financial service business update pwc
TRANSCRIPT
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FS Business Update
PwC Indonesia Financial Services
13 October 2010
www.pwc.com
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PwCSlide 2
Jusuf M WibisanaPartner
Assurance Services
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PwCSlide 3
Agenda
Path to adoption of IFRS in Indonesia
New PSAKs
Tax Session
Islamic Finance
IT- How do you prepare for PSAK Implementation
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PwCSlide 4
Path to adoption of IFRS in Indonesia
Implementationin 2011
2009 2010 2011 2012
Implementationin 2012
Educating all stakeholders. Preparing the IT system.
Assessing and anticipating the business impact.
Anticipating other impacts of new standards
implementation, such as legal, business andtaxation.
No significant differencebetween Indonesian GAAPand IFRS as issued 1
January 2009.
SIC 13
SIC 32
IFRIC 1
IFRIC 13
IFRIC 17
IAS 1
IAS 7
IAS 8
IAS 24
IAS 27
IAS 28
IAS 31
IAS 36
IAS 37
IFRS 5
IFRS 8
SIC 12
IAS 10*
IAS 12*
IAS 19*
IAS 20*
IAS 26*
IAS 29*
IAS 32*
IFRS 7*
Implementationin 2012
IAS 21
IAS 18
IAS 34*
IAS 38
IFRS 2*
IFRS 3R
IFRIC 10*
Implementation
in 2011
* Still in exposure draft
** Tentatively proposed to be effective in 2012
IFRIC 7**
IFRIC12*
IFRIC 14*
IFRIC 16
SIC 10*
SIC 25*
Slide 4
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PwCSlide 5
Dudi M. KurniawanAssociate Partner
Assurance Services
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PwCSlide 6
Agenda
Path to adoption of IFRS in Indonesia
New PSAKs
Tax Session
Islamic Finance
IT- How do you prepare for PSAK Implementation
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PwCSlide 7
New PSAKs
PSAK 4 (Revised 2009) - Consolidated and separate financialstatements (IAS 27R)
PSAK 5 (Revised 2009) - Operating segment (IFRS 8)
ISAK 10 - Customer loyalty programs (IFRIC 13)
PSAK 25 (Revised 2009) - Accounting policies, changes inestimates and errors) (IAS 8)
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PwCSlide 8
PSAK 4 (Revised 2009) - Consolidated & Separate F/SComparison with previous standard
Differences with the previous version of PSAK 4, among others:
Potential voting rights considered in determining control
A subsidiary is not excluded from consolidation just because the investor is
a venture capitalist or mutual fund Guidance when reporting date of the parent is different from that of the
subsidiary
Non-controlling interest can be negative
Disposal of interests in a subsidiary that does not result in loss of control ->equity transaction
Separate financial statements of the parent:
as a supplementary information to the consolidated F/S
investment in subsidiary at cost or in accordance with PSAK 55
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PwCSlide 9
PSAK 5 (Revised 2009) - Operating Segments
An entity shall disclose information to enable users of its financialstatements to evaluate the nature and financial effects of the businessactivities in which it engages and the economic environments in whichit operates
Operating segments are components of an entity about which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker in deciding how to allocate resources and inassessing performance
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PwCSlide 10
PSAK 5 (Revised 2009) - Operating SegmentsWhat are the key features of an operating
segment?
