RISK MANAGEMENT

A. Definition of risk management

     Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets, project failures (at any phase in design, development, production, or sustainment life-cycles), legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. Several risk management standards have been developed including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies, and ISO standards.

    Methods, definitions and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety. The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.Certain aspects of many of the risk management standards have come under criticism for having no measurable improvement on risk, whether the confidence in estimates and decisions seem to increase.

B. Introduction About Risk Management

A widely used vocabulary for risk management is defined by ISO Guide 73, "Risk management. Vocabulary." In ideal risk management, a prioritization process is followed whereby the risks with the greatest loss (or impact) and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order. In practice the process of assessing overall risk can be difficult, and balancing resources used to mitigate between risks with a high probability of occurrence but lower loss versus a risk with high loss but lower probability of occurrence can often be mishandled.Intangible risk management identifies a new type of a risk that has a 100% probability of occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient knowledge is applied to a situation, a knowledge risk materializes. Relationship risk appears when ineffective collaboration occurs. Process-engagement risk may be an issue when ineffective operational procedures are applied. These risks directly reduce the productivity of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation, brand value, and earnings quality. Intangible risk management allows risk management to create immediate value from the identification and reduction of risks that reduce productivity.

Risk management also faces difficulties in allocating resources. This is the idea of opportunity cost. Resources spent on risk management could have been spent on more profitable activities. Again, ideal risk management minimizes spending (or manpower or other resources) and also minimizes the negative effects of risks.

Method 

For the most part, these methods consist of the following elements, performed, more or less, in the following order.

• identify, characterize threats
• assess the vulnerability of critical assets to specific threats
• determine the risk (i.e. the expected likelihood and consequences of specific types of attacks on specific assets)
• identify ways to reduce those risks
• prioritize risk reduction measures based on a strategy

Principles of risk management 

The International Organization for Standardization (ISO) identifies the following principles of risk management:

Risk management should:

• create value – resources expended to mitigate risk should be less than the consequence of inaction, or (as in value engineering), the gain should exceed the pain
• be an integral part of organizational processes
• be part of decision making process
• explicitly address uncertainty and assumptions
• be systematic and structured
• be based on the best available information
• be tailorable
• take human factors into account
• be transparent and inclusive
• be dynamic, iterative and responsive to change
• be capable of continual improvement and enhancement
• be continually or periodically re-assessed

Process 

According to the standard ISO 31000 "Risk management – Principles and guidelines on implementation," the process of risk management consists of several steps as follows:

Establishing the context 

This involves:

• identification of risk in a selected domain of interest
• planning the remainder of the process
• mapping out the following:

1. a. the social scope of risk management
2. the identity and objectives of stakeholders
3. the basis upon which risks will be evaluated, constraints.

• defining a framework for the activity and an agenda for identification
• developing an analysis of risks involved in the process
• mitigation or solution of risks using available technological, human and organizational resources.

Indetification

After establishing the context, the next step in the process of managing risk is to identify potential risks. Risks are about events that, when triggered, cause problems. Hence, risk identification can start with the source of problems, or with the problem itself.

Source analysis - Risk sources may be internal or external to the system that is the target of risk management.

Examples of risk sources are: stakeholders of a project, employees of a company or the weather over an airport.

Problem analysis - Risks are related to identified threats. For example: the threat of losing money, the threat of abuse of confidential information or the threat of human errors, accidents and casualties. The threats may exist with various entities, most important with shareholders, customers and legislative bodies such as the government.

When either source or problem is known, the events that a source may trigger or the events that can lead to a problem can be investigated. For example: stakeholders withdrawing during a project may endanger funding of the project; confidential information may be stolen by employees even within a closed network; lightning striking an aircraft during takeoff may make all people on board immediate casualties.

The chosen method of identifying risks may depend on culture, industry practice and compliance. The identification methods are formed by templates or the development of templates for identifying source, problem or event. Common risk identification methods are:

• Objectives-based risk identification - Organizations and project teams have objectives. Any event that may endanger achieving an objective partly or completely is identified as risk.
• Scenario-based risk identification - In scenario analysis different scenarios are created. The scenarios may be the alternative ways to achieve an objective, or an analysis of the interaction of forces in, for example, a market or battle. Any event that triggers an undesired scenario alternative is identified as risk – see Futures Studies for methodology used by Futurists.
• Taxonomy-based risk identification - The taxonomy in taxonomy-based risk identification is a breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices, a questionnaire is compiled. The answers to the questions reveal risks.
• Common-risk checking Empty citation‎ (help) - In several industries, lists with known risks are available. Each risk in the list can be checked for application to a particular situation.
• Risk charting  - This method combines the above approaches by listing resources at risk, threats to those resources, modifying factors which may increase or decrease the risk and consequences it is wished to avoid. Creating a matrix under these headings enables a variety of approaches. One can begin with resources and consider the threats they are exposed to and the consequences of each. Alternatively one can start with the threats and examine which resources they would affect, or one can begin with the consequences and determine which combination of threats and resources would be involved to bring them about.

