View of Bookkeeping to Professional Accounting: A University Power in Indonesia

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58 B o o k k e e p i n g to Professio nal A cc o u n ting :

Bookkeeping to Professional Accounting:

A University Power in Indonesia

Eko Ganis Sukoharsono

Centre for Indonesian Accounting and m anagem ent Research M alangkucecw ara College o f Econom ics

Indonesia

A b stra ct

T he paper is historical. It explores the d ev e lo p m e n t o f acco u n tin g from the m o d e o f 'b o o k k e e p in g ' kn o w led g e to a ' n e w ’ disciplinary p o w e r o f accounting in Indonesia. It argues that after the in d ep en d en ce o f the Republic o f Indonesia. 17 A ugust 1945, a radical c h a n g e o f an a ccounting education discipline from the Dutch political adm inistration to the indigenous Indonesian m a n a g e m e n t w as the m ain issue to a ‘n e w ' university system. The univ ersity b ecam e a

‘p o w e r f u l’ system to transform b o o k k eep in g tradition to acco u n tin g profession.

In tr o d u ctio n

D uring the last tw o decades, there has been a g ro w in g aw a re n e ss by a cco u n tin g researchers o f the need to place the d e v e lo p m e n t o f acco u n tin g in its social co n tex t (eg., Burchell. et al [1980. 1985], C o o p e r and Sherer [1984], H o p w o o d [1978, 1987], H oskin and M acve [1986. 1988], Loft [1986], M iller and O 'L eary [1987], A rrington and Francis [1989] and H opper and M acintosh [1992], S u k o h a rso n o and Gaffikin [1993], S u koharsono 1995, 1996). This paper shares the g ro w in g concern o f these studies that the roles o f a ccounting and its effects are not p re d eterm in ed in a narrow w ay as technical and calculative thinkings, but a ssu m e a variety o f co n tin g en t forms within specific settings. Suk o h arso n o [1995, 1996] stated th at w h en ap p ro a c h in g accounting subject m atters intellectually and analytically, it should be understood that a ccounting is not sim ply a set o f neutral te c h n iq u e s but is part o f bro ad er social, political and eco n o m ic processes.

T he paper is historical. It seeks to explore and u n d erstan d in g o f the relationship betw een a ccounting profession and Indonesian e c o n o m y in the range o f social and political contexts. The paper focuses on the case o f Indonesian history after the In d ep en d en ce o f the Republic o f Indonesia, 17 A ugust 1945, to the early years o f Soeharto's new order. It argues that after 1945 radical change from the D utch social

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and political adm in istratio n to the indigenous Indonesian m a n a g e m e n t, acco u n tin g policies w ere d ev e lo p e d w hich supported its effect on the d e v e lo p m e n t o f Indonesian a c c o u n tin g profession and the birth o f a c c o u n tin g discipline in a university education system.

D u tc h A c c o u n tin g T ra n sitio n

Before 1945, Indonesia has been colonised by the P ortuguese, the British, the J a p a n e se and the Dutch, all o f w h o m w ere attracted by the lucrative spice trade and natural resources. T he Dutch stayed the longest, for a bout three and h a l f centuries, and in o rder to m aintain their dom in an ce, the Indonesians w ere starved o f political and e c o n o m ic pow er. T h ey w ere also exploited for their ch eap la b o u r ... All im portant political and executive positions were held by the D utch, w h e re as the I n donesians w ere em p lo y e d in insignificant positions. T he indigenous Indonesians' e c o n o m ic activities were confined to small businesses, usually fam ily -o w n e d or partnerships. T h ese policies had grave political and e c o n o m ic co n se q u e n c e s, because after in d e p e n d e n c e in 1945, there w as in adeq u ate e c o n o m ic infrastructure and insufficient trained personnel to m a n a g e the e c o n o m y and the country.

T he ind ep en d en ce led to the radical c h a n g e o f e c o n o m ic d e v elo p m en t.

Foreign enterprises were gradually nationalised. In digenous Indonesians w ere also en c o u ra g e d to do b usinesses with its purp o ses to the w elfare o f the co m m u n ity . By the early 1960s, all foreign enterprises w ere under g o v e rn m e n t control. S oekarno, the first President, saw Indonesia indulging in a policy o f eco n o m ic isolation and it also m ark ed the beg in n in g o f the p ro m in en ce o f state enterprises.

It w as not easy by Soekarno, the President, to m a n a g e the co u n try in transition from the D utch lo ng-colonised m an a g e m e n t. For the first 20 years after its in d ep en d en ce, Indonesia w as m arked by political turm oil, instability and e c o n o m ic decline. Instability in g o v e rn m e n t m a n a g e m e n t w as a d o m in a n t scene in the early days o f the independence. S oekarno had ch an g ed six tim es o f different cabinets to the co u n try to find a good com b in atio n serving the c o m m u n ity up to 1955. T h e co u n try w as torn by secessionist rebellions and the e c o n o m y deteriorated.

It was only after Soeharto cam e to p o w er in M arch 1966 th at a n ew ord er began to a th o ro u g h reorganisation o f political and e c o n o m ic structures. A co n scio u s effort w as also m ad e by the new order to e n c o u ra g e foreign investors to do businesses in Indonesia. In d o n e sia has, therefore, draw n increasingly close to the international a tm o sp h e re in business d e v e lo p m e n t and relations. H ow ever, for the fear o f a re c u rre n ce o f eco n o m ic colonisation by foreigners, foreign o w n e rsh ip w as restricted and their activities closely scrutinised. All business areas w ere not open to the foreigners, they limited only for few business sectors, such as oil m ining, coal m in in g and o th er industries with m ore in capital intensive.

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6 0 B o o k k e e p i n g to Pr ofes si on al A cc o u n ting :

A c c o u n tin g e stab lish m en t and practices, during the early years o f the in d ep en d en ce w ere very weak. With one o f the lowest per capita incom es in the w orld, the co u n try has difficulty in starting w here to begin its d e v elo p m en t. W ealth is u n ev en ly distributed and the m ajority o f the population live in relative poverty.

Private capital investm ent is w eak and the principal grow th co m e s from the public sector. W ith this condition, o f course, corporate reporting is not w id ely practised and is applicable to very few corporations, m ainly those listed on the stock e x c h a n g e and foreign enterprises. It is inhibited by an out-of-date Dutch c o m m ercial code adopted in 1848 and the g o v e rn m e n t ow n ersh ip o f m ajor Indonesian corporations.

