Accounting for Under Common Control Entities:
This paper addresses the issue of restructuring transaction under common control entities. Based on the Indonesian accounting standard, this transaction does not make any substantial changes in the economic ownership, even though ownership of shares, assets or liabilities or other instruments of ownership changes. Revision made in 2004 which is a revision to accounting standard number 38 year 1997 concerning restructuring accounting under common control entities is actually a move to improve the quality of financial statement in order to face transparency required in corporate management.
This paper analyses a series of cross ownership transactions done in X and Y. These companies had cross-ownership as one of the ways to restructure their companies. In line with accounting standard number 38 year 1997, due to the restructuring transaction between these two companies as well as the difference between the transfer price and the book value of the traded shares, then per December 2002, Y should have recognized a profit whereas X should have suffered a loss. Y did recognize it, however, X only reclassified the account of difference of restructuring transactions under common control entities in its equity to be deducted from the retained earning balance, in the book year of 2005. These different accounting treatments on the two companies are worth noticing, considering that the difference not only affects the company’s net profit, but also influence the rights of shareholders and other stakeholders as well.
METHODOLOGY
This paper use a case study method to analyse a series of cross ownership transactions done in X and Y. These transactions, using similar accounting standard, result in different implementation in the financial statements of the two companies. The analysis done includes the qualitative characteristics of the quality of the two companies’ financial reports. To compare the...