Assessment

Once risks have been identified, they must then be assessed as to their potential severity of impact (generally a negative impact, such as damage or loss) and to the probability of occurrence. These quantities can be either simple to measure, in the case of the value of a lost building, or impossible to know for sure in the case of the probability of an unlikely event occurring. Therefore, in the assessment process it is critical to make the best educated decisions in order to properly prioritize the implementation of the risk management plan.

Even a short-term positive improvement can have long-term negative impacts. Take the "turnpike" example. A highway is widened to allow more traffic. More traffic capacity leads to greater development in the areas surrounding the improved traffic capacity. Over time, traffic thereby increases to fill available capacity. Turnpikes thereby need to be expanded in a seemingly endless cycles. There are many other engineering examples where expanded capacity (to do any function) is soon filled by increased demand. Since expansion comes at a cost, the resulting growth could become unsustainable without forecasting and management.

The fundamental difficulty in risk assessment is determining the rate of occurrence since statistical information is not available on all kinds of past incidents. Furthermore, evaluating the severity of the consequences (impact) is often quite difficult for intangible assets. Asset valuation is another question that needs to be addressed. Thus, best educated opinions and available statistics are the primary sources of information. Nevertheless, risk assessment should produce such information for the management of the organization that the primary risks are easy to understand and that the risk management decisions may be prioritized. Thus, there have been several theories and attempts to quantify risks. Numerous different risk formulae exist, but perhaps the most widely accepted formula for risk quantification is:Rate (or probability) of occurrence multiplied by the impact of the event equals risk magnitude.

SOURCE:

http://en.wikipedia.org/wiki/Risk_management

PSAK NO. 52 ABOUT REPORTING CURRENCY

Objective 

01 The objective of this Statement is to address the currency used by enterprises in the accounting records and financial statements. 

Scope 

02 This Statement should be applied for all enterprises which intend to or are using a currency other than the rupiah as the reporting currency. 

Definitions 

03 The following terms used in this Statement are defined as follows: 

Functional currency is the primary currency from the standpoint of economic substance. It is essentially the primary currency reflected in the operating activities of the enterprise. 

Reporting currency is the currency used in the presentation of financial statements. 

Recording currency is the currency used by the enterprise to record transactions. 

Recording and Reporting Currency 

04 The reporting currency used by enterprises in Indonesia is the rupiah. Enterprises can use a currency other than the rupiah as the reporting currency only if the respective currency meets the criteria of functional currency. 

05 The recording currency should be the same as the reporting currency.

06 In general, financial statements should be reported in local currency. However, if an enterprise uses a currency other than the local currency (for instance U.S. Dollar) as its reporting currency, this reporting currency should also be the functional currency. The functional currency can be the rupiah or a currency other than the rupiah (for instance U.S. Dollar), depending on the economic substance. 

07 The financial statements are intended to provide financial information on results of operations, financial position, and cash flows of the enterprise. The financial statements are derived from the accounting records of the enterprise; accordingly, the currency used in the accounting records should be the same as the currency used in the financial statements. Under this concept, the procedures for remeasurement of the accounting records or translation of REPORTING CURRENCY SFAS No. 52 the financial statements are no longer required, except for comparative periods when the enterprise adopts this Statement (see paragraph 16) and for financial statements which are consolidated (see paragraph 19), because, in essence, the financial statements have been presented in the functional currency. 

Functional Currency 

08 A currency is the functional currency if it fulfills the following indicators in the aggregate: 

(a) Cash flow indicator: cash flows related to the enterprise’s main operating activity are dominated by the particular currency, 

(b) Selling price indicator: the selling prices of the enterprise’s products in the near term are significantly affected by fluctuations in the exchange rates of the particular currency or the enterprise’s products are predominantly for the export markets, and 

(c) Cost indicator: the enterprise’s costs are significantly affected by fluctuations in the exchange rates of the particular currency. 

