NPO in Indonesia

8/9/2019 NPO in Indonesia

1/22

Non Profit Organisations in Indonesia and

Financial Accounting StandardsCurrent condition, its development and the role of IAI (Indonesian

Institute of Accountants)

Dr. Pahala Nainggolan,Ak

Onza Simangunsong,Ak

Working Paper #1-2012


2/22

Preface

Non-profi

t organizations in Indonesia have been established since long time ago. They grownaturally and consistently showing their contribution to the community. Some of them are really

not for profit, but the rest are not clear. The number of NPOs is growing fast, but governments fail

to provide a solid base and strategic support for their future development. Probably the role of third

sector is not counted as important as that of other sectors.

Indonesia Institute of Accountant (IAI) could contribute to the development of this sector. Initial

works on this has been started in 1997; then, in 2010 revision to their reporting standard for non-profit

organizations was made. Beyond those documents, a comprehensive accounting standard need to

be developed. Not only to provide technical accounting guides but also, which is more important, to

enable NPO practicing transparency and accountability to public.

Transparency and Accountability are the heart of non profit. They are unique characteristic of

NPO. Indonesian Accounting Standard for Non-profit organizations ideally captures those and set

a path for development of non-profit organizations. It may lead to certification of NPOs, capacity

building for human resources and in the end; it will draw public interest to contribute to NPOs social

works.

This paper is a small step; it is the first attempt to provide map of NPOs in Indonesia to IAI. Next

paper will be about transparency and accountability in reality. For sure another series of paper will be

published to allow a better understanding about non-profit in Indonesia on the side of government,

corporations and other stakeholders. It is expected that this sector will receive sufficient support

both from government and business sector in such forms as regulations, enforcement and resource

mobilization.

Yayasan Bina Integrasi Edukasi as publisher this paper, where authors actively manage, will

consistently issue research, review and other publications to provide technical guidance by publishing

some books, providing technical assistance by mentoring and coaching NPOs and advocating policy

and regulations. Those will lead into transparency and accountability of Indonesian non-profit

organizations to public.

Jakarta February, 2012

Dr. Pahala Nainggolan, Ak

Onza Simangunsong, Ak

Preface | Yayasan Bina Integrasi Edukasi1


3/22

Table of Content

Preface..................................................................................................................... 2

Table of Content ....................................................................................................... 3

1. Introduction ....................................................................................................... 4

2. Definition of NPO ............................................................................................... 5

3. Types of NPO ...................................................................................................7

A. Foundation ...................................................................................................7

B. Association (Perkumpulan) .......................................................................... 9

C. Political Party (Partai Politik) ....................................................................... 9

D. Mass Organization (Organisasi Masyarakat-Ormas). ................................ 10

E. Non Governmental Organization (NGO) .....................................................11

F. Branch of International NGO ......................................................................11

G. Coalition, Network, Union, Group, etc ...................................................... 12

H. Professional Organizations, Industry based Associations etc ..................... 12

I. Other Types of NPO ...................................................................................13

4. Regulations Related to NPO ..............................................................................13

5. Taxation Aspects of NPO .................................................................................. 16

6. PSAK 45 and NPO Analysis Based on the Condition of NPO in Indonesia ........17

7. Rationale of Establishment of NPO and Practices in Other Countries ............... 19

8. Conclusion ........................................................................................................ 21

Yayasan Bina Integrasi Edukasi (YBIE) .................................................................... 22

Yayasan Bina Integrasi Edukasi | Table of Content 2


4/22

1 Introduction

Non-profit Organizations (NPO) is believed to be the representation of civil society in a country.

Theoretically, failure of the government and the business entities in overcoming the problems in

society requires the establishment of NPO. So, its position should be equal to the business sector and

government sector1.

In developed countries such as USA, NPO recorded annual revenue of around 1,4 trillion USD,

contributing around 5.4% of US GDP. With approximately 1.5 million organizations classified as tax

exempted organizations, the total salary paid in NPO sector makes up 9% of the total salary paid2.

