Journal of Modern Accounting and Auditing, ISSN 1548-6583 May 2013, Vol. 9, No. 5, 609-615 D DAVID PUBLISHING Accounting of Foreign Currencies: Difference in Exchange Transactions and Relation With Taxation of Indonesia (Case Study in Fishery Company) Ilham Hidayah Napitupulu Padjadjaran University, Bandung, Indonesia; Politeknik Negeri Medan, Medan, Indonesia Abdul Rahman Dalimunthe Politeknik Negeri Medan, Medan, Indonesia Future need of globalization in business is no longer focused on the local transaction; instead, it has involved many countries so as to affect the exchange rate of rupiah against foreign currencies. As a result, differences in the exchange rate will lead to foreign exchange, be it a foreign exchange gain or foreign exchange losses. Exchange rate used at the beginning of the transaction is the exchange rate on the transaction, but in Indonesian currency transactions, what is often used is the exchange rate issued by the Directorate General of Taxation (DGT). If at the end of the period, a balance of foreign currency still exists, then it will be adjusted using a fixed rate or an exchange rate of Central Bank of Indonesia. The results showed that the treatment of foreign exchange at the fishery company was using both the exchange rate allowed in the accounting and taxation regulations in Indonesia. The balance of transactions is related to export, be it a balance of accounts receivable on the sale of the outstanding balance of exports and export freight carried at the exchange rate adjustment of Central Bank of Indonesia, subsequent transactions relating to the purchase of imports were adjusted to a fixed exchange rate, which means that the balance payable on imports will continue to use the exchange rate at the beginning of the transaction. Keywords: accounting for foreign exchange, exchange rate, taxation Introduction The era of globalization and developments in information technology today can increase the mobility of goods, services, and capitals as the fulfillment of needs in the business. Activities of that need no longer to focus on local transactions, but have involved many countries so as to affect the exchange rate of rupiah against foreign currencies. In using foreign currency, there are two aspects made by business entities, namely: (1) translation of foreign exchange financial statement, the intention is as a translation of financial statements prepared in foreign currencies. This translation is used for a multinational company branch or subsidiary in another country; and (2) foreign exchange transaction, meant as an elaboration of that due to the company s transactions relating to foreign exchange (Ariyanto, 2006; Waluyo, 2009). Ilham Hidayah Napitupulu, student of Doctoral Program, Accounting Department, Padjadjaran University; lecturer, Accounting Department, Politeknik Negeri Medan. Email: napit77@yahoo.com. Abdul Rahman Dalimunthe, lecturer, Accounting Department, Politeknik Negeri Medan.
610 ACCOUNTING OF FOREIGN CURRENCIES Companies in Indonesia, dominating foreign exchange transaction in foreign exchange. Exchange differences in question are the differences resulting from translation of a certain amount of one currency into another currency at different exchange rates (Ikatan Akuntan Indonesia (IAI 1 ), Pernyataan Standar Akuntansi Keuangan (PSAK 2 ) 10). The accounting treatment of foreign exchange can be done by imposing a direct impact on profit and loss account in the period (The Republic of Indonesia, 2008) and either partially or wholly capitalized (Ariyanto, 2006). This refers to the Decree of the Minister of Finance of Republic of Indonesia Number 597/KMK 3 04/1997 about the income tax treatment of foreign currency on foreign exchange in 1997 which was reinforced by regulation BAPEPAM 4 No. VIII G10 (Kep. 49/PM 5 /1998) issued when the economic crisis hit Indonesia. Some types of foreign currency transactions that occur frequently can be seen by noting the sources of (IAI, PSAK 10): (1) buying or selling goods or services whose price is denominated in foreign currencies; (2) borrowing or lending