a. Engages in business activities
b. Operating results are regularly reviewed by CODM to assess performanceand make decisions
c. Discrete financial information available
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PwCSlide 11
Optional
Optional
PSAK 5 (Revised 2009) - Operating SegmentsDetermining reportable segment
Identify each operating segment that exceeds 10% threshold
Aggregate any operating segments that meet all
aggregation criteria
For the remaining operating segments below 10% threshold,
aggregate with each other if majority of aggregation criteria met
If reportable segments are less than 75% of revenue
add more reportable segments
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PwCSlide 12
Aggregation criteria:
PSAK 5 (Revised 2009) - Operating SegmentsDetermining reportable segments
Segments similar on each of five specified criteria***
Segments have similar economic characteristics
Aggregation is consistent with core principle
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PwCSlide 13
PSAK 5 (Revised 2009) - Operating SegmentsDisclosure considerations
Disclosure of certain minimal information
Measure of assets
Measure of profit
Reconciliation of totals to primaryfinancial statements
Segment liabilities
Significant items like depreciation,interest, revenue
Associates and capex
Disclose if provided insome manner to CODMMust disclose
Non-GAAP
Measures
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PwCSlide 15
ISAK 10 - Customer Loyalty Program
How to treat an entitys obligation to providefree or discounted goods or services (awards)in the future:
Allocate some of the consideration receivedor receivable to award credits and deferrevenue
Amount of consideration allocated based onFair Value of the award credit
Milescreditcards
Reward
point
s
program
mes
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PwCSlide 16
PSAK 25 (Revised 2009) - Accounting Policies,Changes in Estimates and Errors
Terminology: fundamental errors errors
Hierarchy of accounting policies
- Specifically applicable PSAK
- Accounting policies to produce information that is relevant andreliable
- PSAKs applicable for similar items
- Framework for the Preparation and Presentation of FinancialStatements
- Pronouncements by other standards-setter
Mandatory disclosure of new PSAKs not yet effective & potential
impact
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PSAK 7 (R 2009) Disclosures of Related Parties
Related parties include, among others: parent
subsidiaries
fellow subsidiaries
associates
key management personnel of the entity or its parent (or close familymembers of their families )
post-employment benefit plans
Slide 17
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PSAK 7 (R 2009) Disclosures of Related Parties
Transactions with related parties require certain disclosures, such as:
the nature of relationships
the amounts of transactions
outstanding balances
doubtful debt expenses
other matters necessary for a clear understanding of the financialstatements
Slide 18
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PSAK 7 (R 2009) Disclosures of Related Parties
What is new?
Definition of related parties
Clarifies that an entity is required to disclose whether the terms of a
related party transactions are at arms length only when the terms can besubstantiated
Slide 19
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PSAK 7 (R 2009) Disclosures of Related Parties
What is new? Relationships between parents and subsidiaries are disclosed irrespective
of whether there have been transactions between them
New disclosures, among others:
Total compensation of key management personnel by types ofemployee benefits
Classification of transactions with related parties into differentcategories of related parties
Simplified disclosures for government-related entities
Slide 20
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PwCSlide 21
Cash Holding
Cash Cow
CashTight
(Reportingentity)
Cash or Bust
Cash or Glory
CashSubsidiary
Lady Cash
Management
CashAssociate
Significantinfluence
Control
Cash TreeInvestor
JointVenture
Significantinfluence
Cash orAirmilesInvestor
Control
PSAK 7 (R 2009) Disclosures of Related PartiesExample Who is related to Cash Tight?
KMP
Significantinfluence
Cash Cat
Significantinfluence
Joint
Venture
Control
Cash or
AirmilesInvestor Cash Holding
Lady Cash
Management
CashSubsidiary
Cash or Bust
Cash Cat
CashAssociate
Cash or Glory
IAS 24 Related party disclosures
Slide 21
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PwCSlide 22
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PwC Slide 23
Samuel OngTechnical Advisor,Assurance Services
Angelique DaryantoPartner,Assurance Services
Triono SoedirdjoDirector,Advisory Services
Hendra LieDirector,Tax Services
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PwCSlide 24
New PSAKs
PSAK 4R Consolidated and Separate Financial Statements (IAS 27R)
ISAK 7R - Consolidation of Special Purpose Entities (SIC 12)
PSAK 22R Business Combinations (IFRS 3R) PSAK 19R Intangible Assets (IAS 38)
PSAK 48R Impairment of Assets (IAS 36)
PSAK 55R Financial Instruments: Recognition and Measurements (IAS 39)
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PwCSlide 25
New PSAKs
PSAK 4R Consolidated and Separate Financial Statements (IAS 27R)
ISAK 7R - Consolidation of Special Purpose Entities (SIC 12)
PSAK 22R Business Combinations (IFRS 3R) PSAK 19R Intangible Assets (IAS 38)
PSAK 48R Impairment of Assets (IAS 36)
PSAK 55R Financial Instruments: Recognition and Measurements (IAS 39)
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PwCSlide 26
PSAK 4R Consolidated and Separate Financial Statements (IAS 27R)
Control is the power to govern the financial and operatingpolicies of an entity so as to obtain benefit from its activities.