T he current Indonesian C o m m ercial C o d e is based on the 1848 C o m m e rc ia l C o d e o f the N e th e rla n d s with som e m in o r a m en d m en ts. U n d er this system , law is codified, and c o m p a n y legislation prescribes rules in detail for acco u n tin g and financial reporting. U nfortunately, m any o f the a m e n d m e n ts that have been m ad e in the N e th e rla n d s since 1848 were not incorporated in the C o m m e rc ia l C o d e in Indonesia. A s a result, Indonesia, after its independence, is operatin g an out-of-date co m m e rc ia l code adopted in the nineteenth century that is incom patible with to day d e v e lo p m e n t in business environm ent. It is interesting to observe that the C o m m e rc ia l C o d e w as o riginally applicable to the Dutch and foreigners w ho invested th eir m o n e y d u rin g the D utch m a n ag em en t. Business activities by in digenous In donesians were not obliged to the C o m m e rc ia l Code. T heir businesses w ere c o n d u c te d u nder the 'A d a t Law' or cu sto m a ry law', w here corporate reporting is unim portant. T he A dat law played an im portant role in local business environm ent.

T h e R e p u b lic in T ra n sitio n and P ro fessio n

T h e a c c o u n tin g profession is at a critical ju n c tu re in its d e v e lo p m e n t with m a n y o f its longstanding tradition being challenged by history. Larson (1977), one o f the well k n o w n scholars on the d e v e lo p m e n t o f m odern professions, argued that profession has created an e m erg in g history o f m a ss-m a rk e t society. A different cultural and political history has a different profession d evelopm ent. In d o n esia is one o f the e x a m p le o f the difference.

A fter the in d ep en d en ce in 1945, a ccounting profession in Indonesia w as not well developed. T here w as alm ost no a ccounting regulation. T he birth o f the m odern a c c o u n tin g profession in Indonesia w as ushered in by the passage o f L aw N o. 34 o f 1954 w hich con cern s the right to public practices and the use o f the accreditation o f an acco u n tin g degree. The law is aim ed to protect the public from professional acco u n tin g practices perform ed by th ose w h o do not have the right to p rovide such services. T h e law is also used to the designation o f 'AkuntaiV (A c c o u n ta n t) to persons ho ld in g a 'doktorandus' (D rs) degree from a recognised tertiary a c ad em ic institution.

T he Drs degree, w hich was equivalent to A m erican m asters degree, w as obtained by c o m p le tin g a university 'sarjana' course. It w as offered for the first by the U niversity o f In d o n esia in 1952.

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T his A cco u n tin g Law w as very im portant in that it paved the w a y for indigenous Indonesians to inspire to a professional qualification w ith o u t the need to obtain formal education from overseas, as had been the case d u rin g the m a n a g e m e n t o f the Dutch colonial power. The Law is also as a basis o f estab lish in g a 'm oral' acco u n tab ility o f the profession's m e m b e rs and society. For public, this Law is a public relation d o c u m e n t designed to facilitate the self-interest o f the profession. T he o b jectiv es o f the A cco u n tin g Law, as stated in the decree, are to express the profession's recognition o f its responsibilities to the public, to clients, and to colleag u es, to guides m e m b e rs in the pe rfo rm a n c e o f their professional responsibilities, and to express the basic tenets o f ethical and professional conduct.

T he objectives position the m e m b e rs apart as a 'profession' with responsibilities to the public as well as clients and each other. The objectives also involve g u id a n c e for the p e rfo rm a n c e o f m em b ers, im plying that the Law is a d o c u m e n t to the professional is able to turn for resolution o f issues in practice.

In the transition period after the independence, the A c c o u n tin g Law provides a moral fo undation for the profession and a basis for self-policing in a c c o rd a n ce with a public service ideal. H ow ever, because o f the typical transition situation, the L aw w as an u n p o p u la r decree w h ere the population o f business enterprises was still limited in num ber. N o t all were used by the enterprises to report the detail financial activities. A c c o rd in g to Briston's (1990) report, within the transition, m ost ( i f it is not to say all) co m p a n ie s were not c o m p u lso ry to provide financial reports. If it w as any, the financial reports were limited for a special use o f the foreign enterprises and the state-ow n co m p an ies. A s Briston (1990) also reported a bout the state ow n c o m p a n ie s that the state o f go v e rn m e n t acco u n tin g is as poor as that o f corp o rate reporting. T he g o v e rn m e n t financial statem ents are norm ally late by at least three years. T he law affecting g o v e rn m e n t a c c o u n tin g is still based on the 1864 Dutch accountability legislation with few am en d m en ts.

T h e P o litica l S ig n ific a n c e o f A c co u n tin g

Even th o u g h the birth o f m odern a c c o u n tin g in Indonesia can be traced back to the D utch colonial era (ei., S u koharsono, 1993), the idea o f self-acco u n tin g regulation for indigenous Indonesians w as j u s t the issue o f th e d ecree o f A c c o u n tin g L aw N o. 34 in 1954. It is now c o m m o n p la c e to a c k n o w le d g e in ou r m o d e rn era that State in tervention and regulation is the m a jo r effect on the d e v e lo p m e n t o f a profession. The effects lead to the subject opinion and claim that th e State in tervention by declarin g a regulation could ju s tify the social need and mass- k n o w le d g e production. With the A c c o u n tin g Law 34 in 1954, indigenous Indonesians could begin their efforts on the d e v e lo p m e n t o f accounting. It also brought a pow erful force to b ear the position o f a c c o u n tin g k n o w le d g e in the society.

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6 2 B o o k k e e p i n g to Professio nal A cc ounting:

B ased on the 1945 constitution o f the R epublic o f Indonesia, L aw has a high decree in the g o v e rn m e n t regulation. T he Law is a general and form al regulation on a certain aspect or area established by the g o v e rn m e n t (the President) with the approval o f the H ouse o f R epresentatives. O f course, before the 1945 ind ep en d en ce and in p articular before the 1954 A cco u n tin g Law', all regulations regarding eco n o m ic and ac c o u n tin g m atters in Indonesia basically refer to C o m m ercial C o d e o f 1847 and Civil C o d e o f 1847 with little changes from its Dutch original. As pointed by Y u n u s (1992: 320).

A lthough Indonesian C o m p a n y Law is based on the Dutch S ystem , it has not kept with su bsequent changes m ade in the Dutch C o m m e rc ia l Code. ... m any a m en d m en ts, su p p lem en ts and ch an g es m ade in the N etherlands, particularly with respect to the limited liability co m p a n y from 1928 onw ards, have never been incorporated into the Indonesian C o m m ercial Code.

C o n seq u en tly , before the 1954 A cco u n tin g Law. the Dutch 'lim ited1 C o m m e rc ia l C o d e has b eco m e c o m m o n practice in Indonesia. With this limitation, how ever, the C o d e provided a 'detail' g uidance for b o o k k eep in g req u irem en ts for private (m o stly for foreign com panies) and public enterprises co n c e rn in g the preparation o f balance sheets, profit and loss statem ents, and other analyses o f source o f application o f funds (E nthoven, 1975). It is im portant to recognise that even th o u g h the C o d e has a limitation, it provided spirit to po w er the discipline o f acco u n tin g in the com m u n ity .

