A foreign parent company may need financial information from its Indonesian subsidiary before the subsidiary’s local statutory audit is complete. This creates two reporting tracks that need to work together: the subsidiary’s Indonesian requirements and the parent’s group audit.
Does the Indonesian Subsidiary Need Its Own Statutory Audit?
An Indonesian subsidiary does not require a statutory audit solely because it is foreign-owned or part of an international corporate group.
An external audit is required in certain cases, including when the company has assets and/or annual turnover of at least IDR 50 billion (USD 3 million), and when it falls within another statutory audit category.
Even when the subsidiary does not meet Indonesian statutory audit requirements, the parent company or group auditor may require audited or reviewed financial information for the group accounts. The work required in Indonesia can consequently be broader than the subsidiary’s local obligations alone.
Determine What the Group Auditor Needs From Indonesia
Once the local audit requirement is clear, the next issue is what the foreign parent’s group auditor needs from the Indonesian subsidiary.
The group auditor determines the work needed from the Indonesian subsidiary based on its significance and identified risks. An Indonesian auditor may be asked to examine specific balances, transactions, disclosures, or other areas for the group audit. Where an Indonesian auditor performs this work for the group audit, that firm acts as a component auditor.
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The two auditors should agree on the required information, reporting format, deadlines, and communication process before substantial audit work begins. The Indonesian auditor may also have separate responsibilities when issuing an audit opinion on the subsidiary’s statutory financial statements, so the local and group audit scopes should not be treated as identical.
Reconcile Indonesian Accounts With the Group Accounting Framework
The financial information requested by the group auditor may also need to differ from the subsidiary’s local financial statements.
The Indonesian subsidiary prepares its financial information under the accounting standards that apply to it, while the foreign parent may use a different accounting framework for its consolidated financial statements. Any differences that affect group reporting need to be identified before the Indonesian results are consolidated.
Where an accounting treatment differs, the Indonesian statutory financial statements do not necessarily need to be changed. The required adjustment may instead be made through the reporting package submitted to the parent for consolidation.
Translate the Indonesian Subsidiary Into the Group Reporting Currency
The reporting package may also need to translate the Indonesian subsidiary’s financial information into the currency used for the group’s consolidated accounts.
Indonesian companies generally keep their books in Indonesian and IDR. Certain taxpayers, including qualifying foreign-investment companies and subsidiaries of foreign parent companies, can use English and USD after completing the applicable Indonesian tax procedure.
MAP Resources Indonesia can prepare local accounts for group reporting. Email info@mapresourcesindonesia.com
The parent may present its consolidated financial statements in another currency. When the currencies differ, the group must apply the translation requirements under its accounting framework to the subsidiary’s assets, liabilities, income, and expenses.
This does not mean applying one exchange rate to the entire financial statement. Different rates may apply to different elements, and resulting currency differences must be treated according to the accounting framework used by the group.
Align Different Financial Year-Ends
The Indonesian subsidiary and foreign parent may also have different financial year-ends, which can affect the information available for the group close.
Where reporting dates differ, the group needs to determine what financial information is required from Indonesia and whether additional information or adjustments are needed for transactions occurring between the two reporting dates.
The Indonesian audit timetable should then work towards the parent’s consolidation deadline rather than being managed only according to the subsidiary’s local timetable.
Reconcile Transactions With the Foreign Parent
Before the Indonesian results can be consolidated, transactions between the subsidiary and other group companies also need to match.
These can include management fees, royalties, shareholder loans, purchases, sales, dividends, and other related-party transactions.
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A receivable recorded by the Indonesian subsidiary should correspond with the payable recorded by the other group company. Differences can arise from timing, foreign-exchange movements, invoices recorded in different periods, or disagreements over the amount charged.
Any differences should be resolved before consolidation, with necessary corrections made to the Indonesian accounts.
Resolve Indonesian Audit Adjustments Before Group Sign-Off
Even after the subsidiary has submitted its reporting package, the Indonesian audit can produce adjustments that affect the group accounts.
If the Indonesian auditor changes a material balance, transaction, provision, or accounting treatment, the parent needs to determine whether the reporting package and consolidated accounts must also be updated.
The Indonesian finance team should keep a record of these adjustments and communicate relevant changes to the group auditor before the consolidated financial statements are finalized. This prevents the parent from signing off group accounts using figures that have subsequently changed in Indonesia.
Consolidate Your Indonesian Subsidiary With MAP Resources Indonesia
MAP Resources Indonesia supports foreign corporate groups with accounting preparation, financial reporting, audit coordination, intercompany reconciliation, and tax compliance for their Indonesian subsidiaries. Contact us at info@mapresourcesindonesia.com.