funds denominated in foreign currencies; (3) acquiring or releasing assets, or conducting or completing a liability, denominated in foreign currencies; and (4) contract work, due to the implementation of labor contract agreements to use foreign currency in payment transactions work. In the execution or recording of transactions that occur in business activities by using foreign currency, exchange rates used were two, namely, the exchange rate at the beginning of the transaction, which is usually adjusted with exchange rate issued by the Directorate General of Taxation (DGT), in order to facilitate businesses to pay taxes related to export transactions and import; the second is the exchange rate at the time of repayment, usually the exchange rate used by agreement of consumers and producers. In general, the settlement rate is the rate used to follow the bank where the transaction will be done. Thus, the study is limited to transactions that occur in business activities rather than to translations of financial statements of the companies as a whole as is done in multinational companies, and all foreign currency transactions routed into the functional currency used in Indonesia, the rupiah. Bookkeeping-conducted business in Indonesia refers to the Financial Accounting Standards (PSAK), but not all are set forth in PSAK recognized by the taxation laws of Indonesia, so in tax reporting, there will be no further action that is known as fiscal reconciliation. The values that have been recognized in the accounting firm will be tailored according to PSAK applicable tax laws, for the treatment of foreign exchange but did not experience the difference between Generally Accepted Accounting Principles (GAAP) with tax regulations in Indonesia (IAI, PSAK 10; IAI, 2009b; The Republic of Indonesia, 2008) with the sense that what is recognized in accordance with International Accounting Standards (IAS) is also recognized by tax regulations. Exchange rate is used for the benefit of the end of the period, the adjustment of balances that use foreign currency. There are two types of exchange rate used by the businesses in Indonesia (IAI, PSAK 10; DGT, 1997), i.e., fixed exchange rate and exchange rate of Central Bank of Indonesia. The use of foreign exchange rates in Indonesia is not much different from Romania. The use of foreign currency transactions follows rules based on tax laws and Central Bank of Romania (Ecobici, 2011). Of the different uses of the exchange rate impact on 1 The Indonesian Institute of Accountants. 2 Indonesian Financial Accounting Standards, also known as IFAS or PSAK. 3 Keputusan Menteri Keuangan (KMK), Decree of the Minister of Finance. 4 Badan Pengawas Pasar Modal, Capital Market Supervisory Agency. 5 Peraturan Menteri (PM), Regulation of the Minister.
ACCOUNTING OF FOREIGN CURRENCIES 611 accounting firms, especially firms that conduct foreign trade, the company is very sensitive to changes in exchange rates (Solano, 2000). Another impact of foreign exchange may also cause the stock market reaction (Chandarin & Tearney, 2000), foreign exchange which significantly influences the company s stock price, as well as that done by Ariyanto (2006) that foreign exchange is also a significant effect on stock returns, which means that foreign exchange can also be used as an analytical tool to determine the choice of investors in investing. Research Methods Types of Research This research is an applied research (Indriantoro & Supomo, 2002), i.e., research aimed at solving practical problems faced by the institution or organization which is generally done in a business environment. This research is an empirical research and archival research. The object of this research is a company in the fishing industry located in the city of Medan, Indonesia, which has several units working with the needs and supplies from domestic market or abroad. Data Collection and Analysis Techniques The data used are secondary data, obtained directly from the company that became the object of this research, i.e., several transaction data, such as data of export freight costs, debt