NPO in Canada recorded a contribution of 90 Billion Dollar to the GDP which is around 6 times of the

contribution of the automotive industry3. In addition, if the volunteer is counted in, it is presumed

that another 12 Billion Dollar is being contributed to the GDP of the said country. In Australia, even

though it is has yet to be as significant as that in the U.S, the non-profit sector also shows a noticeable

contribution as shown by tax data4.

NPO engages in various fields or sectors. In Indonesia, the activities of NPO are relatively limited

to the social sector as indicated by the definition of NPO. However, social sector itself has not been

clearly defined and clarified.

Foundations as part of NPO have been working since pre-independence day. They provided

medical and health facilities, run hospitals and private or Islamic schools. Now the two sectors as

noted above are no longer considered as social sector. Private international schools and hospitals are

run as business entity.After the reform period of 1998, NPO is mushrooming. It is a reflection of peoples freedom

of expression. Belated government Law no.16 concerning Foundation in 2001 and 2004 started to

regulate foundation. Currently, as government effort to manage these types of NPOs, revision of

Law on Mass Organization (Ormas) and the issuance of Bill on Association are underway..

Indonesian Institute of Accountants (IAI) has anticipated this trend by issuing Statement

of Accounting Standard #45(PSAK 45) which has been effective since 2000. In response to the

implementation of IFRS at global level, revision on PSAK 45 was made in 2010. It provided guidance

on reporting of NPOsfi

nancial statement.

1 The developed countries deem the three pillars of society as equally important. England has National Cabinet-level Office of theThird Sector, United States under the reign of President Barack Obama establishes White House Office of Social Innovation andCivic Participation, The Government of Canada has Minister Responsible for the Volunteer and Non-Profit Sector.

2 Reference: http://www.nccs.urban.org National Center for Charitable Statistics is a site presenting data concerning non-profitsector in the USA.

3 Wellesley Institute - Canadas Non-Profit Maze

4 In the said countries, Non-profit Organizations deemed as tax exempted organization may receive contribution or donationfrom other taxpayers in which the said contribution is considered as tax deductible expenses, and moreover the non-profitorganization is not a tax subject. With excellent taxation data collecting system, the amount of contribution received by Non-profit Organization from the individual tax payer may be monitored. In addition to financial contribution, the non-profit sector

also received contribution from the volunteers in form of a man hour. The contribution of the volunteer is relatively difficult to bequantified in a monetary unit.

1. Introduction | Yayasan Bina Integrasi Edukasi3


5/22

2

After ten years, the implementation of PSAK 45 shows mixed results. Some types of organizations

felt they are not part of this PSAK due to poor definition on institution or organization categorized as

NPO. Another factor is lack of capacity of human resources in this sector.

Database of NPO is scattered and poorly managed. Ministry of Law and Human Rights manage

data of Foundations, Ministry of Home Affairs (MOHA) keep data of mass organizations, Ministry

of Finance (MoF) manage Annual Tax Report of NPOs, Ministry of Social Aff

airs (MoSA) and othertechnical Ministries keep data of MoUs with international NGOs. The remaining types of NPO are

either not registered5or they only have Articles of Association in the form of a notarial deed.

This brief paper is aimed at providing background information to the Council of Financial

Accounting Standard (DSAK-IAI) as the holder of the authority on issuance of Accounting Standards.

DSAK-IAI is expected to initiate development of Financial Accounting Standard for Non-profit sector.

Standard will serve as guidelines for practitioners, providing fundamentals for the development of

non-profit sectors and as strategic support to encourage this sector to be accountable to the public.

Definition of NPO

There are various definitions of NPO in Indonesia; however, the said definitions have not been

adequate in defining what NPO is and its characteristics. The various types of NPO have rendered its

definition to be more challenging. It is therefore necessary to formulate the definition of non-profit

which can cover major types of NPO in Indonesia.

Proper definition then will allow development of references for financial management of NPOwhich leads to its transparency and accountability. Definition should reflect the characteristics of NPO.

It may cover types of membership, sources of income, management of the organizations expenses,

main programs or activities, beneficiaries of the organizations activities, and most importantly is

transparency and accountability to the public.

5 Canada recognize incorporated and un-incorporated non-profit organization which has different obligations. This classificationis intentional considering the characteristic of both types of organizations. This distinction is perhaps required in Indonesia since

several NPO is not in a form of legal entity and may not require formalization such as the standard and documented structure oforganization.

