Pramatech

To give value with IT implementation

What is PSAK 109 Financial Instrument

[Bahasa Indonesia]

Introduction

The Statement of Financial Accounting Standards (PSAK) 109 is a standard designed to regulate the recognition, measurement, presentation, and disclosure related to financial instruments. PSAK 109 aims to provide clear guidelines for entities in handling the classification and measurement of financial instruments, impairment, and hedge accounting, ensuring that financial reports produced reflect transparency and reliability for stakeholders.

PSAK 71 Turn Into PSAK 109?

There has been a renumbering of the Indonesian Financial Accounting Standards (PSAK), effective from 1 January 2024. In this renumbering, PSAK 71, which deals with Financial Instruments, has been renumbered as PSAK 109. This change is part of a broader restructuring to align the numbering system of PSAKs. It’s important to note that while the number has changed, the content and scope of the standard regarding financial instruments remain the same.

Objectives of PSAK 109

PSAK 109 aims to:

  • Ensure that the accounting treatment of financial instruments complies with international standards and applicable accounting principles.
  • Provide relevant and reliable information for financial statement users, including investors, creditors, and regulators.
  • Promote consistency and comparability in financial reporting.

Scope of PSAK 109

PSAK 109 covers all types of financial instruments owned by entities, whether acquired through business transactions or arising as part of operational activities. This includes:

  • Hedge accounting to manage financial risks.
  • Classification of financial instruments as financial assets, financial liabilities, or equity instruments.
  • Initial and subsequent measurement of financial instruments.
  • Recognition and measurement of impairment.
PSAK application in SaaS model or on-premise

Key Components of PSAK 109

  1. Classification and Measurement
    • Financial instruments are classified based on the contractual cash flow characteristics and the entity’s business model.
    • The main categories for measurement are amortized cost, fair value through profit or loss (FVTPL), and fair value through other comprehensive income (FVOCI).
  2. Impairment
    • PSAK 109 introduces the expected credit loss (ECL) approach to assess the impairment of financial assets.
    • This approach includes three stages based on significant changes in credit risk since initial recognition.
  3. Hedge Accounting
    • PSAK 109 allows entities to use hedge accounting to align the accounting impact of hedging instruments with the hedged items.
    • The three main types of hedges are fair value hedges, cash flow hedges, and hedges of a net investment in a foreign operation.
  4. Disclosure
    • Entities are required to disclose information reflecting the significance of financial instruments to financial position and performance, including risks associated with financial instruments.

Benefits of Implementing PSAK 109

Organizations can improve the quality of financial statements by putting PSAK 109 into practice.

  1. Transparency in managing financial instruments.
  2. Better understanding of financial risks and their mitigation.
  3. Consistency in financial reporting, facilitating analysis by financial statement users.
  4. Compliance with international standards, supporting credibility in global markets.