09 The selling prices or costs of the enterprise are significantly affected by fluctuations in the exchange rates of the particular currency when such selling prices or costs are calculated based on the exchange rates of the particular currency. 

10 In order to determine the functional currency, an enterprise should evaluate the indicators described under paragraph 8 above. In addition, for an enterprise which has more than one subsidiary or separate and distinct operations, such as a branch or division, where the operations can be viewed as a separate company or operating activity, it is possible that several different functional currencies could be applicable such that each of the respective currencies should be evaluated during the process of determining the enterprise’s functional currency. In determining the functional currency, relevance and reliability can be achieved through the process of weighting each of the indicators above, and after weighting each of the individually, an overall weighting process is performed. In this process, cash inflows have the highest weighting. Besides this weighting process, other factors which could influence the long-term economic condition should also be considered. 

11 The main factors influencing the determination of functional currency should be defined so as to enable the enterprise to have a consistent unit of measure. When the factors above cannot be clearly linked to a particular currency, professional judgement should prevail by means of a detailed evaluation of the operations and activities of the enterprise, and evaluated based on the highest level of relevance and reliability. 

12 The accounting treatment for transactions and balances denominated in nonfunctional currencies is addressed in SFAS No. 10, Transactions in Foreign Currencies. 

13 The implications under paragraph 12 above are that currencies other than the functional currency are considered non-functional currencies, while the functional currency should be considered the base currency in determining the exchange value or calculating the exchange rate differences. For instance, based on the economic substance concept, the enterprise’s functional currency has been determined to be the U.S. Dollar; hence, currencies other than the U.S. Dollar are considered non-functional currencies and all transactions REPORTING CURRENCY SFAS No. 52 denominated in non-functional currencies should be translated into the functional currency. 

Determination of Beginning Balance 

14 The determination of beginning balances for recording purposes is performed by remeasuring the financial statement accounts as though the functional currency has been used since the transaction originated. The remeasurement procedures are as follows: 

(i) Monetary assets and liabilities are remeasured using the balance sheet date rates; 

(ii) Non-monetary assets and liabilities as well as share capital are remeasured using historical rates, or prevailing rates at the transaction dates for the acquisition of fixed assets, incurrence of liabilities or contribution of capital; 

(iii) The difference between the assets, and liabilities and share capital in the new reporting currency, as a result of procedures (i) and (ii) above, is recorded in retained earnings or accumulated deficit at that date; 

(iv) Income and expense items are remeasured using the weighted average rates for the period, except for depreciation expense on fixed assets or amortization of nonmonetary assets which are remeasured using historical rates for the related period; 

(v) Dividends are remeasured using the rate prevailing at the date of the recording of the dividends; 

(vi) Procedures (iv) and (v) above will result in a remeasurement adjustment which is recorded in retained earnings or accumulated deficit at that date; 

(vii) The remeasurement adjustment is a result of the following calculation: retained earnings (accumulated deficit) at the end of the year (the result of procedure (iii)) plus dividends (the result of procedure (v)) minus net income (loss) for the period (the result of procedure (iv)). 

15 The remeasurement procedures described under paragraph 14 are performed up to the earliest period the particular functional currency was effective. 

Comparative Presentation 

16 The financial statements for comparative periods, where the reporting currency was not the functional currency, should be measured and restated in accordance with the procedures described under paragraphs 14 and 15. 

Change in Recording and Reporting Currency 

17 An enterprise should change its recording and reporting currency to the rupiah when the functional currency changes from a non-rupiah currency to the rupiah. The change in recording and reporting currency should be made at the beginning of the fiscal year, not during the fiscal year. 

18 The enterprise’s decision to change the reporting currency can only be made due to changes in economic substance relating to the functional currency. During the operating life of the enterprise, the functional currency can change when there are changes in the enterprise’s operations or markets. 

Consolidation REPORTING CURRENCY SFAS No. 52 

19 The consolidated financial statements are presented in the functional currency after evaluating the indicators discussed in paragraph 8 for the parent company and all of its subsidiaries. The translation of the subsidiaries’ financial statements to the functional currency of the consolidated financial statements is performed as follows: 

(i) Assets and liabilities are translated using the balance sheet date rates; 

(ii) Equity accounts are translated using historical rates; 

(iii) Income and expense accounts are translated using weighted average rates; 

(iv) Dividends are measured using the rate prevailing at the date of the recording of the dividends 

(v) Procedures (i) through (iv) above will result in a translation adjustment which is presented in an equity account called “Translation Adjustment.” 20 The recording currency for the parent company should be the same as the reporting currency used in the consolidated financial statements. 