Yayasan Bina Integrasi Edukasi | 2. Definition of NPO 4


6/22


7/22

3 Types of NPO

With regards to various types of NPO, categorizing NPO in a systematic and structural way is

difficult. Classification below is an initial effort and does not constitute a systematic and comprehensive

categorization. It is taken from practical view and started from legal status of NPO.

A. Foundation

Foundation as a legal entity has been recognized for a long time. The unavailability of regulation

until 2001 resulted in uncontrolled foundations by government. Data about number, status and

sectors where foundations work at did not exist. Now with a grace period of 5 years for adjustment

since 2001, foundations which do not comply with the law shall be deemed dissolved.

Currently, enforcementof several articles in the Law has not yet been seen e.g. obligation to

publish financial statements which is a rare case, return of liquidated assets to the government.

Figure 1 Types of foundations in Indonesia

Foundations can be categorized based on the history of its establishment. First, the foundations

which have been established before the Law passed. These foundations have large amount of assets

such as properties and other fixed assets. They manage hospitals, schools and universities. They

pioneered contribution to the society on that period.

Due to the amount of its assets and its social activities, these foundations financially are self-

resilience. Income generated from its social activities is able to finance its expenses. They even are

eligible for a commercial loan from banks.

In several cases, some foundations try to maintain its social value by adopting cross-subsidy

rates, opening branches in the rural areas and providing scholarship and the like.

Yayasan Bina Integrasi Edukasi | 3. Types of NPO 6


8/22

Second, foundations established by corporations to reflect its spirit of philanthropy. They focus

on conducting social activities by channeling donations from companies and its employees. Several

companies manage this type of foundations for implementation of Corporate Social Responsibility

(CSR).

Another objective is to improve the welfare of their employees. Several Ministries, Military and

Police established foundations since long time ago to serve for this purpose. In line with reform onpublic finance, the status of those foundations becomes unclear whether they are owned by the

public, government or the private sector.

Similar cases applied to foundations established by State Owned Enterprise (SOE), Central Bank,

BULOG, and government banks. Foundations are means of supporting the welfare of the employee

incl. retired employees. Those may come in Yayasan Dana Pensiun which is relatively similar to the

Pension Fund6entities. This type of foundation exclusively operates on the corporation/ministry level.

They have access . facilities and income from its parent entities.

Foundations invest in mutual funds, for example, or become share holder in business entities.

Recurrent cost is funded by founders, while social activities are funded by return of its investment

plus founders contribution.

Third, the foundation established by individual/group with the same commonness in ethnicity,

race, etc. They are closed organizations. Individuals or family establish foundations with certain

goals. This type of foundation makes mapping of NPOs activities difficult. They are engaged in art

and preservation of cultural heritage, musical art and other forms. The beneficiary might be public or

certain communities.

Income is originated from the founders or members of family. The expenses are dedicated for

specific activities as predetermined for the welfare of the target beneficiaries.

The fourth type of foundation is locally established foundation acting asgrant making foundation

or as the implementing organizations.The first category of this type may be in the form of local NPO

or branch of international NGO. Its primary activity is to provide grants to local NGOs or communities

of target groups based on proposal submitted. These proposals set out the detail of activities, fund

needed and expected outputs7.

As income is generated from foreign donors or headquarter offi ce, sustainability of these

foundations depends on them. Income will indirectly be affected by financial market, as foreign

donors invest in that market. Any bearish or bullish will affect their fund availability8.

6 Pension Fund is actually not a social foundation even though it uses the term foundation. Regulation on this entity is similar toregulation offinancial institutions enacted by Ministry of Finance. Its main activity is investing managed fund for maximum returns.At the same time, when employees of funding institution have entered the retirement age, pension retribution plus the proceedfrom its investment will be paid as pension money on lump sum or monthly basis.

7 One of the examples of the local donor organization is Tifa foundation (http://www.tifafoundation.org) and Kehati foundation(http://www.kehati.or.id) and the Kemitraan (http://www.kemitraan.or.id)

8 Even though the amount is insignificant, local foundation as grant making foundation is relatively known by many NPOs. Inthe last several years, these foundations combined grant with own initiatives to make achievement of the program becomes

more effective. Tifa and Kehati foundations are local foundations whereas Kemitraan (formerly Partnership Governance ReformIndonesia) is a grant making foundation in different legal entity.