A n o th e r aspect o f political a ccounting before the 1954 A cco u n tin g L aw is the application o f the 1925 Dutch C orporate Incom e Tax. This regulation strengthened the p o w e r o f acco u n tin g discipline to be practised in the society. It also forced that m a n a g in g financial bookk eep in g for business enterprises was very im portant and could provide a better report on tax calculation. A lthough, the 1925 Dutch C orp o rate In co m e T ax have existed for som e periods o f times, it is not yet clear w h e th e r this legislation w as successfully influencing the individuals to pay their incom e for g o v e rn m e n t tax. An indication for the im plem entation o f the T a x legislation w as that the only m ed iu m to big enterprises paid their incom e taxes. Individuals and small c o m p a n ie s, in m ost cases, were free o f paying their taxes.

A rapid c h an g in g on the tax system in Indonesia was introduced in 1983, w hen the 1925 Dutch C orporate Incom e T ax was replaced by the G eneral Tax Provisions a n d Procedures Law No. 6, the Income Tax Law No. 7, an d the Value- ad ded Tax Law No. <S. The laws are adm inistered by the Director General o f Taxes, M inistry o f Finance, except for taxation o f the oil and gas industry w hich is prim arily a d m in istered by the State A udit A uthority (B P K P ). T he laws specify certain gu id elin es w hich affect Indonesian corporations' choice o f a c c o u n tin g policies. The laws were an n o u n c e d by the need to finance extensive n o n -rev en u e yielding services

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(education, health, etc) and infra-structural projects (pow er, transportation facilities, etc), w hich g enerally the g o v e rn m e n t is in a position to undertake.

E m erg in g P r o fe ssio n a l A cc o u n tin g B ody

T he birth o f the first A c c o u n tin g Law o f 1954 w as not a u to m a tic a lly for indigenous Ind o n esian s building an a ccounting body. B efore the 1954 A c c o u n tin g L aw and the 1945 independence, there w as no single professional acco u n tin g b ody existed. D uring the Dutch colonial periods, Indonesia had never got any e x p erien ce in building an a c c o u n tin g profession. A cco u n tan ts w h o w o rk ed and served their professional skills during the Dutch periods in Indonesia never th o u g h t setting a professional body in Indonesia. They, perhaps, joined b e c o m in g a m e m b e r o f a professional acco u n tin g body in their ow n original nationality (in the N eth e rla n d s for the Dutch and United K ingdom for Englishm en). A history has told th at the first ac c o u n ta n ts settled in Indonesian archipelago were the Dutch (see S uk o h arso n o , 1995 and Sapi'ie, 1980). T h ey w orked for the Dutch co m p a n ie s in Indonesia.

T h ro u g h o u t the tw entieth century, a ccountants in the N e th e rla n d s have so u g h t to represent th em selv es as a profession. A c c o u n tin g was to be regarded as an occu p atio n w hich involved professional ju d g e m e n t and technical skills. As reported by A b d o e lk a d ir (1982), the Dutch g o v e rn m e n t in Indonesia w as c o n cern ed to h ave a state audit a g e n c y to control the internal financial m e c h a n ism o f the g o v e rn m e n t activities. As the fact, in 1907, van Schagen, the first g o v e rn m e n t accountant, w as sent to Indonesia from the N e th e rla n d s to open the State A udit A gency. It is not clear, ho w ev er, to say th at van Schagen w as unsuccessful o p en in g the A g e n c y in th at year.

The A g e n c y w as o pened to operate by 1915, after 9 years in waiting. It w as very c o m p le x situation w h ere pressure arg u m en ts to open the State A udit A g e n c y was urgent. T he y ear o f 1912 was the influencial year w hen the A m s te rd a m Stock Ex ch an g e op en ed a branch office in Batavia, (now Jakarta) Indonesia. This situation affected the Dutch g o v e rn m e n t policy to im m ediate op en in g the State A u d it A gency.

T he su b se q u e n t d ev e lo p m e n t o f the 1954 A c c o u n tin g L aw w as the e m e rg e n c e o f the first professional a ccounting body, Ikatan A kim tan Indonesia (T he Indonesian Institute o f A cco u n tan ts) in 1957. The first chairm an o f the Institute w as Pro fesso r S o e m a rd jo Tjitrosidojo, Professor o f A ccounting, U niversity o f Indonesia.

T he n u m b e r o f m e m b e rs h ip o f the first Institute e stab lish m en t w as only 9 m e m b e rs (T jitrosidojo, 1982). T he n u m b e r w as very small c o m p a rin g to the total o f the c o m p a n ie s, even m ore to the w hole population o f Indonesia. T he objectives o f e stab lish in g the Institute are

1. T o protect the status o f the Indonesian acco u n tin g profession

2. To p ro m o te the a ccounting pro fession to the public to support the national d e v e lo p m e n t o f the Republic o f Indonesia

3. To d e v e lo p acco u n tin g science

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6 4 B o o k k e e p i n g to P ro fe ssi onal A c c o u n ting :

4. T o safeguard a body o f Indonesian accountants and to d ev e lo p the skill and responsibility o f the m e m b e r o f IAI [the Indonesian Institute o f A ccountants]

5. To support and create positive actions regarding N ational D e v e lo p m e n t o f Indonesia

Tjitrosidojo (19 8 2 ) reported th at in the early years o f its establishm ent, the Institute faced several pro b lem s to be professional. T he p ro b lem s w ere (1) lack o f qualified a ccountants with regards to the 1954 A cco u n tin g Law, (2) lack o f a standardisation o f foreign a ccounting degree c o m p ared to Indonesian acco u n tin g d e g re e to be called as an accountant, (3) lack o f n u m b e r o f people having a qualification o f a c c o u n tin g skills, and (4) limited formal acco u n tin g education in universities. Tjitrosidojo, the fo rm er first president o f the Institute had a difficult tim e to m a n a g e them . D uring his tim e as the President, there w ere m a n y a c c o u n tin g practitioners operatin g under different n am es to acco u n tin g office. T he nam es to be eq u iv a le n t to the acco u n tin g office w ere adm inistrative office, accounting office, p u b lic accounting office, and tax consultant office. Som e run by qualified a c c o u n tin g

skills, others w ere headed by unqualified a ccounting skills or even n on-accountants.

T he early d e v e lo p m e n t o f the Institute was very slow. From 1957 to 1959.

only thirteen registered accountants in Indonesia (Y unus, 1992). This n u m b e r was very u nfortunate c o m p a re d to the g row ing businesses after the in d ep en d en ce o f Indonesia. O f course, the condition needed to be solved im m ediately. H ow ever, becau se o f the political situation which was unstable, the d e v e lo p m e n t o f people ho ld in g a registered accounting degree was still limited. Up to 1965, the n u m b e r o f registered acco u n tan ts w as 232. Again, the n u m b e r was very small in p ro m o tin g the professionalisation o f accounting. This led to the lack o f recognition from businesses, g o v e rn m e n t and a c ad em ic c o m m unity.