Disclosures 

21 The enterprise should disclose the following: 

(a) The reasons for determining the reporting currency based on the indicators under paragraph 8; 

(b) The change in reporting currency and reasons for the change : 

(i) the reasons for the change based on the indicators under paragraph 8, 

(ii) exchange rates (historical, current, or average) used in remeasurement or 

translation, 

(iii) condensed balance sheet and income statement, presented in the previous reporting currency, for comparison purposes. 

Effective Date 

22 This Statement is effective for the preparation and presentation of financial 

statements beginning on or after January 1, 2000. Earlier application is encouraged. REPORTING CURRENCY SFAS No. 52 

APPENDIX 

REMEASUREMENT TO FUNCTIONAL CURRENCY 

The remeasurement process is intended to achieve the same results as if the accounting records of the enterprise have been maintained in the functional currency. The remeasurement process is performed using historical rates, current rates, and average rates. The following are examples of accounts using historical rates, current rates, and average rates. 

A. Accounts Remeasured Using Historical Rates 

Balance sheet accounts 

• Securities carried at acquisition cost 
• Inventory carried at acquisition cost 
• Prepaid costs, such as insurance, advertising and rent 
• Fixed assets 
• Patents, trademarks, licenses, and formulas 
• Goodwill 
• Other intangible assets 
• Deferred costs and credits, except policy acquisition costs for the insurance industry 
• Deferred income 
• Common shares 
• Preferred shares based on issuance price 

Income statement accounts 

• Income and expenses related to non-monetary assets and liabilities 
• Cost of goods sold 
• Depreciation of fixed assets 
• Amortization of intangible assets 
• Amortization of deferred income 

B. Accounts Remeasured Using Current Rates 

Assets and liabilities other than those mentioned above are measured using the current 

rates. In general, current rates are used for monetary asset and liability accounts. 

C. Accounts Remeasured Using Weighted Average Rates 

Income statement accounts should, in theory, be measured using historical rates. However if applied literally, it may not be practical in the preparation of financial statements. Alternatively, using a weighted average rate would reflect the fluctuations in the exchange rate for the reporting period.

SOURCE:

http://russellbedford.co.id/downloads/resources/87a70_PSAK-52.pdf

PSAK NO. 50 ABOUT ACCOUNTING FOR INVESTMENTS IN CERTAIN SECURITIES

STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 50 

ACCOUNTING FOR INVESTMENTS IN CERTAIN SECURITIES 

The paragraphs printed in bold italic type are the standards, which should be read in the context of the explanatory paragraphs and implementation guidance printed in normal type. This Statement is not intended to apply to immaterial items. 

Objective 

01 In the Statements of Financial Accounting Standard previously issued, there remains discrepancies in the recognition and measurement of investments in securities, particularly debt securities. This Statement is intended to standardize the accounting and reporting for investments in both debt securities and equity securities. 

02 This Statement addresses the application of fair value accounting for debt and equity securities which are intended for trading purposes by the holders of the securities, debt securities which are intended to be held until maturity or securities which do not fall in any of these two categories. 

Scope 

03 This Statement should be applied in the accounting and reporting for investments in equity securities for which the fair values are readily determinable and for all investments in debt securities, except as discussed in paragraph 4. 

(a) The fair value of an equity security is considered readily determinable if sales price or bid-and-asked prices are available on the Jakarta Stock Exchange, the Surabaya Stock Exchange or any other stock exchange in Indonesia. Shares which are restricted from sale do not meet this definition. 

(b) The fair value of an equity security traded only on a foreign stock exchange is considered readily determinable if that stock exchange has trading volumes and activities which are comparable to or better than the domestic stock market. 

(c) The fair value of an investment in a mutual fund is readily determinable if the net asset value is determined and published, and is the basis for current transactions. 

04 This Statement does not address: 

(a) investments in equity securities which are recorded under the equity method and investments in subsidiary companies; Accounting for Investments in Certain Securities SFAS No. 50

(b) investments in not-for-profit organizations.

05 This Statement amends paragraphs 8, 9 and 10 of SFAS No. 31 which applies to the banking industry. This Statement is a supplement to: 

(a) SFAS No. 13, Accounting for Investments, 

(b) paragraph 38 of SFAS No. 28, Accounting for Casualty Insurance (1996 Revision),

(c) paragraph 39 of SFAS No. 36, Accounting for Life Insurance, and

(d) paragraph 62(b) of SFAS No. 42, Accounting for the Securities Industry. 