3. Types of NPO | Yayasan Bina Integrasi Edukasi7


9/22

Another source of income is endowment fundprovided by donors. It is a stable income but usually

combined and added with grants from other donors. Major expenditures are operational cost and

grants provided to NGOs.

Efficiency of grant making foundations is reflected by ratio of administrative cost versus grants

provided to grantees. Meanwhile, absorption of managed fund each year indicates effectiveness of

the organization. Expenses are acknowledged when expense reports with supporting documents areapproved by donors. Receiving grant is recorded as liabilities.

NPO as executor of the program has various incomes. It may come from grants, profit from its

commercial business, individual donations, grants from the government and companies. NPO will

work on thefield together with targeted beneficiaries. Thus major expenditures incurred are program

cost and overhead.

NPO implement their program in advocacy and development. The first one focuses on policy,

research, gathering opinions, recommending changes in policy and so on. Outputs of their works are

intangible and indirectly benefit people. In general, this type of organization incurred fewer expenses

as they require less physical work are needed. The number of staffengaged and its fixed assets are

small. . Development NPO implements program on the ground and produces goods or service which

are directly enjoyed by beneficiaries. Major expenses are for field works and overhead.

B. Association (Perkumpulan)

Association is a legal entity which requires membership.Member can be entity or individuals..

Membership fee is a source of income, however, in reality the association is largely supported by

grants from donor organizations and its business units. The number of association is less than that

of foundations. The clause which obligates association to have members weakens public interest in

establishing associations.9

C. Political Party (Partai Politik)

Political party manages itsfinance based on the Law on Political Party which is regularly updated10.

The sources of income of political party are:

Membership fee11

Donation of individual members

9 Perkumpulan Prakarsa may be accessed at http://www.theprakarsa.org; PSKD, Perkumpulan Sekolah Kristen Djakarta was officiallyestablished on May 20, 1942, by the time Indonesian was allowed to establish private school by the government of Japanese Army.(The late) Ds I. Siagian et al agrees to establish Perkumpulan Sekolah Kristen Djakarta, abbreviated as PSKD. This agreementis supported by the teachers throughout Indonesia from the Netherlands Christian School with a mission unchanged since theestablishment, Providing quality and affordable education

10 As last amended with Law no. 2 of 2011, formerly Law no 2 of 2008 concerning Political Party

11 In reality, the Political Party does not require retribution from the members. One of the reasons is that it will burden the members- Anomali Keuangan Partai Politik Pengaturan dan Praktek Kemitraan (PGRI), Nov 2011 page 83.

Yayasan Bina Integrasi Edukasi | 3. Types of NPO 8


10/22

Donation of individual non-member 12

Donation of Business Entities

State Contribution13

Political party is prohibited from opening business entity or holding shares of a company14.

Political party must maintain a dedicated bank account which serves as offi

cial account for its incomeand expenditures.

Expenditures depend on the work programs as decided and implemented at the smallest unit

of the organization. Expenses paid from source of State Subsidy are subject to be regulated by

Government Regulation. They are allowed for political education and operational cost of secretariat

office. Reporting and accountability mechanism have been defined, including audit by General Audit

Office. Financial statement of political party as stipulated in Law no.2/2011 shall include all income

and expenses such as:

Budget Realization

Balance Sheet

Cash flow Statement

However the law does not mention anything about submission and publication of the reports

to public. Financial statements must be audited by Public Accountant, yet there is no obligation to

release audited report to public.

D. Mass Organization (Organisasi Masyarakat-Ormas).Mass Organizations is governed by Law no. 8/1985. It is being revised as the context changes.

Mass Organizations data is managed by the Ministry of Home Affairs (MoHA) and local governments.

After the reform, in line with the spirit of freedom, controls over the organizations are carried out by

different agencies. In reality these ormas are uncontrolable as indicated by their failure to register

and to submit bi-annual reports which rarely observed 15.