A d ram atic ch an g e for Indonesian accounting profession w as m ade w h en the e c o n o m ic and political situation o f the Republic o f In donesia was under the President o f S oeharto in 1966. T he liberalisation o f e co n o m ic e n v iro n m e n t for both do m estic and foreign c o m p a n ie s led to an increased d e m a n d for services o f professional accountants. The services, such as m an ag in g financial records, preparing financial reports, budgeting, taxation, feasibility studies, auditing, and various type o f m a n a g e m e n t services, w ere im portant in the contribution o f liberalisation o f In donesian e c o n o m y . An A m erican influence w as very strong in the S oeharto era.

A m e ric a n investors and jo in t venture in businesses betw een Ind o n esian s and A m e ric a n increased significantly. In 1967, one y ear after S oeharto took the power, the first p a rtnership b etw een a local and international firm w as established. Santoso H a rs o k u s u m o a c c o u n tin g firm jo in e d with an A m erican acco u n tin g firm, A rth u r Y o u n g , u n d er Indonesian A c c o u n tin g Law. The su bsequent y ear the Philippine firm, SyC ip, G o rre s and V elayo (S G V ) established a partnership with U to m o , a local acco u n tin g firm.

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In 1973, a very im portant event had been m ade by the Institute for the first tim e to adopt professional acco u n tin g standards th rough a national co n g ress in Jakarta. T he c ongress m ade a decision to set an In donesian A cco u n tin g Principles, or sim ilar to G A A P o f Indonesia and G en erally A ccep ted A uditing Standards, and C o d e o f Professional Ethics o f Indonesian A cco u n tan ts (Y unus. 1992). As Y u n u s reported, in the y ear o f 1973. three c o m m ittees were appointed to m a n a g e the C o n g re ss decision; (1) A cco u n tin g Principles C o m m ittee. (2) A uditing Standards C o m m itte e , and (3) C o d e o f Ethics C o m m ittee. A b d o elk ad ir (1982) pointed out that the a p p o in tm e n t o f the three c o m m ittees was not free o f A m erican influences. M ost o f A c c o u n tin g principles. A uditing standards and C ode o f Ethics were derived from a translation o f US acco u n tin g regulations.

T h e A m erica n In flu en ce

In the early years o f the 1945 independence, the Dutch a c c o u n tin g practices were very d o m in a n t in Indonesia. Since the Soeharto, the Second President, took the pow er, the direction o f political and e co n o m ic was changed. Soeharto's policies preferred to look at A m erica and other W estern counties as 'mirrors' in the d e v e lo p m e n t o f the Republic o f Indonesia. F oreign-operated enterprises, eg., banks, in surance co m p an ies, and m anufactures, then, began to run th eir businesses in Indonesia. As E nthoven (1973) observed, since the end o f World W ar II, US concepts on a c c o u n tin g have dom inated in m any d e v elo p in g countries, such as in Latin A m erica. Asia and Africa. Enthoven (1973) argued that countries which have been ex p o sed to various foreign a ccounting system over the years tend to be reluctant to build their ow n system s, or to accept ideas and fu n d am en tals that are co n d u c iv e to such systems. Indonesia is one o f the cases w hich the history o f the Dutch colonial p o w e r has m ad e a difficulty to Indonesia setting their own m odel o f accounting.

S u b se q u e n t d ev e lo p m e n ts after the Dutch occupation. US c am e with 'huge' pro m isin g investm ent and m odernisation m ade Indonesia shone.

From 1951 onw ard . US began to give loans and grants to Indonesia for d e v e lo p in g infrastructure including for updating and upgrad in g a c c o u n tin g education in Indonesia. With these loans and grants, the US influence can n o t be ignored. The influence o f the US a ccounting c oncepts on Indonesian universities is one o f the processes to be 'w esternism '. A university link becam e the target in the process o f its influence. U adibroto (1962) observed that there was a critical start to be relying on 'w estern' w hich w as through university. University b ecam e an influenced agent to be 'US'. T h e U niversity o f Indonesia and o f Gad jah M ada were the first formal education institutions influencing by US. The U niversity o f Indonesia d e v elo p ed a joint project with the university o f California at B erkeley, w hereas the G adjah M ada U niversity in Y o g y a k a rta was with University o f W isconsin (H adibroto, 1962).

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Perhaps, a very m on u m en tal suggestion agreeing to the influence o f US on Indonesian a c c o u n tin g was said by H adibroto in his dissertation o f 1962 entitled .1 C om parative Study o f Am erican and D utch A ccountancy and Their Impact on the Profession in Indonesia. He suggested that the a ccounting profession in Indonesia should c h a n g e its orientation to the A m erican system (H adibroto. 1962). Even th ough so m e o f his findings and suggestions are open to question, the process to be influenced by US on accounting education, professional acco u n tin g practices and so m e g o v e rn m e n t regulations on accounting, auditing and taxation could not be stoped.

H adibroto (1962) is not alone suggesting the change o f Dutch a ccounting influence to US system. Briston (1978) is one o f a m o n g other scholars in giv ing a sim ilar opinion to Hadibroto. Briston pointed out that US influences cannot be ignored by d e v e lo p in g countries, such as Indonesia. With ( S system. Indonesia could have a better position in the direction to be m ultinational, international in a ccounting firms, and general eco n o m ic policies (Briston. 1978). A m erican textbooks were also factors affecting d eveloping countries to learn more about modern a c c o u n tin g svslem and acco u n tin g profession. As a fundam ental aspect o f econom ic d ev elo p m en t, a c c o u n tin g cannot be separated from the inlluence o f the e n v iro n m en ts which is susceptible to rapid change in d e veloping countries, such as Indonesia. To dev elop an a c c o u n tin g pro fession with m eeting to the need o f the country within a c h anging e n v iro n m e n t is not easy matter, especially in view o f their lack o f acco u n tin g expertise in the country, f o r this reason, it is not a big deal for Indonesia im porting an a c c o u n tin g m odel from developed countries, especially US acco u n tin g system , with d ifferent historical b ackground, philosophy, and other social e nvironm ents.

With respect to the US accounting inlluence. the golden ages o f he Dutch a c c o u n tin g d om ination were ended. Since the establishm ent o f the New Ol der under S oeharto's power. Indonesia's foreign policy underw ent a substantial transform ation.

Relation to US in building a new liberal eco n o m y and political o p en n ess was strengthened. As I I i I pointed out. at the first years o f a new era o f Soeharto. a political e c o n o m y has been directed to US concern. A n u m b e r o f US acco u n tin g experts in cluding US acco u n tan ts were invited to becom e g o v ern m en t consultants. The process o f large-scale o f foreign aid and investm ent was becom e an essential policv to be a first priority (EIU, 1988).