Definitions 

06 The following are the definitions of the terms used in this Statement: 

Securities are marketable instruments, namely debentures, commercial paper, shares, bonds, debt certificates, collective investment contract participation units, futures contracts on securities, or any derivatives of a security.

Debt securities are securities which reflect a debtor relationship between the creditor and the entity issuing the securities. 

Equity securities are securities which reflect the rights of ownership over certain equity, or the rights to acquire (for instance, warrants, purchase options) or the rights to sell (such as sale options) such ownership at a price which has already or will be determined. 

Fair value is the amount which can be obtained from the exchange of a financial instrument between willing parties, not from forced or liquidation sale. If a market price is available for an instrument, the fair value, in accordance with the application of this Statement, is calculated by multiplying the number of shares traded by the market price per unit. 

Holding gain or loss is the net change in the fair value of a security, not including: (a) dividends or interest income which have been recognized but not yet received (accrual basis), and (b) any permanent impairment in the value of the security.Accounting for Investments in Certain Securities SFAS No. 50

ACCOUNTING FOR INVESTMENTS IN SECURITIES 

07 At the time of acquisition, the enterprise should classify debt securities and equity securities in one of the three categories below: 

(a) held-to-maturity, 

(b) trading, 

(c) available-for-sale. 

At each reporting date, the appropriateness of the classification should be reassessed.

Securities Classified in the “Held-to-Maturity” Category 

08 If the enterprise intends to hold debt securities until maturity, the investment in such securities should be classified in the “held-to-maturity” category and presented in the balance sheet at acquisition cost, net of the amortization of premium or discount. 

09 The enterprise may change its intent to hold certain debt securities until maturity by selling or transferring the debt securities concerned. The sale or transfer of debt securities is not considered to be a change in the intent to “hold-to-maturity” if the result of the following circumstances: 

(a) there is evidence of a significant deterioration in the issuer’s creditworthiness. 

(b) there is a change in the tax law which eliminates or raises the existing final tax rate on the interest relating to the debt securities (not including changes in tax laws which revise the tax rates on interest in general). 

(c) there is a major business combination or major disposition (such as the sale of a segment) that necessitates the sale or transfer of “held-to-maturity” securities to maintain the enterprise’s credit risk or existing interest rate risk position. 

(d) there is a change in the requirements or regulations which significantly changes the definition of permissible investments or the maximum level of investments permissible in certain types of securities, to the extent that the enterprise is required to dispose held-to-maturity securities. 

(e) there is a change in the government regulations pertaining to minimum capital requirements for certain industries which causes the enterprise downsize its business activities or the scale of its operations and selling its held-to-maturity securities. 

(f) there is a change in the government regulations resulting in the increase in the risk weights of debt securities in the calculation of specific ratios, for example in the calculation of the solvency of an Accounting for Investments in Certain Securities SFAS No. 50insurance company or the calculation of the capital adequacy ratio for the banking industry. 

In addition to the changes discussed above, other events that are nonrecurring and are extraordinary in nature which cannot be anticipated, may cause the enterprise to sell or transfer certain securities in the held-to-maturity category, without necessarily calling into question its initial intent to hold other securities in the same category to maturity. All sales and transfers of securities in the “heldto-maturity” category should be disclosed in accordance with the requirements of paragraph 23. 

10 An enterprise should not classify debt securities in the “held –tomaturity” category if the enterprise has the intent to hold the securities for only an indefinite period. Consequently, debt securities should not be classified in this category if the enterprise intends to sell such securities, for example, in response to: 

(a) changes in market interest rates and changes related to similar risks, 

(b) liquidity needs, 

(c) changes in the availability of and rates of return on alternative nvestments, 

(d) changes in funding sources and terms, 

(e) changes in foreign currency risk. 

11 In the connection with asset and liability management of the entity, management may decide that the entity’s financial risk management objectives can be accomplished without having all of its securities available for sale. In that case, the enterprise may choose to designate certain debt securities in the held-to-maturity category and unavailable for sale to accomplish its financial risk management objectives. Based on the intent to hold such debt securities, the enterprise can account for these debt securities based on acquisition cost (including the amortization of discount or premium). 

12 Sales of debt securities that meet either of the following two conditions may be considered as held-to-maturity for purposes of the classification of securities as discussed under paragraphs 8 and 13, and for purposes of disclosure as discussed under paragraph 23: 

(a) The sale of securities takes place on a date which is sufficiently close to the maturity date, such that the interest rate risk is no longer a determining factor in the selling price. The date of the sale concerned is so close to maturity that changes in the market interest rate no longer have any significant effect on the fair value of the securities. 