MOHA categorize Mass Organizations based on its commonness of activities (NGOs and

foundations), profession (professional and industry association), function (youth, fishers, sport

etc) and religious beliefs. Membership is open to all Indonesian citizens. Revenues are generated

from membership fees, donation and other legitimate businesses. However financial accountability

mechanism such as reports, audits and submission or publication to public is non existent.

12 The maximum amount shall be specified by the Law

13 Subsidy calculated based on the votes. Accountability report, audit and publication to public for subsidy lastly regulated byGovernment Regulation no. 5/2009

14 In reality Political Party sets out other source of income namely other legitimate business this income is not from commercialbusinesses.



11/22


12/22

To start working in Indonesia, an International NGO must enter into a Memorandum of

Understandingwith the relevant technical ministries pertaining to its program. With this MoU, foreign

workers could come to work in Indonesia.

Some international NGOs established local foundation to support its work in Indonesia. These

local foundations involve some prominent figures as members of their steering committee / founder.

Revenues derived from parent NGO are then used tofi

nance activities or programs that have beendetermined. In addition, this local foundation is allowed to raise fund in the country, despite the fact

that the portion of this income is relatively minor.

G. Coalition, Network, Union, Group, etc

Among the NGOs, the terms coalition, network, union, groups are well known. The said forms

may be permanent in the sense that it will be effective for indefinite period of time. Serikat Perempuan

(SP) is a coalition of several NGOs focusing on the issues of women throughout Indonesia. Howevereach and all members of SP constitute an independent organization, which means that it may raise

its own fund and plan their own program based on the need and decision in the regional level. The

role of national SP through its national-secretariat is more to facilitate resource mobilization to its

member.

Network may also be effective for promoting an issue or activity e.g. when donor wish to provide

grants for monitoring of general election, grantee at national level will involve local NGOs to become

member of network for this particular activity.

In smaller scale, network or coalition may be established for only one activity such as criticizing

draft of law to be passed to parliament and build public opinion. No specific resource of income is

identified. It is more to share the vision on the issues at society. Thus, network may be based on the

institutions and the activities.

H. Professional Organizations, Industry based Associations etc

Professional organization or business/industrial association of similar nature is a closed NPO

where membership granted to those from certain professions/industries. Several professional

organizations adopt active principle, where members shall apply for membership. While passive

principle treats eligible individuals or business entities as member automatically.

Income is generated from contribution and membership fee. In addition, they conduct several

activities for its members with fee. Other income is generated from other businesses which are still

related to the work program of the organization.

Professional organizations require certain number of professional credits to maintain professional

membership and technical competence of the members. For such purpose, activities such as trainings

or workshops are held for the members with charged fees. This type of activity maybe open to public

as well. Donation from donor is another source of income.



13/22

4

The expenditure incurred for its operation. In addition, the professional organization is required

to do a series of researches, certifications and so on for the interest of the members.

I. Other Types of NPO

Other non-legal NPO entities may come in religious organizations established in the houses ofworships. Even though it is established for its own followers, this NPO receives income from the

public namely the congregation of the house of worships. The scale of this organization greatly

varies, depending on the size of the house of worship.

Several NPOs also use the idioms of customs, ethnics, or geographic location as its base. They

are similar to associations in terms of income and expenses. Other NPOs such as association of sport

hobby, interest, science etc are NPOs with other characteristics.

Regulations Related to NPO

The establishment and management of NPO in Indonesia are regulated under several laws and

their derivatives.Based on the definition set, however, the naming and definition of NPO in the

people overlaps. An NPO may fit into more than one categorization. For example, a foundation may

be grouped as either a mass organization or anNGO.

There are also NPOs which do not belong to any existing categories, such as: network, coalition,

group of communities, religions and so on.

Table 2 Summary of Regulations concerning NPO

No Regulation Remark

1 Law number 16 of 2001 concerning

Foundation; as amended with Law

number 28 of 2004 and Government

Regulation number 63 of 2009concerning Foreign Foundation

A regulation for establishment and operation of the

foundations is adequate. Several more detailed regulations

are still required to guide at technical implementation.

With regard tofi

nancial aspects, this regulation hassufficient mechanism of financial statement which is clearly

regulated including the type of income which must be

published.