A c c o u n tin g P ro fe ssio n and A cad em ia

T he a c c o u n tin g profession and a ccounting a cad em ies in universities have a sym bolic relationship. Since the 1945 independence o f Indonesia, a ccounting profession and a cad em ies went to side by side. The a ccounting profession needs a steady stream o f new graduates with high qualification to meet its staffing needs. The a c c o u n tin g ac a d e m ies o f the universities need steady d em an d for graduates for their co n tin u ed existence. Both have a mutual relationship that cannot be separated. The

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acco u n tin g profession gives its stam p o f approval in the form o f accreditation o f acco u n tin g graduates. T he accounting a cad em ies are aw are o f the need s o f the profession and do their best to satisfy the m arket and society. As said by W hite (1991). acco u n tin g ac a d e m ies have to continually im prove th eir quality for public satisfaction. W ithout this aw areness, acco u n tin g will loose its identity and integrity.

Historically, a c c o u n tin g ac a d e m ies began w hen the system o f b o o k k e e p in g w as taught at the first time in Indonesian High Schools and Special Schools. As A b d o e lk a d ir (1982) reported, the H andelschool or the M iddelbare H andelschool (D utch schools specialising in trade and c o m m e rc e ) w ere the D utch schools w h ere b o o k k e e p in g was included in the curriculum in the years after the First W orld War.

The schools, o f course, limited Indonesians to study in it, except for those w h o had a high social class, such as the children o f the head o f a district or the children o f a w e a ltln bu sin essm an (A bdoelkadir. 1982:29). A dditionally Y u n u s (1992) also indicated that private teachers in b o o k k e e p in g w ere given by D u tc h m e n w h o w o rk ed for the T ax Office, the A udit Office, or the Treasure. T he lectures w ere given after hours in Dutch and using Dutch b o o k k e e p in g textbooks. For final e x a m s and certificates, they had their own pro g ram s (see. Yunus, 1992:272).

'Bookkeeping' to A ccounting

S em aran g , Central Java, was the first city in Indonesia introducing 'm odern' b o o kkeeping. In the city, the B ond van Vereninging voor H andel O nderw ijs (T rade T e a c h e r A ssociation) was established to regulate the training o f b o o k k eep ers outside formal school on 20 M arch 1925. T he study o f Sapi' ie (.1980) provided a good u nd erstan d in g on how the first bookkeeping taught in Indonesia. T he p urpose o f bookkeeping during the Dutch colonial era had been a portrayal o f possible profits by m ean s o f c o m p a rin g financial statem ent balances at the b eg in n in g and end o f tran sactio n s than existed previously. A fter the 1945 in d ep en d en ce o f Indonesia, acco u n tin g has still attached prim e value o f this concept, but the app ro ach has been changed. Profit calculation is no longer a sim ple c o m p aratio n o f financial values at the beg in n in g and end o f a transaction or series o f transactions, or based on the price obtained and the price paid for a c o m m o d ity ; it relates to a co m p le x set o f allocations and valuations pertaining to the operational activities o f the entity or its aggregates.

It was actually the 1954 A c c o u n tin g Law - with its c o m p le x p h e n o m e n a - w hich brought about the m ove tow ards the d e v e lo p m e n t o f accounting, which constitutes the basis o f Indonesian a c c o u n tin g develo p m en t. C hatfield (19 7 4 ) pointed out that the e m e rg e n c e o f extensive industrial operations can n o t be said as an initiator o f a c c o u n tin g d ev elo p m en t. Sim ilar to C hatfield's argum ent, the extensive industrial d e v e lo p m e n t in Indonesia w as only one o f other su pporting aspects to a c c o u n tin g d e v elo p m en t. T here w as a need, for exam ple, to keep records, and the difficult p roblem o f valuing durable m eans o f production arose, while the req u irem en t c am e up for professionals to audit the financial statements. As funds for investm ent b ecam e

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larger and the need to protect creditors and shareholders b ecam e w id esp read , they g ave support to the d ev e lo p m e n t o f a professional body.

T he transform ation o f b o o k k e e p in g into acco u n tin g w as also largely influenced by the enterprise and the enterprise structure. The enterprise, with its o u tsid e interests and the clear distinction betw een o w n ersh ip (financing) and m a n a g e m e n t required, largely for distribution purposes, correctly m a n a g e d split b etw een capital and incom e gradually had to be developed. The use o f m ach in es and the im portance o f other fixed assets within m an u factu rin g enterprises durin g the large scale o f investm ent in Indonesia led to the significant acco u n tin g d ev elo p m en t.

D epreciation a c c o u n tin g b ecam e a vital com p o n en t, due to the increasing im portance o f durable assets o f the entity. Up to that time depreciation was treated in connection with the variation in holding fixed assets (particularly manufacturing machines).

A gain with the 1954 A c counting Law, accounting becam e an influencial discipline to control the activities o f enterprises. Hadibroto (1962) said that the spirit o f a c c o u n tin g discipline in Indonesia was the 1954 A cco u n tin g Law. T h e y could provide a w ay o f distant control to the life o f enterprises th rough a uditing and calculating the distribution o f their incom e ( c f . H adibroto. 1987 and 1990). It cannot be denied that acco u n tin g could give the rise o f a proper distinction betw een capital and incom e, and the related problem o f valuation. With this distinction, accounting, then, provides a co n fid en ce to the absentee ow nership within enterprises. A control at d istance could be im plem ented as a new m echanism o f the c o m p le x p h e n o m e n a w ithin an enterprise to be managed. Thus, while enterprises, with their absentee o w n ersh ip , stim ulated the growth o f business, they create m any pro b lem s o f reco rd in g and o f preparing financial statements, and thus again challenged a c c o u n tin g and stim ulated its grow th and developm ent.

A uditing as a K ey to the profession

A uditing, m e a n in g the exam ination o f financial records with the aim o f passing a j u d g e m e n t on the figure presented, becam e a profession and a separate d iscipline in Indonesia only after the 1954 A ccounting Law. It is ju s t a 'new' profession if it is c o m p ared to England or Australia. In England, the birth o f auditing can be traced back to the m iddle o f the nineteenth century (see. Brow n. 1968), w h ereas in Australia it was appeared in 1886 when the earliest acco u n tin g profession w as fo unded in A delaide (G rah am , 1978). Originally, the auditing practice in Indonesia is closedly related to the Dutch accounting; how ever, because o f the ab sen ce o f an a c c o u n tin g association, the d e v e lo p m e n t o f the practice w as very slow .

T jitrosidojo, the form er First President o f 1AI (1982) c o m m e n te d that a uditing w as designed as a check upon the honesty o f persons charged with financial responsibilities, both in the private and g overnm ental institutions. He also m entioned that auditing played an im portant role in verifying fiscal responsibities

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(Cf., T jitrosidojo, 1982). In later d e v elo p m en t, auditing, gradually, started to e m p h a s is e the scrutiny o f records and the verification o f the u n d erly in g statem en ts or evidence.