(b) The sale of securities occurs after the enterprise has already collected a substantial portion (at least 85 percent) of the carrying value of investment in debt securities. Such payments may occur as a result of prepayments on the debt securities or scheduled payments on debt securities (which covers both principal and interest). For securities with Accounting for Investments in Certain Securities SFAS No. 50variable interest rates, the scheduled payments need not be equal, depending on the prevailing interest rate. 

Securities Classified in the “Trading” and “Available-for-Sale” Categories 

13 Investments in debt securities that are not classified as “held-to-maturity” and equity securities that have readily determinable fair values, should be classified in one of the following categories and measured at fair value in the balance sheet: 

(a) “Trading”. Securities that are bought and held for the purpose of selling them within a short period of time should be classified in the “trading” category. Securities in this category are usually bought and sold very frequently. These securities are held for the purpose of generating profits on short-term differences in price. 

(b) “Available-for-sale”. Securities which are not classified in either the “trading” or “held-to-maturity” categories should be classified in the “available-for-sale” category. 

Reporting Changes in Fair Value 

14 Unrealized holding gains or losses for trading securities should be recognized in earnings. Unrealized holding gains or losses for available-for-sale securities (including securities classified as current assets) should be included as a separate component of shareholders’ equity, and cannot be recognized in earnings until the gains or losses are realized.

15 For all the three categories of securities above, dividend and interest income, including the amortization of premium and discount arising at acquisition, are recognized in earnings. This Statement does not affect the methods used for recognizing and measuring the amount of dividend and interest income. Realized gains or losses for securities classified as either available-for-sale or held-to-maturity categories also should be reported in earnings. 

Changes in Investment Categories 

16 The transfer of securities between categories is accounted for at fair value. At the date of transfer, unrealized holding gain or loss is accounted for as follows: 

(a) for securities transferred from the trading category, unrealized holding gains or losses at the date of the transfer will have already been recognized in earnings and should not be reversed. Accounting for Investments in Certain Securities SFAS No. 50

(b) for securities transferred into the trading category, unrealized holding gains or losses at the date of the transfer is recognized in earnings immediately. 

(c) for debt securities transferred into the available-for-sale category from the held-to-maturity category, unrealized holding gains or losses should be recognized in a separate component of shareholders’ equity at the date of the transfer. 

(d) for debt securities transferred into the held-to-maturity category from the available-for-sale category, unrealized holding gains or losses at the date of the transfer should continue to be reported in a separate component of shareholders’ equity, but should be amortized over the life of the security consistent with the amortization of premium or discount. The amortization of the unrealized holding gains or losses will have an effect on interest income similar to the amortization of the premium or discount for the held-to-maturity securities. 

17 Consistent with paragraphs 8 through 10, transfers from the held-to-maturity category should be rare, except for transfers due to the changes in circumstances identified in paragraph 9. Because of their nature, transfers to or from the trading category also should be rare. 

Impairment of Securities 

18 For individual securities classified in the available-for-sale and held-to-maturity categories, an enterprise should determine whether a decline in fair value below the acquisition cost (including the amortization of premiums and discounts) is permanent or not. If it is probable that the investor will not be able to collect all amounts due according to the contractual terms of a debt security, a permanent impairment is considered to have occurred. If the decline in fair value is judged to be permanent, the cost basis of the individual security should be written down to fair value, and the amount of the write-down should be recognized in the income statement as a realized loss. The new cost basis cannot be changed again. Any subsequent increase in the fair value of an available-for-sale security should be included in the separate component of shareholders’ equity, as discussed in paragraph 14. A subsequent decline in fair value, if not a permanent impairment, also should be included in the separate component of shareholders’ equity. 

PRESENTATION 

19 An enterprise that presents its balance sheet where the assets are classified by current assets, fixed assets and other assets and where liabilities are classified by current and non-current liabilities (classified balance sheet) should report all trading securities as current assets. Securities in the held-to-maturity and available-for-sale Categories are presented as current assets or non-current assets based Accounting for Investments in Certain Securities SFAS No. 50on the decision of the management. Specifically, for debt securities in the held-to-maturity and available-for-sale categories which mature in the following year should be classified as current assets. 

