funds, and Notes to the Financial Statements cannot be compared.

M. Comparative Information

1. Annual Financial Statements must be presented comparatively with the previous period.
2. Narrative and descriptive comparative information from the Financial Statements of the previous period must be restated if relevant to the understanding of the Financial Statements of the current period.

II.2. LIMITATIONS OF FINANCIAL STATEMENTS
Financial Statements have limitations, including:

1. being historical, showing transactions and events that have occurred in the past;
2. being general, both in terms of information and benefits for users. Usually, specific information needed by certain parties cannot be met solely from Financial Statements;
3. not being free from the use of various judgments and estimates;
4. using materiality judgment;
5. placing more emphasis on the presentation of an event or transaction according to its substance and economic reality rather than its legal form (formality); and
6. the existence of various alternative accounting methods that can be used, thereby causing variations in the measurement of economic resources and levels of success among banks.