What is control?
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Factors influencing control
Slide 27
A combination of all these factors needs to be considered
Equityshareholding
Ability to appointdirectors to theboard
Potential votingrights
Controlagreement
Special purposeentities (SPEs)
De facto control
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Potential voting rights
Slide 28
This is when an entity owns instruments that, if exercised or converted, givethe entity power over the financial and operating policies of another entity e.g.share warrants, share call options, debt or equity instruments etc.
PSAK 4 (revised) requires all potential voting rights that are CURRENTLY
exercisable or CURRENTLY convertible be considered.
ALL FACTS AND CIRCUMSTANCES SHOULD BE EXAMINED
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Potential voting rights
Slide 29
A
D
20%
B
40%
C40%
Sharewarrants
Sharewarrants
Calloption
51%
+
+
+
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Special purpose entities (SPEs)
Slide 32
Question: Should the Mutual Fundbe consolidated?
Bank SUN Mutual Fund
1. Sold 100% SUN toMutual Fund
2. Sold all units (SUNas the underlying asset)
Investment
manager
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Special purpose entitities (SPEs)
1. SPEs activities
2.Benefits
3. Risk exposure
4.Decision
making powerover the SPE
Slide 33
Question: Should the Mutual Fund be consolidated?
BankSUN
MutualFund
1. Sold 100% SUN toMutual Fund
2. Sold all units (SUNas the underlying asset)
Investmentmanager
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Purchase Price Allocation
Principles
Example
Fair value everything!
almost
PSAK 22R Business Combinations (IFRS 3R)
Slide 35
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Principles PSAK 22 (R 2010)
Slide 36
Non-controllinginterest
Previous interest
Consideration
Assets, liabilitiesand contingent
liabilities
Goodwill
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Identifiable assets, liabilities and contingentliabilities recognised at fair value (FV).
Identify and recognise intangible assets atFV: brands, customer list, etc.
Difference between cost and net FV ofidentifiable assets, liabilities and contingentliabilities is goodwill.
Slide 37
Fair value everything!
almost
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Example of business combinations
Slide 38
Bank A
Bank B
100%
Bank A
Division of Bank B(commercial
banking)
Purchase group of
assets/business
ConsolidatedCase 1 Stand aloneCase 2
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Example of business combinations
Slide 39
Book value Fair value
Assets
Intangible assets 0 162
Fixed assets 3 2
Financial investments 5 5
All other assets 260 262
268 431Liabilities
Provisions 5 24
Deferred tax liabilities 0 54 All other liabilities 178 178
183 256
Net assets 85 175Purchase price 696
Goodwill 521
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PwCSlide 41
Typical intangibles by Industries
The Intangible Assets mentioned above are examples. In performing a PPA facts andcircumstances must be considered!