20 In the statement of cash flows, cash flows used for or originating from purchases, sales, and maturities of securities in the available-for-sale and held-to-maturity categories should be classified as cash flows from investing activities, and reported gross for each security category in the statement of cash flows. Cash flows for or from purchases, sales, and maturities of securities in the trading category should be classified as cash flows from operating activities. 

DISCLOSURE 

21 For securities classified in the available-for-sale and heldto-maturity categories, the following information should be disclosed in the notes to the financial statements for each major category of security: 

(a) aggregate fair value, 

(b) unrealized holding gains, 

(c) unrealized holding losses, 

(d) acquisition cost, including unamortized premium and discount. 

Financial institutions (banks, credit cooperatives, financing and insurance institutions) should disclose each major security type as follows: 

(a) equity securities, 

(b) government - issued debt securities, 

(c) corporate debt securities, 

(d) debt securities guaranteed by mortgage, and 

(e) other debt securities. 

22 For debt securities classified in the available-for-sale and heldto-maturity categories, information about the maturities of the securities should be disclosed in the notes to the financial statements for the most recent year presented. Information about the maturity dates may be combined based on the time period since the balance sheet date. Financial institutions should disclose the fair values and acquisition cost, including unamortized discounts and premiums, based on at least 4 maturity groupings as follows: 

(a) maturity in less than 1 year, 

(b) maturity between 1 and 5 years, 

(c) maturity between 5 and 10 years, 

(d) maturity in more than 10 years. 

Securities with no specific maturity dates, such as securities where payment is guaranteed by mortgage (hipotik), may be disclosed separately (not Accounting for Investments in Certain Securities SFAS No. 50 allocated to any of the maturity groupings above). If allocated, the basis for allocation also should be disclosed. 

23 For each accounting period, an enterprise should disclose: 

(a) proceeds from the sales of available-for-sale securities, and realized gains or losses on those sales. 

(b) the basis on which acquisition cost was determined in computing realized gain or loss (for instance, specific identification, average, or other methods). 

(c) gains and losses included in earnings from transfers of securities from the available-for-sale category into the trading category. 

(d) the change in unrealized holding gain or loss that has been included in the separate component of shareholders’ equity during the period. 

(e) the change in unrealized holding gain or loss on trading securities that has been included in earnings during the period. 

24 For each sale or transfer of securities from the held-to-maturity category, the following should be disclosed: 

(a) the amount of accumulated discount or premium for securities sold or transferred to another category, 

(b) gain or loss on the sale of securities, whether realized or unrealized, and 

(c) the circumstances which led to the decision to sell or transfer the securities. 

EFFECTIVE DATE 

25 This Statement is effective for the preparation and presentation of financial statements covering reporting periods on or after January 1, 1999. Earlier application is encouraged. 

26 The initial application of this Statement will have an effect on the retained earnings balance. This effect should be reported as the effect of a change in accounting principle in a manner similar to reporting the cumulative effect of a change in accounting principle as discussed in paragraph 42 of SFAS No. 25, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. The effect on retained earnings includes the reversal of amounts previously included in earnings to the extent of the unrealized holding losses relating to available-for-sale securities. The unrealized holding gain or loss for securities classified as available-for-sale as of the date that this Statement is first applied is included in the separate component of shareholders’ equity.

source:

http://russellbedford.co.id/downloads/resources/ebc14_PSAK-50.pdf

PSAK NO.41 About Warrant

A. INTRODUCTION 

Objective 

01 This Statement addresses the accounting treatment for warrants, either warrants issued together with the issuance of debt securities, warrants issued together with shares, or ACCOUNTING FOR WARRANTS SFAS No. 41 warrants that are issued separately from other securities. 

Scope 

02 This Statement addresses the accounting for warrants by the issuers, either warrants issued together with other securities or those issued separately. 

Definitions 

03 The following terms used in this Statement are defined as follows: 

• Securities are marketable instruments such as promissory notes, commercial paper, shares, bonds and units of participation in collective investment contracts. Included in the definition of securities are forward contracts and other derivatives thereof. 
• Warrants are securities issued by a company which give the right to holders to acquire shares from the company at a certain prices and for a specific period of time. 
• Detachable warrants are warrants issued together with other securities, and can be traded separately from such securities. 
• Nondetachable warrants are warrants which are attached to the debt securities and cannot be traded separately from such securities. Non-detachable warrants should be traded together with debt securities as one unit (package), for instance, convertible bonds. 
• Naked warrants are warrants issued separately without the accompanying issuance of other securities. 

