Introduction/Main Objectives: This study analyzes the legitimacy of Indonesia’s financial accounting standard-setting institutions. Background Problems: The enactment of the Law on Development and Strengthening of the Financial Sector has resulted in changes to the financial regulations, including an institutional arrangement for financial accounting standard setting. The law regulates that the standard setting should be conducted by a standard-setting committee established by a presidential decree. This is different from the current system, where the standard-setting process is conducted by a board under the Institute of Indonesia Chartered Accountants, a private organization of professional accountants in Indonesia. The new scheme may increase the government's role in the standard-setting process, which may hinder independence. Novelty: This study adds to the literature on the legitimacy of standard-setting institutions by focusing on the stakeholders’ perspectives. Research Methods: A qualitative approach, through semi-structured interviews with stakeholders from various professional backgrounds that relate to financial reporting, was conducted to compare the legitimacy of private versus government institutions that set financial accounting standards. Finding/Results: Each of the institutions—both the government’s and the private one under the IAI—has various positive and negative effects on the legitimacy of the standard-setting process. Collaboration between the government and the private sector, such as involving the IAI in determining the financial accounting standard-setter, has stronger legitimacy than a sole government standard-setting institution. Conclusion: The results of this study contribute to the development of the legitimacy theory and provide inputs for the further implementation of the new law.
Ilahi et al. (Wed,) studied this question.