The primary problem is enforcement of regulations such as

sanction for foundations which fail to publish its financial

statements.

Yayasan Bina Integrasi Edukasi | 4. Regulations Related to NPO 12


14/22

2 Staatsblad 1670-84 Draft Law on

Association is being submitted;

hence Association will be regulated

by a regulation having equal power

to the Law.

Approval from the Dutch government for establishment

of an organization called as association. It only deals with

legal aspect of the organization while financial aspect incl.

accountability and reporting are not mentioned.

3 Law number 8 of 1985 concerning

Mass Organization

Mass Organization is an institution where people may

express their aspiration through or take part. Law focuses

on institution and its legal aspect to enable government

to control and to reserve right to dissolve/establish the

organization. Financial aspect such as prohibition on

fund raising activities and report mechanism is regulated.

Accountability to public is slightly discussed.

4 Law number 2 / 1999, amendedby Law 31/2002; Law 2/2009; Law

2/2011 concerning Political party.

State subsidy is regulated by

Government Regulation number 5

of 2009 and Regulation of Minister

of Home Affairs number 24 / 2009

This law regulates political party as an organization.Financial aspect is mentioned without spirit of

accountability and deemed to be the worst comparing to

previous laws. In this law:

a. No supervision from other organizaons on Polical

Party financial aspects. No obligaon to submit its

financial statements to any instuons including the

government. Previously it was required to submit those

reports to Supreme Court, General Elecon Commission

and to be further published.b. Technical instrucon such as format or minimum

informaon to be disclosed does not exist, making

external audit hard to do as there is no financial

standard applied for their financial reports.

c. Absence of the sancon mechanism to be imposed on

any incompliance with the exisng regulaons including

for income from government subsidy.

4. Regulations Related to NPO | Yayasan Bina Integrasi Edukasi13


15/22


16/22


17/22

6

available. This concept needs to be revisited. NPOs financial sustainability has been a long time

discourse. It means an NPO which relies heavily on donation and grants will not sustain.

Some sources of income of NPO to support its financial self-resilience by:

- Providing services or programs for other parties. For example, if an organization has the

competence of organizing community, it may be engaged by a company to communicate its

programs to community. Foundation is contracted to perform the work based on its existingcompetences and experiences.

- Providing advisory service by NGOs experts. Several NGOs are led by prominent and

respected individuals with adequate capacity or competence. When other parties such as

government or companies require advices or expert inputs, NGO then will provide those

services. For that, NGO will charge payments on the time spent by said experts.

- Receiving gain from its business units. Profit from these units will be used to fund its social

programs. For example, foundation as shareholder in a company will receive dividend, which

then will be used as additional resource for NGOs social activities.

NPO with various source of income will have both taxable and non taxable income. Thus

expenditures should be properly allocated and matched to those incomes. So far, there is no directive

regulation from tax office on proper charges of joint cost. Several NPOs use proportional approach

when proportion of income will be a basis for charging. Thus if taxable and non taxable income is 9:1,

then 10% of cost incurred shall be credited to non taxable income. The 90% of its expenditures will

be matched with taxable income. any arising surplus will be taxed.

Another tax complication is fairness of the expenses. When NPO gets non taxable income,

expenditures become irrelevant for tax purposes. It breaks deductible-taxable principle when NPO

provides perks to its staff. It is usually treated as additional income for staffto be taxed at personal tax

return. If it is not adding staffincome, it should not be charged into expenditure of the organization.

NPO should charge its non taxable income as much as possible expenditures as it will not change its

tax liabilities. Other taxation obligations such as tax withholding on individuals or income of the NPO

could be fulfilled without technical problems.

PSAK 45 and NPO Analysis Based onthe Condition of NPO in Indonesia

PSAK 45 and its revised version have plenty of opportunities for technical improvement. It has

provided technical guidelines on financial reporting of non-profit sector in Indonesia. Reporting itself

is an end of business process started by financial transactions. With regards to uniqueness of non-

profit sector compared to the business and government sectors, PSAK 45 should be able to capture

Yayasan Bina Integrasi Edukasi | 6. PSAK 45 and NPO Analysis Based on the Condition of NPO in Indonesia 16


18/22

the root of the transactions including financial practices in Indonesia. Characteristic of nonprofit

sector should be reflected in all business process not only at reporting aspect.