export freight, product import for production processing, and data on the balance of foreign currency transactions in the period of December 2008 to January 2009. Analysis of the data is used to determine how the treatment of foreign currency in the fishing industry, particularly companies dealing with the taxation laws of Indonesia. Results and Discussion The results of this study describe the recognition of foreign exchange empirically related to taxation in Indonesia, while the data obtained are: (1) transactions related to export sales, such as data of export freight cost and data of debt of freight exports and repayment; and (2) transactions related to the purchase of imported goods, such as data of import purchases and debt of import and repayment of import. Shipping Cost of Export Sales Transactions Company s export sales are made to countries of Europe, America, and Asia. Transactions are carried out by using the destination country s currency, such as Europe s use of the euro, USA s use of the US dollar, and half of the Asian countries also use the US dollar. For Singaporeans, they use Singapore dollars, while for Japanese, they use the US dollar. All transactions carried out will be transferred to the functional currency in Indonesian Rupiah (IDR). Transactions that occur early will be transferred to the rupiah exchange rate following the DGT, fluctuations in the exchange rate against foreign currencies change every week. The use of the rupiah exchange rate makes it easier to adjust with obtaining a license for exports and imports. Freight cost of export sales also used foreign currency, usually the US dollar. Many shipping companies are used in support of export sales, such as Hanjin, Hyundai, Maersk Sealand, APL, etc.. Considering the treatment of foreign exchange transactions in this case, there are two under different circumstances, namely, recognition of foreign exchange transactions settled during the month of transaction and recognition of foreign exchange transactions settled in the following month. For the first case, the transactions from December 2, 2008 to December 22, 2008 are delivered by Hanjin Shipping and Hyundai Shipping. For example, Hanjin invoice, December 2, 2008, the transaction with the invoice number BANA 01553003 and transaction
612 ACCOUNTING OF FOREIGN CURRENCIES December 22, 2008 with the invoice number BANA 01551203. Contract value of the invoice number BANA 01553003 is $7,265. On the transaction date, exchange rate used is IDR 12,501.80, so the total of transactions is IDR 90,819,765.00; and the contract value of the invoice number BANA 01551203 is $6,725, an exchange rate of IDR 11,062.60, so the total transactions in rupiah for IDR 74,395,985.00. Accounting recognition of the company is recorded as cost of transportation of export and export transportation debt. In the same month, the transaction of freight cost of the contract value of invoice number BANA 01553003, the exchange rate used is IDR 10,985.00, so the total invoice number BANA 01553003 is IDR 79,806,025.00, meaning that the company paid the contract value $7,265 with a lower exchange rate than at the beginning of the transaction, so there is a difference in foreign exchange gain. For invoice number BANA 01551203 with a contract value of $6,725, an exchange rate of IDR 11,150.00, so the total is IDR 74,983,750.00, which means that the company paid the contract value at the beginning of the transaction with the higher exchange rate, so there are foreign exchange losses. Some transaction costs of export freight using companies Hanjin and Hyundai in December 2008 and who settled in the same month can be seen in Table 1. Table 1 Transaction Costs and Export Transport Repayment of the Same Moon Invoice Use of Repayment Profit (loss) on Number Date USD Rate Total IDR USD Rate Total IDR foreign exchange Utang Hanjin: BANA 2-Dec-08 7,265.00 12,501.00 90,819,765.00 7,265.00 10,985.00 79,806,025.00 11,013,740.00 01553003 BANA 22-Dec-08 6,725.00 11,062.60 74,395,985.00 6,725.00 11,150.00 74,983,750.00 (587,765.00) 01551203 Utang Hyundai: HDMUSYCI 