Customer Relationships
Brands
TechnologiesFavorable Contracts
Customer RelationshipsBrands
Technologies
Favorable Contracts
Customer Relationships Brands
Internet-Platform SoftwareCore Deposit Intangibles Call Center
Core Overdraft Intangibles
Customer Relationships BrandsInternet-Platform Software
Core Deposit Intangibles Call CenterCore Overdraft Intangibles
IPR&D Trade SecretsBrands
PatentsLicenses Order
Backlog
Technology
IPR&D Trade Secrets
BrandsPatents
Licenses OrderBacklog
Technology
Licenses (eg UMTS/GSM)
Customer Relationships
BrandsSoftware (eg Billing)
Roaming Agreements (Inbound, Outbound)
Interconnection Agreements
Infrastructural Rights
Licenses (eg UMTS/GSM)Customer Relationships
Brands
Software (eg Billing)Roaming Agreements (Inbound, Outbound)
Interconnection Agreements
Infrastructural Rights
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PwCSlide 42
Typical intangibles by Industries
The Intangible Assets mentioned above are examples. In performing a PPA facts andcircumstances must be considered!
Retail & Consumer IndustryRetail & Consumer Industry
Customer Relationships
Brands
TechnologiesFavorable Contracts
Customer RelationshipsBrands
Technologies
Favorable Contracts
Pharmaceutical IndustryPharmaceutical Industry
IPR&D Trade Secrets
Brands
PatentsLicenses Order Backlog
Technology
IPR&D Trade SecretsBrands
Patents
Licenses Order BacklogTechnology
TelecommunicationTelecommunication
Licenses (eg UMTS/GSM)
Customer Relationships
BrandsSoftware (eg Billing)
Roaming Agreements (Inbound, Outbound)
Interconnection Agreements
Infrastructural Rights
Licenses (eg UMTS/GSM)Customer Relationships
Brands
Software (eg Billing)Roaming Agreements (Inbound, Outbound)
Interconnection Agreements
Infrastructural Rights
Customer Relationships Brands
Internet-Platform SoftwareCore Deposit Intangibles Call CenterCore Overdraft Intangibles
Customer Relationships Brands
Internet-Platform SoftwareCore Deposit Intangibles Call CenterCore Overdraft Intangibles
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Valuation Approaches
Slide 43
Value estimate
=Market prices or based on
multiples or prices frommarket transactions involvingthe sale of comparable assets
Market Approach
Value estimate
=Reproduction /
replacement cost adjusted foramortisation and obsolescence
Cost Approach
Valuation Approaches
Income Approach
Value estimate
=Present value of earningsattributable to the asset or costs
avoided as a result of owning theasset
Relief-from-Royalty Method
Multi-Period Excess EarningsMethod (MEEM)
Incremental Cash Flow Method
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PwCSlide 44Slide 44
Financial Reporting Valuation Training
Relief-from-Royalty Method
Section 3.6 Valuation Approaches
Brand valuation fromFair value 2008
Brand-specific sales 2000
Royalty rate @ 4%Pre-tax royalty savings 80.0Corporate taxes @ 40% 32.0After-tax royalty savings 48.0Discount rate @ 10%Growth rate @ 2%Residual multiple 11.918Discount factorPresent value after-tax royalty savings 572Tax amortisation benefit 114Fair value 686
Step-up factor TAB 1.2
Valuation date: 1 January 2008Valuation of brand
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How tax treats the intangible assets ?
- Amortisable?
- VAT-able?Book
value
Fair value
Assets
Intangible assets 0 162
Fixed assets 3 2Financial investments 5 5
All other assets 260 262
268 431
Liabilities
Provisions 5 24
Deferred tax liabilities 0 54
All other liabilities 178 178
183 256Net assets 85 175
Purchase price 696
Goodwill 521
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VAT Imposition on intangible assets
VAT Law reference:
Article 4(1)(a):
The delivery of taxable goods within theIndonesia customs area.
Article 16D:
The delivery of taxable goods in the form of assetinitially not for sale.