A u d itin g is generally associated with the acco u n tin g profession w h ich p rovides the e x a m in a tio n o f financial records as required for legislative, statutory and o th er purposes. H ow ever, its objective in the d e v e lo p m e n t process should go b eyond th e verification o f financial data and c o v e r the w h o le evaluation o f the inform ation system . T h e evaluation should e n c o m p a ss past, present and future e c o n o m ic activities related an enterprise's p h en o m en a. A uditing should also assess w h e th e r the e n v isag ed e c o n o m ic d e v e lo p m e n t objectives and policies have been attained, and m ak e re c o m m e n d a tio n s for im provem ents. This will require th at au d ito r u n d e rsta n d s financial and eco n o m ic d e v e lo p m e n t matters, and is able to pass ju d g e m e n t on their acco u n tin g inform ation aspects. As indicated by H adibroto (196 2 ), au d itin g in the public sectors, auditors w ere required to have a fam iliarity with a d m in istrativ e p rocedures; for social aspects, they had to c o m p re h e n d the various inputs and outputs and its relationships; and in regard to e c o n o m ic p lanning a fam iliarity with p lanning te c h n iq u e s is desirable. In the case o f all th ese areas, the auditors should be able to give an opinion and set forth suggested ch an g es (H adibroto, 1962).

T he d e v e lo p m e n t o f auditing, then follow ed by the grow th o f Indonesian ac c o u n tin g profession, w as a new p h e n o m e n a und er the in fluence o f the US. A significant US influence in the early years o f S oeharto p o w e r w as the release o f the C o -o p e ra tiv e L aw N o 12/1967 and the G o v e rn m e n t Regilation N o 19/1969. T he C o operativ e L aw N o 12/1967 regulates co-operative o rganisations and private o w n e d entities, w hereas G o v e rn m e n t R egulation N o 19/1969 con cern s with g o v e rn m e n t o w n e d co m p an ies. T he fo rm er regulates an adoption o f several types o f c o m p a n ie s that could be o w n ed by private w hich are basic partnership, open partnership, limited partnerships and limited liability co m p an y . T he later is dealing with the distin g u ish ed form s o f g o v e rn m e n t co m p a n ie s w hich are Persero (state o w n ed lim ited liability co m p a n y ), Perum (public utility enterprise), and Perjan (g o v e rn m e n t agency). With these regulations, an adoption o f control m ech an ism for the various types o f c o m p a n ie s w a s possible th rough auditing procedures. A foreign co u n terp art th ro u g h jo i n t v e n tu re a g re e m e n t and m ultinational corp o ratio n s b e c a m e a fashion to be built.

This trend has also been strengthened by the policy o f e c o n o m ic liberalisation th rough the d ecree o f 1967 c o n c e rn in g the Foreign In v e stm e n t Law.

T h e Indonesian a c c o u n tin g pro fession gained a m o m e n tu m to be involved as an active d iscipline in the d ev e lo p m e n t o f Indonesian e c o n o m y was the response o f the g o v e rn m e n t through the release o f the decrees related to the p o w e r o f a c c o u n tin g in 1960s. A c c o u n ta n ts w ere called to have a m a jo r responsibility p ro v id in g a professional skill in m a n a g in g and ev alu atin g enterprises' position o f its w ealth and incom e. Briston et al (19 9 0 ) c o m m e n te d th at at the business enterprise level, well- audited financial statem ents by professional a c c o u n tan ts c ould help to gain the

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co n fid e n c e o f investors and creditors. Additionally, audits are able to restrict u n p ro d u c tiv e savings and investm ent practices, and enhance the efficient use o f capital. It also has a clarifying and confid en ce-b u ild in g impact, they discourage m isap p ro p riatio n and misallocation o f funds, enhance efficient adm inistration, and stim ulate the collection and allocation o f funds. T hey tend to have a beneficial effect on a country's flow o f p roductive capital from internal and external sources. A lthough in general the d ev e lo p m e n t o f auditing in Indonesia was associated with private enterprise activities with the influence o f US com panies, it equally applied to public sectors und er g o v e rn m e n t control. In the public sectors, it referred to the statutory obligation and control function to provide information about financial adm inistration o f g o v e rn m e n t operations.

E d u c a tio n a l E lite

The d e v e lo p m e n t o f Indonesian a ccounting profession is can n o t be separated to a c c o u n tin g education. A c counting education has its ow n value stressing on d e v e lo p in g co m m u n ic a tio n , interpersonal and intellectual skills, and on bro ad en in g the k n o w le d g e base. T hese values are fairly well recognised by the society as form ally regulated bv the g o v e rn m e n t under the decree o f ... T inbergen Report (U nited N ations, 1970) states

Education - e n c o m p a ssin g as it does not only the im parting o f k n o w le d g e in the ordinary sense but the d e v e lo p m e n t o f a w hole n ew scientific and cultural outlook - is a pow erful instrum ent for e co n o m ic growth. It is also inevitable that the pressure to secure education will continue to m o u n t in dev elo p in g countries, for it is through education that people seek to im prove their lot.

O n e o f the aim s o f education is to provide students for a profession. Since the 1945 independence, the Republic o f Indonesia relies on formal a c ad em ic study in colleges and universities than apprenticeship, to prepare future m e m b e rs o f the acco u n tin g profession. The first formal system o f education w as in troduced by the D utch in 1925 o f the T rade T eachers A ssociation (B ond Van V eren ig in g V oor Handel O nderw ijs), w hich conducted b o o k k eep in g courses classified as Bond A and Bond B. T h e courses were equivalent to basic and interm ediate acco u n tin g courses.

T h e B o n d A certificate holders were trained to w ork in small trading c o m p an ies, and the Bond B tended to w ork in large trading co m p an ies having m any branches. For the final evaluation, the course conducted a final exam ination and issued its ow n certificate (see, A bdoelkadir, 1982).

A U niversity D om ination

T h e traditional m o d e o f preparing for business occupation in the early years after the 1945 ind ep en d en ce was on-the-job training or apprenticeship. H ow ever, the d e v e lo p m e n t o f the e c o n o m y and politic after the left o f the Dutch regim e required an

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in creasingly higher level o f preparation. A m ode o f a form al education in university w as adopted. The University o f Indonesia w as the first tertiary institution to offer a cco u n tin g courses under the Faculty o f E conom ics in 1952. A m ore c o m p re h e n s iv e and system atic a c c o u n tin g program w as taught to m eet the standard re q u ire m e n t by the b usiness c o m m u n ity . As pointed out by T jitrosidojo (1982), the acco u n tin g education pattern m ust take into acco u n t eco n o m ic aim s and m eans. To cater effectively to the need o f a 'new' s o cio eco n o m ic d e v e lo p m e n t o f Indonesia, a distinct a c c o u n tin g body o f know ledge w as required. A transform ation from the Bond m eth o d o f acco u n tin g education to a university adoption was a significant d e v e lo p m e n t in a cco u n tin g education in Indonesia.

