Foreign-owned companies in Indonesia may be required to have their annual financial statements audited depending on their size, activities, and regulatory status. For PT PMAs that fall within Indonesia’s statutory audit requirements, the audit covers the company’s annual financial statements and must be conducted by a licensed Indonesian public accountant through a licensed public accounting firm (KAP).
When Does a PT PMA Need a Statutory Audit?
Not every foreign-owned limited liability company (PT PMA) is automatically required to undergo a statutory financial statement audit solely because it has foreign shareholders.
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Under Indonesia’s company reporting framework, audit requirements can apply to companies meeting specified financial thresholds or falling within particular categories. This includes certain companies with assets or annual turnover of at least IDR 50 billion (USD 3 million), as well as companies subject to separate requirements because of their activities or regulatory status.
Listed companies, financial institutions, and other regulated businesses can be subject to additional audit and reporting requirements under the rules applicable to their sectors.
Who Can Audit an Indonesian Company?
Where an external audit is required, it must be performed by a licensed Indonesian public accountant through a licensed public accounting firm (KAP).
Additional requirements can apply to companies operating in regulated sectors. Financial institutions and capital-market entities, for instance, can be subject to Financial Services Authority (OJK) requirements governing the auditors permitted to perform their engagements.
For an ordinary PT PMA outside a regulated sector, OJK does not generally supervise the company’s annual financial statement audit merely because the company is foreign-owned.
What Does a Financial Statement Audit Cover?
A statutory financial statement audit examines whether the company’s annual financial statements are prepared, in all material respects, in accordance with the applicable Indonesian financial reporting framework.
The auditor obtains evidence supporting balances, transactions, disclosures, and significant accounting judgments. This can involve testing revenue and expenses, reviewing bank and account reconciliations, examining assets and liabilities, confirming balances with third parties, and assessing significant estimates made by management.
The scope is determined using materiality and audit risk. Auditors therefore do not normally examine every transaction individually.
A financial statement audit should also be distinguished from a tax audit. Tax audits are conducted by the Directorate General of Taxes to examine a taxpayer’s compliance with Indonesian tax obligations. They are not substitutes for independent financial statement audits.
How Does the Audit Process Work?
The process usually begins with audit planning. The auditor develops an understanding of the company’s operations, accounting systems, significant transactions, and areas where there is a higher risk of material misstatement.
Management will normally receive a request for accounting records and supporting documents based on the company’s activities and the areas being audited.
During fieldwork, the auditor tests selected transactions and balances, reviews supporting evidence, and discusses accounting treatments or discrepancies with management. Proposed audit adjustments may arise where the auditor identifies errors or accounting treatments that need correction.
What Should a PT PMA Prepare Before the Audit?
Bank balances should reconcile with bank statements, while accounts receivable and payable should agree with their supporting schedules. Fixed assets should be supported by an updated register, and companies holding inventory should be able to reconcile quantities and values to their accounting records.
Material contracts, loan agreements, leases, shareholder transactions, and intercompany arrangements should also be available where they affect amounts or disclosures in the financial statements.
Differences between group reporting and the Indonesian company’s local accounts should also be reconciled before the audit where they affect the statutory financial statements.
What Issues Commonly Affect PT PMA Audits?
Related-party transactions can require significant audit attention where an Indonesian subsidiary has management fees, royalties, loans, purchases, sales, or other transactions with overseas group companies. The auditor may need evidence supporting the amounts recorded and the accounting treatment applied.
Foreign-currency transactions can also affect the audit where the company invoices, borrows, purchases assets, or incurs expenses in currencies other than its functional currency. Exchange-rate treatment and year-end balances need to be reflected correctly in the financial statements.
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Revenue recognition and cut-off can become important where transactions cross the financial year-end or contracts contain multiple obligations. Depending on the business, auditors may also focus on inventory valuation, fixed assets, leases, impairment, expected credit losses, and significant management estimates.
Where a foreign parent uses IFRS for group reporting, the company should also distinguish adjustments made for group consolidation from the accounting treatment used in its Indonesian statutory financial statements.
What Audit Opinion Can a Company Receive?
An unmodified opinion indicates that the auditor concludes the financial statements are presented fairly, in all material respects, under the applicable financial reporting framework.
A modified opinion can arise where the auditor identifies a material issue with the financial statements or cannot obtain sufficient appropriate evidence.
Depending on the nature and significance of the issue, the auditor may issue a qualified opinion, an adverse opinion, or a disclaimer of opinion.
Prepare for an Indonesian Audit With MAP Resources Indonesia
MAP Resources Indonesia can help foreign-owned companies maintain audit-ready accounting records, prepare annual financial statements, reconcile supporting schedules, and coordinate information requested during the audit process. Contact us at info@mapresourcesindonesia.com.