2-Dec-08 6,666.00 12,501.00 83,331,666.00 6,666.00 10,985.00 73,226,010.00 10,105,656.00 0205224 HDMUSYCI 0205248 20-Dec-08 6,666.00 11,123.60 74,149,918.00 6,666.00 11,150.00 74,325,900.00 (175,982.00) Table 2 Outstanding Debt Hanjin and Hyundai Exchange rate of the Central Bank Invoice Use of of Indonesia Profit (loss) on foreign exchange Number Date USD Rate Total IDR USD Rate Total IDR Utang Hanjin: BANA 24-Dec-08 6,725.00 11,062.60 74,395,985.00 6,725.00 10,950.00 73,638,750.00 757,235.00 01476707 Utang Hyundai: HDMUSYCI 23-Dec-08 6,666.00 11,062.60 73,743,292.00 6,666.00 10,950.00 72,992,700.00 750,592.00 0205253 HDMUSYCI 24-Dec-08 5,249.00 11,062.60 58,067,587.00 5,249.00 10,950.00 57,476,550.00 591,037.00 0205252 HDMUSYCI 24-Dec-08 6,666.00 11,062.60 73,743,292.00 6,666.00 10,950.00 72,992,700.00 750,592.00 0205254 HDMUSYCI 27-Dec-08 6,666.00 11,062.60 73,743,292.00 6,666.00 10,950.00 72,992,700.00 750,592.00 0205255 HDMUSYCI 0205256 27-Dec-08 6,666.00 11,062.60 73,743,292.00 6,666.00 10,950.00 72,992,700.00 750,592.00
ACCOUNTING OF FOREIGN CURRENCIES 613 In the second case, the recognition of foreign exchange transactions settled on the following month, such as transport of export transactions with Hanjin and Hyundai from December 24, 2008 to December 23, 2008 until December 27, 2008 (see Table 2). Hanjin s contract value of transactions with the invoice number BANA 01476707 of $6,725 is recognized by the exchange rate of IDR 11,062.60, a total of IDR 74,395,985.00. If payments have not been made until the end of December 2008, the outstanding balance will be adjusted at the rates of Central Bank of Indonesia (IAI, PSAK 10). The adjustments of outstanding debts to the companies Hanjin and Hyundai until the end of December 2008 can be seen in Table 2. Value of the debt on the invoice number BANA 01476707 is $6,725, which is not the same as at the beginning of transaction, but the value is after the adjustment of exchange rate of Central Bank of Indonesia (see Table 2), which is IDR 73,638,750.00. Differences on exchange rate adjustments to the outstanding balance at the end of December 2008 resulted in a gain on foreign exchange that would reduce the value of corporate debt (based on its functional currency). The next month, in January 2009, conducted payment of the invoice number BANA 01476707 can be seen in the Table 3. Table 3 Repayment of Debt Hanjin and Hyundai in January 2009 Invoice Use of Repayment Profit (loss) on Number Date USD Rate Total IDR USD Rate Total IDR foreign exchange Utang Hanjin: BANA 24-Dec-08 6,725.00 10,950.00 73,638,750.00 6,725.00 10,960.00 73,706,000.00 (67,250.00) 01476707 Utang Hyundai: HDMUSYCI 23-Dec-08 6,666.00 10,950.00 72,992,700.00 6,666.00 10,960.00 73,059,360.00 (66,660.00) 0205253 HDMUSYCI 24-Dec-08 5,249.00 10,950.00 57,476,550.00 5,249.00 10,960.00 57,529,040.00 (52,490.00) 0205252 HDMUSYCI 24-Dec-08 6,666.00 10,950.00 72,992,700.00 6,666.00 10,960.00 73,059,360.00 (66,660.00) 0205254 HDMUSYCI 27-Dec-08 6,666.00 10,950.00 72,992,700.00 6,666.00 10,960.00 73,059,360.00 (66,660.00) 0205255 HDMUSYCI 0205256 27-Dec-08 6,666.00 10,950.00 72,992,700.00 6,666.00 10,910.00 72,726,060.00 266,640.00 Table 3 shows that the value of the invoice number BANA 01476707 debt of $6,725 is IDR 73,638,750.00 to be paid in January 2009 with an exchange rate of IDR 10,960.00, then the total value of the rupiah to be issued is IDR 73,706,000.00. Value of the exchange rates adjusted at the end of December 2008 is smaller than rate of payment, and then in this case occurred on foreign exchange loss. Treatment of foreign exchange that occurs between the gains on foreign exchange by foreign exchange loss is the same, such as debt of transactions, in case of loss on foreign exchange, which will increase the value of corporate debt, but if there are gains on foreign exchange, the value of the debt will be reduced. Reporting the difference in profit or loss on foreign exchange by the company will be included in the income statement (IAI, 2009b, 2009c; PSAK No. 10), located on the report outside income and operating expenses. Purchase of Import Goods Import purchases, recognition of the value of the exchange rate used at the beginning of the transaction is the exchange value of the DGT and the exchange rate at the time repayment rate of exchange in accordance
