Overview of Accounting and Auditing in Indonesia

Southeast Asia's largest economy, Indonesia, is fueled by various industries, including manufacturing, agriculture, mining, and services. Indonesia offers a sizable consumer market due to its expanding middle class and population of over 270 million. Numerous reforms have been implemented in the nation to enhance the economic environment and draw in foreign capital, making it a desirable location for companies looking for expansion.

Consequences of Lack of Audit in Indonesia

Due to difficulties in identifying underperforming regions within businesses, the absence of audits in Indonesia may result in decreased business performance. Without routine audits, businesses can find it difficult to identify operational inefficiencies, financial vulnerabilities, or strategic flaws that need attention and repair. As a result, problems that should have been handled proactively may go unnoticed, resulting in a decline in the performance and competitiveness of the business as a whole.

Additionally, a lack of audits frequently prevents companies from taking the required steps to address underlying problems. Companies risk missing opportunities to find and fix issues that impede their growth and success if financial records, internal controls, and operational procedures are not thoroughly examined. This might result in the maintenance of inefficiencies, ineffective procedures, and subpar performance, which would ultimately hinder the company's capacity to succeed in a cutthroat market.

Also, the lack of audits may prevent the implementation of new policies meant to solve process-related problems. Audits are an effective tool for spotting operational and internal control gaps, forcing businesses to develop new procedures and policies to reduce risks and increase efficiency. Without audits, businesses can overlook the need for policy updates or other adjustments, relying on antiquated or inefficient procedures that reduce productivity and profitability.

Without audits, businesses may also be more likely to face legal action or criminal accusations. Without adequate financial oversight, fraudulent operations, financial theft, or other criminal practices may go unnoticed, leaving businesses open to legal repercussions. These legal disputes may have long-term effects, including possible closure or bankruptcy, as well as financial costs and reputational harm to the company.

Who is an auditor?

To assure accuracy, integrity, and conformity with relevant laws, rules, and accounting principles, an auditor is a professional who conducts an independent inspection and evaluation of an organization’s financial records, statements, and systems. Their main responsibility is to offer an unbiased evaluation of the internal controls, risk management procedures, and financial stability of an organization.

Eligibility Criteria for Auditor

According to the Ministry of Finance's regulations, the auditor must be an unbiased public accountant who has been officially registered. Additionally, unless the partners of the company have changed, the Ministry of Finance forbids a corporation from using the same auditing firm continuously for six years.

Audit Process in Indonesia

The steps for submitting audited financial statements to the Ministry of Trade are listed below.

Step 1: Through the specified web portal the Ministry offers, the company uploads the original, audited Company Annual Financial Report (LKTP) in a PDF.

Step 2: The business must complete and submit the online business profile form on the Ministry's website to submit the annual financial report. 

Step 3: The submission process is carried out manually in the event that a system outage lasting more than 24 hours results from unforeseeable events (force majeure), such as infrastructure or facility damage.

Step 4: The Directorate of Business Development and Distribution Actors manage the necessary processes and activities associated with the submission of the audited financial statements through the manual service.

Accounting Standards in Indonesia

Financial transactions are necessary papered, reported, and displayed in financial statements in accordance with a set of principles, regulations, and guidelines known as accounting standards. These guidelines are intended to guarantee uniformity, openness, and comparability in financial reporting across various businesses and sectors. The Standard Akuntansi Keuangan (SAK) accounting standards are produced by the Indonesian Financial Accounting Standards Board and essentially correspond to the International Financial Reporting Standards (IFRS).

Accounting standards give firms a structure that makes it possible to record and present financial information in a consistent and useful way. For numerous financial aspects, including assets, liabilities, revenues, costs, and equity, they outline the measurement, recognition, presentation, and disclosure standards.

The Indonesian Financial Accounting Standards (SAK) is followed while conducting audits in Indonesia. For businesses that adhere to Sharia law, these standards were developed by the Indonesian Sharia Accounting Standards Board (DSAS IAI) and the Financial Accounting Standards Board (DSAK IAI).

Accounting Principles of Indonesia

• Tier 1 - Companies with public responsibility, as well as local and international listed firms, are both subject to Tier 1 - PSAK based IFRS. The Indonesia Financial Accounting Standard (SAK) and the International Financial Reporting Standard (IFRS) have fully converged as of 1 January 2015, which was accomplished by 1 January 2014. In order to guarantee that PSAK-based IFRS will continue to develop in line with changes in IFRS, the regulatory board is committed to maintaining a one-year gap between the two standards.
• Tier 2 - For businesses that carry out their business operations in accordance with the principles of Syariah, such as banks and other Syariah financial institutions, Tier 2 - PSAK Syariah was created.
• Tier 3 - PSAK-ETAP is intended for entities that either black or have little public responsibility. The goal of this standard is to make it easier for such businesses to submit financial statements by giving them more ease and flexibility.
• Tier 4 - PSAK EMKM serves micro, small, and medium-sized businesses (MSMEs). This standard is targeted to MSMEs' specific features and needs, recognizing their special place in the business world.

Financial Year of Indonesia

The calendar year, which runs from 1 January to 31 December, coincides with the company's normal financial year end in Indonesia. The deadline for submitting financial statements is 30 April of the following year.

Services offered by Enterslice

Financial planning and budgeting: assisting businesses with the creation and management of their financial strategies and budgets.

• Financial statements and account consolidation: Consolidating accounts from several businesses and creating comprehensive financial statements.
• Reports and accounts for management: Providing reports and accounts to assist management in making wise business choices.
• Annual report filing: By assisting businesses in creating and submitting their annual reports, we can help them fulfil their duties.
• Payroll tax reporting: Managing and disclosing payroll taxes while assuring adherence to applicable tax laws.
• Accounting compilation for dissolution/tax clearing: Accounting compilation for dissolution or tax clearance.
• Advisory services: Giving businesses expert guidance on financial concerns and assisting them with challenging accounting problems.
• Cash flow and working capital analysis: Analyzing cash flow patterns and working capital management in order to handle financial resources as efficiently as possible.
• Financial reports: Creating monthly financial reports to educate stakeholders on the company's financial status is a regular financial reporting practice.