T h e e stab lish m en t o f a university system w hich provided educational o pp o rtu n ities for all w'as enthusiastically received by indigenous In donesians w h o saw in university a m ean s to im prove th eir eco n o m ic status and a leverage to achieve u p w ard mobility. D e m a n d for higher education grew particularly in the years after the W orld W a r II as students stam peded into colleges and universities to m ak e up for the loss o f educational opportunities during the Dutch occupation p o w e r in Indonesia.

E nthoven (19 7 5 ) pointed out that the adoption o f a university system enlig h ten ed the d e v e lo p m e n t o f acco u n tin g in Indonesia. With the system o f university, a c o m p re h e n s iv e program o f acco u n tin g courses could be possible to be applied such as general k n o w le d g e o f eco n o m ic d ev elo p m en t, specific technical a c c o u n tin g skills, auditing practices, culture and other kn o w led g e related to the acco u n tin g discipline.

T he acco u n tin g profession in Indonesia has benefited in a big way from the offer o f acco u n tin g course o f outside o f Jakarta, such as Padajajaran U niversity in B a n d u n g (1961), S um atra Utara University (1962), A irlan g g a University in Surab ay a (1962), G ad jah M a d a U niversity in Y o g y ak arta (19 6 4 ) and S riw ijay a U niversity in P a le m b a n g (19 6 4 ) (see, Briston et al, 1990). T he p h en o m en al grow th o f the university system for a ccounting pro g ram s has been one o f the m ore significant social d e v e lo p m e n ts in Indonesia. Indigenous Indonesians educated as high a proportion o f its people as the w estern countries. In general, a c c o u n tin g was taught within the Faculty o f E conom ics, w here the specialisation in acco u n tin g o ccurred after the second or third year o f a five-year master's (S arjana) program . The Sarjana M u d a (B ach elo r's degree) program covered a two- or th ree-y ear period o f study. Upon c o m p letio n o f the Sarjana program at a unviversity, the graduates w ere aw arded a D o cto ran d u s (equal to M aster) degree and were eligible to register as a acco u n tan t after co m p le tin g three years o f e m p lo y m e n t in g o v e rn m e n t offices. With this d e v e lo p m e n t, univ ersities becam e a d o m in an t institution p ro d u cin g a c c o u n ta n ts and also b ecam e a d o m in a n t place to train y o u n g acco u n tan ts to do a j o b training.

The Structure o f the Indonesian A ccounting Education System

E ducation for accountants essentially com es at various levels for different tasks; the technical, the policy and the research. In the three different tasks, the

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technical edu catio n aim ed to train the students to apply a c c o u n tin g fund am en tals, rules, and pro ced u res is ty pically taught in the un d erg rad u ate program or the first year o f a tw o -y e a r graduate program . T he professional policy, e n v iro n m en t, and interaction education, aim ed at relating acco u n tin g information to others, in volves the study o f professional ethics and organisation operation, and enables the students to relate to diverse interests and group. The third level o f acco u n tin g ed u catio n is a c c o u n tin g research m eth o d o lo g y aim ed at creating n ew a c c o u n tin g k n o w le d g e (E n th o v en , 1981).

All education system s in Indonesia are und er the policy o f the M inistry o f E ducation and Culture. This is called as a national education policy. W ith o u t an exception, a c c o u n tin g education has to follow the national policy. A very significant d e v e lo p m e n t o f the national policy on acco u n tin g education w as a g o v e rn m e n t policy regarding the uniform ity o f acco u n tin g education in the higher education in 1975. The main objective o f the uniform ity was to ensure that a ccountants graduated are o f the sam e standard o f curriculum and syllabi thro u g h o u t the country. T he g o v e rn m e n t gave a very strong contribution to the d e v e lo p m e n t o f accounting. Briston et al (1990) reported, durin g the 1970s the g o v e rn m e n t o f Indonesia took an initiative to collaborate w ith several o verseas institutions to im prove the quality o f the acco u n tin g co u rse s in the universities. T he overseas institutions were the Ford F o undation, the U K O v e rse a s D e v e lo p m e n t A dm inistration, U S A ID and W orld Bank.

Figure 1 depicts a structure o f the accounting education system in Indonesia.

T he structure is in general adopted from the western education system , m a in ly from the US influence with a little m odification on the d e m a n d o f social, e c o n o m ic and cultural differences o f Indonesia. There are tw o different a c c o u n tin g education system s: form al and n on-form al program s. For the formal acco u n tin g education, the deg ree is offered by D ep artm en t o f A c c o u n tin g within the Faculty o f E c o n o m ic s with three level different degrees: S-l (Sarjana/ Bachelor); S-2 (M aster); and S-3 (PhD).

T h e degrees are sim ilar to the western education system. A n o th er form al a c c o u n tin g edu catio n system also offers D iplom a from level I to IV. T he level o f the D ip lo m a system is in dicated a duration o f its study. Level I (one) is indicated a one-year duration o f its p rogram , w hereas level IV (four) is indicated a fo ur-year study duration.

Figure 2 depicts a process o f acco u n tin g education to the profession in Indonesia. As discussed in the previous section, a ccounting education and training in In d o n esia does require a c o m p re h e n siv e and system atic approach, c o v erin g all levels and institutions o f accounting. A great diversity o f acco u n tin g p ro g ra m s presently exist. From the S enior High School, the students graduated can c h o o se to c ontinue a further study o f one o f several education pro g ram s in accounting. U niversities, either states or private o w n ed , have a standard o f the national curriculum . P rogram s, course co n ten ts and m eth o d s o f teaching at the universities are also based on the national policy o f the M inistry o f Education and Culture.

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Education for g o v e rn m e n t a ccountants is carried out by State School for G o v e r n m e n t A uditors (Indonesian, S T A N ) o w n e d by the M inistry o f Finance. S T A N has been a p p ro v ed by the M inistry o f Education and C ulture as an a c a d e m ic institution with Sarjana d egree status, but the School does not o ffer the Drs ( D o k to ra m d u s ) degree. Upon the co m p letio n and practical service, the students b e c o m e 'registered accountants' a c co rd in g to A c c o u n tin g L aw 34 o f 1954. T h e School w as in troduced by the M inistry o f Finance in 1957, w h en the g o v e rn m e n t (through the policy o f M in istry o f Finance) asked for an urgent need o f g o v e rn m e n t auditors for auditing the enterprises o w n e d by the g overnm ent.

S T A N has a unique school system w hich is differentiated a m o n g other a c c o u n tin g school (e.i universities, ac a d e m ies or institutes in Indonesia). T h e system is that students w h o are successfully pass the initial selection e x a m in a tio n m u st sign a c o n tract stating the following:

1. A p p lic a n ts have to co m p le te the study for D ip lo m a III in six sem esters

2. T h e students will be evaluated every tw o sem esters; if th ey do not m eet the req u irem en ts, they will be expelled out

3. T h e students will w o rk for the g o v e rn m e n t for fifteen years a n y w h e re in Indonesia, after co m p le tin g the D ip lo m a III p ro g ra m m e

4. T h e students has to pay the eq u iv alen t o f US $ 10,000 to the g o v e rn m e n t if th ey do not m eet the w o rk in g period req u irem en t

5. T h e students will be appointed as civil servants after su ccessfu lly c o m p le tin g tw o s em esters o f study and will have equal rights with other civil servants (See also, Prentice, 1986 and Briston et al, 1990).