614 ACCOUNTING OF FOREIGN CURRENCIES with the agreement, usually based on the rate of bank where the payment is made. Outstanding debt of imported goods at the end of the period is not adjusted to the rate of Central Bank of Indonesia. Thus, in the case of import purchases, the balance of the debt using the fixed exchange rate (IAI, PSAK 10; DGT, 1997), such as transactions that occurred on December 3, 2008 from a supplier of plastic packaging products of Qingdou Ricai in Taiwan, can be seen in Table 4. Table 4 Import Transaction Name of goods Unity Qty Price per unit Total USD IDR rate Total IDR Plastik Vacum, China (Highliner 4-7) Lembar 453,600 $0.1839 $83,417.02 12,501.00 1,042,796,417 PE. Highliner 1 LB Lembar 245,300 $0.142 $34,832.60 12,501.00 435,442,333 Total 698,900 $118,249.62 1,478,238,750 Fixed exchange rate used by the end of the accounting period equals to the rate used at the beginning of the transaction (Waluyo, 2009). Thus, the total debt to Qingdou Ricai imports recognized companies in the rupiah value of IDR 1,478,238,750.00. Conclusions The study results showed that the treatment of foreign exchange at the fishery company use of taxation laws of Indonesia (The Republic of Indonesia, 2008), and the Financial Accounting Standards (IAI, 2009a, 2009b), recognition of foreign exchange which can be charged to the income statement in the current year and can be capitalized over the next five years (KMK RI Number 597/KMK04/1997). The balance of accounts payable and accounts receivable on export sales at the end of the period, do adjustment to the exchange rate of Central Bank of Indonesia, companies refer to the Financial Accounting Standards (IAI, PSAK 10) and DGT (1997) about income tax treatment of exchange rate, the adjustment balance at the end of the period used a fixed exchange rate and the exchange rate of Central Bank of Indonesia. However, for the import purchase transactions, in the adjustment of the outstanding balance at the end of the period, a fixed exchange rate is used, meaning that at the end of the period, the company uses the same exchange rate at the time the beginning of a transaction, so the foreign exchange will occur only at transaction date of import purchases of debt repayment. References Ariyanto, D. (2006). Capital market reaction reporting against foreign exchange (Empirical studies on the Indonesia Stock Exchange). Bulletin of Economic Studies, 11(2), 191-201. Chandarin, G., & Tearney, M. G. (2000). The effect of reporting of exchange rate losses on the stock market reaction. Journal of Accounting Research Indonesia, 3(1), 1-16. Directorate General of Taxation [DGT]. (1997). Number SE. 03/PJ.31/1997 on income tax treatment of foreign exchange. Ecobici, N. (2011). Ways of reflecting the foreign exchange transactions made by the currency exchange offices in Romania. Annals of the University Constantin Brancusi in Targu Jiu, Economy Series, No. 3, 75-84. Ikatan Akuntan Indonesia [IAI]. (2009a). Indonesian financial accounting standard (Revision 2010). Salemba Empat Jakarta. Ikatan Akuntan Indonesia [IAI]. (2009b). Interpretation of financial accounting standard (ISAK). Salemba Empat, Jakartae. Ikatan Akuntan Indonesia [IAI]. (2009c). Indonesian financial accounting standard without public entities (PSAK ETAP) (Revision May, 2009). Salemba Empat Jakarta.
ACCOUNTING OF FOREIGN CURRENCIES 615 Indriantoro, N., & Supomo, B. (2002). Research methods for accounting and management (2nd ed.). Yogyakarta: BPFE Yogyakarta. Solano, P. M. (2000). Foreign exchange exposure on the Spanish stock market: Sources of risk and hedging (pp. 1-26). Social Science Research Network Electronic Paper Collection. Retrieved from http://papers.ssrn.com/ paper.id=110777 The Republic of Indonesia. (2008). Law of the Republic of Indonesia Number 36 of 2008. Waluyo. (2009). Tax accounting (4th ed., p. 370).