EXPLANATION 

04 As warrants give their holders the right to acquire shares from a company, warrants are classified as equity securities. The issuance of warrants may accompany the issuance of debt securities. 

Detachable Warrants 

05 Proceeds obtained from the issuance of debt-related securities which are accompanied with detachable warrants are allocated to both securities based on the respective fair values of each security at the time of issuance. The fair value allocated to warrants is reported as Other Paid-up Capital, and the remainder which constitutes the fair value of the debt security is reported as a Liability. 

06 If warrants are exercised, the sum of the proceeds from the exercise and the fair value allocated to those warrants are recognized as Paid-up Capital and Additional Paid-up Capital (if any). If warrants are not exercised before the end of their exercise period, the carrying value of warrants recognized at the time of issuance should continue to be presented as Other Paid-up Capital. ACCOUNTING FOR WARRANTS SFAS No. 41 

Nondetachable Warrants 

07 Proceeds from the issuance of debt securities accompanied with nondetachable warrants are reported as Liabilities. 

08 Companies which issue nondetachable warrants accompanying the issuance of debt securities, for instance, in the form of convertible bonds, have the obligation of settling the debt if the warrants are not exercised. Consequently, the value of nondetachable warrants is not recognized separately, and therefore all the proceeds obtained from the issuance of the debt security are recognized as Liabilities. 

09 If warrants accompany the issuance of shares, all the proceeds from the issuance are recognized as Paid-up Capital and Additional Paid-up Capital (if any). 

Naked Warrants 

10 Companies generally issue naked warrants as an incentive for shareholders. The issuance of naked warrants to shareholders can be made free of charge or for a certain payment. 

11 For the issuance of naked warrants which must be paid for by the recipient, the payments should be recorded as Other Paid-up Capital. 

12 If naked warrants are provided free of charge to shareholders, they are not required to be accounted for as discussed in paragraph 9. 

Warrants as Share Equivalents 

13 Since warrants are equity securities, their issuance results in a dilution of earnings per share. 

Disclosures 

14 The financial statements should disclose: 

a. the basis for determining the fair value of warrants; 

b. the value of warrants not yet exercised and the value of unexercised (expired) warrants; 

c. the amount of issued and outstanding warrants as well as their dilution effect; and 

d. conditions associated with the issuance of the warrants. ACCOUNTING FOR WARRANTS SFAS No. 41 

STATEMENT FOR FINANCIAL ACCOUNTING STANDARD NUMBER 41 

ACCOUNTING FOR WARRANTS 

Statement of Financial Accounting Standard No. 41 consists of paragraphs 15-23. This Statement should be read in the context of paragraphs 1-14. 

Detachable Warrants 

15 Proceeds obtained from the issuance of debt-related securities which are accompanied with detachable warrants are allocated to both securities based on the respective fair values of each security at the time of issuance. The fair value allocated to warrants is reported as Other Paid-up Capital, and the remainder which constitutes the fair value of the debt security is reported as a Liability. 

16 If warrants are exercised, the sum of the proceeds from the exercise and the fair value allocated to those warrants are recognized as Paid-up Capital and Additional Paid-up Capital (if any). If warrants are not exercised before the end of their exercise period, the carrying value of warrants recognized at the time of issuance should continue to be presented as Other Paid-up Capital. 

Nondetachable Warrants 

17 Proceeds from the issuance of debt securities accompanied with nondetachable warrants are reported as Liabilities. 

18 If warrants accompany the issuance of shares, all the proceeds from the issuance are recognized as Paid-up Capital and Additional Paid-up Capital (if any). 

Naked Warrants 

19 For the issuance of naked warrants which must be paid for by the recipient, the payments should be recorded as Other Paid-up Capital. 

20 If naked warrants are provided free of charge to shareholders, they are not required to be accounted for as discussed in paragraph 9. 

Warrants as Share Equivalents 

21 Since warrants are equity securities, their issuance results in a dilution of earnings per share. 

ACCOUNTING FOR WARRANTS SFAS No. 41 

Disclosures 

22 The financial statements should disclose: 

a. the basis for determining the fair value of warrants; 

b. the value of warrants not yet exercised and the value of unexercised (expired) warrants; 

c. the amount of issued and outstanding warrants as well as their dilution effect; and 

d. conditions associated with the issuance of the warrants. 

Effective Date 

23 This Statement is effective for the preparation and presentation of financial statements covering periods beginning on or after January 1, 1998. Earlier application is strongly encouraged.

SOURCE:

http://russellbedford.co.id/downloads/resources/fbad9_PSAK-41.pdf