S ince the 1957, the m ajority o f registered a c c o u n ta n ts in In d o n esia up to 1978 w as grad u ated from S T A N . As o f 1978, the state universities and S T A N had grad u ated 1,763 accountants. O f the num ber, 642 a c c o u n ta n ts was grad u ated from S T A N . Several private universities have also offered acco u n tin g courses, but they w ere not a u to m atically qualified by the L aw 34 o f 1954. T o be an registered acco u n tan t, the student o f the private universities had to u ndertaken an additional professional e x am in atio n given by C o m m itte e Experts no m in ated by the M in ister o f Education and C ulture

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74 B o o k k e e p i n g to Pro fes sio nal A cc ou n ting:

Level of Education

Elementary or Primary School

High School

Formal Education Non-formal Education

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Higher Education

t

A d a p t e d f r o m Y u n u s , 1992

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Vol.8.No. 1. August

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The International Journal o f A c c o u n t i n g and B u s in e ss S o c ie t y 7 7

Notes:

E : E xam ination LE : Local E xam ination

PPE : Pra-Professional Exam ination N E : N ational Exam ination

SE : State Exam ination

N A D : New A cco u n tin g D ev elo p m en t 1ST : Internal Short T raining

PE : Professional E xam ination

A c c o u n ta n ts in th e E n te r p r ise and T h e 'B oom in g' P riv a tisa tio n

O n e o f the earliest c hanges in A cco u n tin g after the Soeharto's p o w e r with US influence w as the de-regulation o f internal accounting. W ithout the need for g o v e rn m e n t regulation and planners to control e c o n o m y activities, enterprises were free to d ev elo p th eir ow n system s o f m a n a g e m e n t planing and control. Since the d e v e lo p m e n t o f a c c o u n tin g course in a university system, there are n u m b e rs o f a c c o u n ta n ts graduated from private and public univ ersities w o rk in g as internal accountants. N u m b e r s o f contributions are given by the a c c o u n ta n ts setting and d ev elo p in g the 'new' enterprises. As W hite (1991) indicated, a c c o u n ta n ts in the enterprises are free to adapt an effective and efficient m odel o f m a n a g e m e n t to m eet their ow n internal a c c o u n tin g purposes. Fieldw ork in enterprises (see Briston. 1986) indicates that individual enterprises were dev elo p in g m a n a g e m e n t p lan n in g and control system s in different w ays d ep en d in g on the expertise of. and advice given to.

enterprise m a n ag em en t. S om etim es, internal accounts have d e v elo p ed th rough industrial netw orking. For exam ple, a ccountants in the oil industry have collaborated in d esig n in g a suitable policy o f m a n a g e m e n t accounts specially for c o m p a n ie s for the oil industry.

Investm ent Law and Regulation

Indonesian privatisation has created new form s o f corporate g o v e rn a n c e and n ew sy stem s o f accountability w hich potentially increase the im portance o f financial reporting. T he stew ard sh ip role o f the acco u n tan t m ay b e c o m e m ore ob v io u s once the intentions o f the new shareholders created by the share privatisation p ro g ra m m e b e c o m e clearer. With the issues o f the Investm ent Law in 1967 and 1968, one y ear after the S oeharto took pow er, the role o f acco u n tin g in the enterprises be c a m e m uch obvious. T h e 1967 Investm ent Law, then am a n d e d in 1970 and 1974, is deal with foreign investm ents w hich regulate the following:

1. All foreign investm ents are entitled to accelerated depreciation (for a period o f four years from w hen the ex p en d itu re is incurred) For m ost items this is calculated at 25 percent on a declining balance basis.

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78 B o o k k e e p i n g to Pro fes sio nal Ac co unting :

2. Repatriation o f profits is perm issible though capital m ay not be repatriated w hile the project is benefiting from concessions.

3. Joint ven tu res with Indonesian partners have been c o m p u lso ry since 1974.

4. U n d e r the a bove conditions, foreign investors were ex em p ted from corporation tax for tw o to six years for projects in priority sectors (such as co m p a n ie s oriented to export, utilising local raw m aterials and c o n su m e r goods) (Cf., Y unus,

1992).

With the issues o f the Investm ent Laws, a n u m b e r o f new m a n u fa c tu rin g industries o w n e d by foreigners in m ajority o f shares were built. B A P P E N A S (N ational D e v e lo p m e n t Planning A gency) reported that the total o f foreign projects and investm ent since the issues o f 1967 and 1968 Investm ent L aw s to 1974 was 589 projects with the investm ent value o f US $ 2,486.9 millions ( B A P P E N A S , 1989). For do m estic investm ent projects with the sam e period o f 1967 to 1974, the total o f investm ent value was o f US $ 1,258.7 billions with 1,946 projects ( B A P P E N A S , 1989). T he total o f investm ent value for both dom estic and foreign projects was a very significant increase com p ared to prior to the issue o f the Laws.

With the significant increase o f the investm ent value and the creation o f n ew c o m p an ies, a d e m a n d for internal and external accountants w as needed. A s E nthoven (1 9 7 8 ) pointed out, the existence o f accounting profession in Indonesia could not be separated to the inflows o f investm ent and the d e v e lo p m e n t o f new corp o ratio n s from both foreign and do m estic funds. The d ev elo p m en ts affected the preparation o f a c c o u n ta n ts dealing with their services. Satisfactory financial reporting w as a m ajo r issue d e m a n d in g the m a n a g e m e n t o f the enterprises to help them in the safeguard o f the assets o f the shareholders. As noted by Enthoven (1978), acco u n tan ts w ere needed for en su rin g that the net capital structure o f a business enterprise does not erode, and that profits do not include capital c onsum ption. Incom e had to be m easured perfectly.

O f course, all these tasks belong to accountants with professional skills.

C apital M arket Regulation

T h e capital form ation process is highly d e p e n d e n t on the effectiveness o f g o v e rn m e n t regulation and institutions w hich funnel the m oney-capital flows. Again with the 1945 independence o f Indonesia, legal system s w ere possible to be pro n o u n ced . Shortly after 1945, in 1952 laws gov ern in g the capital m ark ets w ere p ro m u lg ated . A s stated under the Capital M a rk e t Law, its function is to p rovide a m e c h a n ism w h ere savings are collected and channelled into credit and investm ent stream s. T he L aw w as im m ediately used to regulate trading in the B atavia Stock M arket. H ow ever, because in the mid o f 1950s there w as political turbulence, the stock m ark et w as virtually shut dow n in 1958, follow ing the nationalisation o f the D u tc h -o w n e d com panies.

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