In addition, PSAK 45 has not yet comprehensively captured various types of non-profit entities

in Indonesia with its unique managerial characteristic, beneficiaries of the service provided by NPO,

operational characteristics and mission of the organizations themselves. Further consequence of this

failure is transactions in the non-profi

t sector defi

ned in narrow and limited way. Thus, practical casesof transactions have not either been regulated or used business sector PSAK as reference. Those

cases, among others, are18:

i. The definition concerning NPO as described in scope of PSAK 45 is not adequate compared

to various types of identified NPO in Indonesia with its characteristics as discussed above.

It is obvious that several types of NPO, the characteristics of organizations, the purpose of

establishment and the characteristics of income and expenses have not been fully covered.

ii. This limited definition of NPO is then followed by failure in identifying its source of income.

Various types of income generated by NPO has not yet been fully identified by PSAK 45 then

there are some have not yet regulated then must refer to those of business sector.

iii. Users of financial statements and their interest are assumed as identical with those of

business sector or government. As a consequence, important characteristics of the financial

information namely public transparency and accountability is not defined throughout the

financial statements and its components. 19.

iv. Several qualitative characteristics of the information in the financial statements do not

fully adopt the characteristics non-profit sector i.e. Comparability and cost-benefit. This

qualitative characteristic need to be revisited in non-profit sector with regard to its different

characteristic with business sector. Accountability as a unique and important qualitative

characteristic should be reflected in PSAK 45.

v. Some common transactions in NPO still need to refer to that of business sectors as those are

not covered by PSAK 45. They are:

a. In reality, recognition of income from grant is not based on the progress of the work;

instead it is based on fund received or settlement of expenditures approved by donors.

As such a case is not mentioned in PSAK 45, PSAK 19 should be referred to.

b. Grant allocated for fixed assets will be recorded as expenses until the grant agreement

completed. Fixed assets shall be kept in the possession of NPO and still be used evenafter the grant period. Again, it uses PSAK 16 concerning fixed asset as reference which

require fixed assets to be recorded when procured.

18 This summary is the Response of Yayasan Bina Integrasi Edukasi (YBIE) to Exposure Draft PSAK 45 submitted to DSAK-IAI. Thedetail of documents can be downloaded from http://www.integrasi-edukasi.org

19 The user of financial statement of nonprofit entity is grant making foundation providing grant for an NPO, for the interest of: Ensuring that the resources received is used according to the objective stated, Ensuring that the expenses is made in the limit (budget) specified and that there is no fraud,

Acknowledging the progress of the activity to be funded, The management of the receiving entity and according to the prevailing legislations.

6. PSAK 45 and NPO Analysis Based on the Condition of NPO in Indonesia| Yayasan Bina Integrasi Edukasi17


19/22

7

c. Consolidation offinancial statements of business entities owned by NPO into its financial

statements has not yet been regulated by PSAK 45. At the same time in this circumstance

consolidation process of business sector cannot be applied.

Rationale of Establishment of NPO andPractices in Other Countries

Several theoretical approaches could be used in describing comprehensive definition and

characteristics of non-profit sector in Indonesia. Economic theory describes that the presence of

non-profit sector is required due to:

Failure of the market where several services cannot be provided to the people as those are

not profitable.

Failure of the government, where government fails to provide services due to the limited

budget, high cost or low demand of those services. In addition, people try to avoid

governments involvement in regulating all aspects of peoples life.

Historical approach believes that community has been far established before the presence of a

legitimategovernment. People are used to work together to solve certain problems in the community.

When the government gets involved, its bureaucracy will encourage people to act voluntarily and

be separated from government works. History also suggests that religious beliefs also served as a

ground of charitable purposes and togetherness.

Political theory states that non-profit organization is a means for public to participate in

governments works. People are allowed to associate and work together to achieve common goals

for the benefits of the to people. Non-profit organization is a channel for pluralism and solidarity.

When democratic government system is believed as the best system in promoting welfare,

then the system demands a balance between the three main pillars, namely business sector (private

sector, enterprise), government sector and civil society or the people. Each pillar represented by an

entity which has a clear distinction.