Slide 48
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Subsequent measurement
Goodwill
CGU & impairment
Slide 49
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New PSAKs
Slide 50
PSAK 4R Consolidated and Separate Financial Statements (IAS 27R)
ISAK 7R - Consolidation of Special Purpose Entities (SIC 12)
PSAK 22R Business Combinations (IFRS 3R) PSAK 19R Intangible Assets (IAS 38)
PSAK 48R Impairment of Assets (IAS 36)
PSAK 55R Financial Instruments: Recognition and Measurements (IAS 39)
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Goodwill
Slide 51
Not amortised Test annually for impairment and when indicators arise Goodwill allocated to cash generating units (CGUs) or groups of
CGUs
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Cash generating units & impairment of goodwill
Slide 52
Goodwill impairment
Goodwill Goodwillimpairment test impairment test
Goodwill impairment test
CGU CGU CGU CGU CGU CGU
Entity
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Measurement of goodwill
Slide 53
Recoverableamount
Carryingvalue
Lower of
Higher of
Fair Value Less Cost To Sell Value in Use
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PwCSlide 54
Value in UseValue Concept
Value in useThe present value of the future cash flowsexpected to be derived from the continuinguse an asset or CGU and its disposal at theend of its economic useful lifetime.
Internal value - company perspectiveInternal value - company perspective
Company-related valuation parametersCompany-related valuation parameters
Recognition of all synergiesRecognition of all synergies
Key elements:
More detailed specifications in IAS 36More detailed specifications in IAS 36
Use pre-tax cash flows and discount rateUse pre-tax cash flows and discount rate
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PwCSlide 55Slide 55
Value in Use of CGU Based on Income Approach
2004 2005 2006 2007 2008 Terminal Value
Step 3:Determinationof Discount
Rate of CGU
Step 1:Forecast of Free
Cash Flows of CGU
Discount Rate
FA
IRVALUE
Step 2:Determination of
remaining usefullife/ / terminal value
of CGU
Step 4:Calculation of
Fair Value ofCGU
Detailed planning period
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New PSAKs
Slide 61
PSAK 4R Consolidated and Separate Financial Statements (IAS 27R)
ISAK 7R - Consolidation of Special Purpose Entities (SIC 12)
PSAK 22R Business Combinations (IFRS 3R)
PSAK 19R Intangible Assets (IAS 38)
PSAK 48R Impairment of Assets (IAS 36)
PSAK 55R Financial Instruments: Recognition and Measurements (IAS 39)
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First time adoption of PSAK 55R impairment(Technical bulletin No 4)
Slide 64
Calculate impairment using the requirements under PSAK 55R on 1 January2010
The difference between new and previous amounts is recognised in thebeginning retained earnings as of 1 January 2010
Statement of changes in equity
AdditionalShare paid-in Retainedcapital capital earnings
Balance at 1 January 2010 xxxxxx xxxxxx xxxxxx
Effect of adoption ofPSAK 55R impairment (note x) - - xxxxxx
Restated balance at 1 January 2010 xxxxxx xxxxxx xxxxxx
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Key take-aways
Slide 65
Stay current on the future accounting standard changes
Anticipate the potential impacts to business
Increase internal accounting capabilities
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Tax Session
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Islamic Finance
Accounting and TaxPerspective
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Accounting Standard for Sharia Insurance Transactions andits Implications
Items Before After
Premium recognition as premium income instatement of income.
as part of addition to Tabarru fund inliability
Claim expense as claim expense in statementof income.
as part of deduction from Tabarru fundin liability
Key Differences
PSAK 108 Accounting for Sharia Insurance Transactions became effective on 1 Jan
2010
Slide 72
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Accounting Standard for Sharia Insurance Transactions andits Implications
Tax implication
Ujrah (fee) vs. investment management fee income VAT and WHT issue
Deductibility of reserve Bapepam LK approval
Tax on non-final investment income
Slide 76
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Challenge 2 Understanding & Knowledge
Incl. How to
As-is Vs. Future
Regulation
Product
System
Strategy
Slide 83
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PwC
19 October 2010
Slide 88
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Thank you.
2010 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of
All materials can be downloaded at:
http://www.pwc.com/id/en/publications/FSpresentation.pdf