Overview of Audit in Indonesia
Accounting and auditing are crucial to every business, and any organisation that doesn't obtain these services can be expected to encounter numerous issues. Even though there isn't any legislation in Indonesia that governs issues relating to financial reports, a bookkeeping system nonetheless is in place that complies with the standards for Indonesian accounting services found in numerous laws and regulations. Further, there are various entities that are liable to mandatorily perform their Audit in Indonesia.
Why Company Audits Are Vital
An audit is an objective and methodical evaluation of statutory records, organisational financial records, and books of accounts. For sharia-based businesses, Audit in Indonesia must be carried out in accordance with the Indonesian Financial Accounting Standards (SAK), which are established by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI).
It is carried out to ascertain whether the financial statements and non-financial information accurately reflect the company's financial situation. Doing this gives the set of financial statements credibility and demonstrates that they are accurate and fair.
As a result, the shareholders or investors gain more confidence and continue to support the company. It also aids in strengthening a company's internal systems and controls.
Requirements Related to Audit in Indonesia
The board of directors must present an annual financial statement to the general meeting of shareholders in compliance with Indonesian corporate law. Every aspect of the company's operations and financial performance must be included in the statement. A business can ensure that all accounting activities are accurately recorded and in compliance with Indonesian laws by using professional financial services for Audit in Indonesia.
Banks and financial institutions, publicly traded companies, companies that issue debt, state-owned companies, and companies with assets worth at least IDR 50 billion are the five categories of limited liability companies that are required to publish audited financial statements that have been approved by their general meeting of shareholders. According to Indonesia's generally accepted accounting principles, annual reports must be created (PSAK). Indonesia is working to align these regulations with the global financial reporting standards (IFRS).
The report must include at least these items:
- The prior financial year's balance sheet and profit and loss statement, along with equivalent data from the prior year
- A status and performance report about the business.
- The ownership of a company's shares must be recorded in a register of shareholders, as well as a specific register of the board of directors and board of commissioners members.
- Share ownership changes must be noted in the shareholder register and approved at the annual meeting.
Within six months of the year-end financial close of the corporation, the board of directors is required to present an annual report to the general meeting of shareholders. In order to maintain English language and US dollar bookkeeping for tax purposes, foreign investment (PMA) companies, permanent establishments, specific entities with foreign affiliations, and businesses that prepare their financial statements using the US dollar as the functional currency in accordance with PSAK 10 may do so with the approval of the Minister of Finance. Oil and gas PSA contractors and businesses working under mining contracts of work only need to notify. Changes to the bookkeeping process are conceivable but require DGT approval (Directorate General of Tax).
Who Needs an Audit in Indonesia?
Companies that meet the following conditions must audit their financial statements, according to Minister of Trade Regulation Number 25 in 2020:
- Limited Liability Company that satisfies one of the following requirements:
- it must be a public company;
- operate in industries that involve the mobilisation of public funds;
- issue a debt acknowledgement letter;
- have total assets or assets worth at least Rp. 25,000,000,000.00 (twenty-five billion rupiahs); or
- it must be a debtor whose annual financial report the bank requires to be audited.
- Branch offices, sub-offices, subsidiaries, and agents and representatives of a foreign company with the legal capacity to enter into contracts that are based in Indonesia and conduct business there in accordance with the provisions of the relevant laws and regulations; or
- Public Companies (Persero), Public Companies (Perum), State-Owned Enterprises (BUMN), and Regional Enterprises Regional-Owned Enterprises (BUMD).
Every company must include both expenses and revenue in their financial accounts in order to avoid unpleasant government checks. This necessitates a careful Audit in Indonesia of all financial records, including books, accounts, paperwork, and vouchers.
A firm is required by law to maintain its books and accounting records for at least ten years following the end of its reporting period. Additionally, audits for Sharia-based businesses must be done in accordance with the Indonesian Financial Accounting Standards (SAK), which are established by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI).
The International Financial Reporting Standards (IFRS), published by the IFRS Foundation and the International Accounting Standards Board, and the DSAK IAI's accounting standards have been aligned since 2015. (IASB). (The IFRS are a set of international financial reporting and auditing standards that are applicable to all profit-oriented organisations.)
As the nation seeks to draw more foreign investment and take a more significant position in the G20, Indonesia is taking steps to improve the comparability and understanding of local financial accounts across national borders.
According to the Ministry of Finance (MOF), the auditor must be a licenced independent public accountant, avoid any potential conflicts of interest, and follow all MOF guidelines. A company cannot retain the services of an auditing firm for six consecutive years without major partner changes, according to the MOF.
Maintenance of Registers
The ownership of shares within Indonesia must be recorded in a company's register of shareholders, as well as a separate register for members of the board of directors and commissioners and their families. The shareholder's registry and the special register must both reflect changes in share ownership.
Process of Audit in Indonesia
The following are the steps to be taken in order to submit audited financial statements to the Ministry of Trade:
- The business uploads the original Portable Document Format of the audited Company Annual Financial Report (LKTP) to the Director via the web portal.
- The company must submit the business profile online using the form on the website in order to submit the LKTP.
- If the infrastructure and facilities supporting the Integrated Licensing Information System (SIPT) are down for more than 24 (twenty-four) hours due to damage (force majeure), the service is performed manually.
- The Directorate of Business Development and Distribution Actors performs the manual service.
Violation of Requirements Related to Audit in Indonesia
Administrative fines in the following forms may be imposed on businesses that violate the provisions relating to Audit in Indonesia:
- Revocation of other technical licences by the head of the relevant agency / authorised official in line with the rules of the applicable legislation.
- Revocation of Letter of delivery (STP) – LKTP.
- Revocation of licencing in the trade sector.
Services for Audit in Indonesia
To maintain a competitive advantage in the fast-paced business world of today, a company must have timely and accurate financial information. The term "accounting" refers to the bookkeeping procedure that complies with the tax and limited liability company legislation of Indonesia's accounting standards. It shouldn't be confused with a real bookkeeping service, though.
The following list includes some of the typical services offered by accounting firms relating to Audit in Indonesia:
- Financial planning and budgeting;
- Account consolidation and financial statements;
- Management reports and accounts;
- Filing annual reports;
- Payroll tax reporting;
- Compilation of accounts for dissolution/tax clearance;
- Advisory services;
- Cash flow and working capital analysis.
- Regular financial reports
A company's books, accounts, papers, and registers are systematically and independently examined as part of an audit, which aims to determine how closely the financial statements are to a true and fair representation of its operations. Based on their thorough understanding of accounting concepts, audit professionals offer a variety of independent services for Audit in Indonesia.