Business sector as represented by various types of companies responsible to and attempt togain interest of its shareholders.

Government sector as the holder of the authority is represented by its government institutions.

They are responsible to the leader who is elected by the people.

Public sector, which is relatively left behind, is represented by many entities. They are

responsible for their own people through various mechanisms. The condition of this sector is

characterized by various types and forms of organization; thus, defining or regulating those

organizations properly is difficult.

Yayasan Bina Integrasi Edukasi | 7. Rationale of Establishment of NPOand Practices in Other Countries 18


20/22


21/22

8

Other types of NPO are Unincorporated Association, Charitable Trust, Charitable Incorporated

Organization (from late 2011) and Charitable Company.

Conclusion

The issuance of PSAK 45 in 1997 as reference for financial reporting of non-profit organization

in Indonesia is a significant milestone. The revised version in 2010 indicates IAI, as an authoritative

agency, attempts to provide better guidelines for the operation of NPOs. Apart from technical issues

identified at operational level, PSAK 45 is deemed to be meeting the needs.

With regards to the global trend of growing non-profit sector, where regulations and platforms

are needed for future development of this sector, IAI should be more visionary. Guidance provided

by PSAK 45 is adequate in terms of technical and operational aspects, yet more needs to be done to

encourage the development of this sector. Transparency and accountability,unique characteristics

of this sector, need to be incorporated into future financial standard of non-profit organization in

Indonesia.

Emerging sources of funding for NPO from the business sector (CSR and Community Development

fund), government sector such as provision of tax incentives (deductible expensesfor donations) and

direct contribution from community must be facilitated. Public participation in development through

establishment of NPO must be supported by providing fundamental guidance and conceptual frame

work. With those in mind, IAI issued regulations which ideally cancapture the nature of operationalaspects of NPOs and characteristics of its social activities. NPO such as Political Parties need to be

included in the definition of NPO. Given its influence onsociety, political parties should be more

transparent and accountable to the public in implementing their financial accounting standard for

non-profit.

Development of financial accounting standard for the non-profit sector in Indonesia is expected

to surpass the scope of PSAK 45, which regulates reporting aspect of the NPOs. Ideal standard should

be built based on types and characteristics of existing NPOs and its future development. Mapping of

the operational andfi

nancial characteristics of NPO need to be conducted as a basis for developmentof comprehensive understanding on how NPO is doing in Indonesia. Furthermore, formulation of

definitions is crucial. Based on comprehensive knowledge of NPOs, financial accounting standards

developed for non-profit sector should incorporate some elements of the future of NPOs in

Indonesia.

Adoption of similar standards enacted in other countries should be done for an efficient effort of

development. It should involve more players in non-profit sector such as international or local donor

agencies, management of various types of NPOs in the society, business sector as the provider of

fund, and government as authority issuing taxation regulation and relevant laws.

Yayasan Bina Integrasi Edukasi | Conclusion 20


22/22

Yayasan Bina Integrasi Edukasi (YBIE)

YBIE was established in 2007 and put our focus on capacity development of non-profit

organizations in Indonesia. We believe strengthening NPO in managing its resources such as financial

and human resourceswill enable NPO to implement transparency and accountability to public. We

also believe that coaching and mentoring are the most effective method to increase NPOs capacity

in governance and programmatic aspect. We have provided technical assistance to more than 150

(one hundred and fifty) NPOs in the last 4 (four) years including those coming from 6 (six) network

of NGOs. We assist them to generate financial statements as PSAK 45, develop Standard Operating

Procedures-SOP for financial and human resources of their organization, and lastly, providing basic

knowledge on Indonesian Taxation which is related to non-profit. YBIE manage web-based technical

support for financial and accounting; publish some books and modules, working papers on non-profit

thematic issues; conduct public workshops of finance, accounting and taxation; and advocate for

development of Accounting Standard for Non-profit organization in Indonesia.

Contact us: [email protected].

Visit our web site at: http://www.integrasi-edukasi.org

Jl. Tebet Timur Dalam 8 M no.8

Jakarta Selatan

Telp/Fax. 021 8319282

Documents

NPO in Indonesia