Foreign companies consolidating the financial statements of an Indonesian subsidiary must align local accounting records with the parent company’s reporting standards and currency. This involves accounting adjustments, currency translation, elimination of intercompany transactions, and reconciliation of tax balances.
Aligning Indonesian Financial Statements with Group Accounting Standards
Indonesia applies Indonesian Financial Accounting Standards (SAK), including PSAK standards issued by the Indonesian Institute of Accountants (IAI). These standards are substantially aligned with International Financial Reporting Standards (IFRS), although differences may arise from adoption dates, local requirements, and the accounting framework used by the subsidiary.
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For multinational groups reporting under IFRS or US GAAP, adjustments may be required where the subsidiary’s accounting policies differ from those applied by the parent company. These may concern revenue recognition, leases, financial instruments, or asset valuation.
A subsidiary preparing statutory financial statements under Indonesian standards may need a separate reporting package reflecting the parent’s accounting policies.
Translating Indonesian Subsidiary Accounts into the Group’s Reporting Currency
An Indonesian subsidiary may maintain its accounting records in rupiah while its parent company presents consolidated financial statements in another currency.
The currency used for accounting records, the subsidiary’s functional currency, and the group’s presentation currency are not necessarily the same. Eligible Indonesian companies may obtain permission to maintain their tax bookkeeping in English and US dollars.
Where the subsidiary’s functional currency differs from the group’s presentation currency, its financial statements must generally be translated as follows:
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Assets and liabilities using the closing exchange rate at the reporting date.
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Income and expenses using exchange rates at the transaction dates, or appropriate averages where permitted.
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Relevant equity balances using the appropriate historical exchange rates.
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Resulting foreign currency translation differences recognized in other comprehensive income, where applicable.
These translation differences are distinct from exchange gains or losses arising on individual foreign-currency transactions. Movements in the rupiah can therefore affect consolidated assets, liabilities, and equity without changing the subsidiary’s underlying operating performance.
Eliminating Intercompany Transactions and Balances
Transactions between an Indonesian subsidiary and other companies within the consolidated group must be eliminated when preparing consolidated financial statements.
These may include management fees, royalties, intercompany loans, dividends, and sales of goods.
If an Indonesian subsidiary records a management fee payable to its Singapore parent, the corresponding expense and income must generally be eliminated in consolidation, together with the outstanding receivable and payable.
Unrealized profits on intra-group transactions also require adjustment. If the Indonesian subsidiary purchases inventory from another group company and that inventory remains unsold to an external customer at the reporting date, the unrealized profit must generally be eliminated from consolidated inventory and earnings.
Differences in currencies, accounting periods, or transaction recognition can complicate the reconciliation of intercompany balances.
Reconciling Indonesian Tax and Group Reporting
Differences between accounting profit and taxable income can arise from depreciation, provisions, employee benefits, and expenses subject to Indonesian tax rules.
Some differences are permanent, while temporary differences may give rise to deferred tax assets or liabilities.
During consolidation, the parent company must determine whether the subsidiary’s current and deferred tax balances comply with the group’s accounting policies.
Management fees, royalties, and financing arrangements between related companies may also involve Indonesian withholding taxes and transfer pricing requirements. These obligations remain relevant even where the underlying intercompany income and expenses are eliminated from consolidated financial statements.
Meeting Indonesian Reporting and Audit Requirements
Under Indonesia’s Company Law, directors must submit the annual report, including the financial statements, to the annual general meeting of shareholders within six months after the financial year-end.
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The annual corporate income tax return is generally due within four months after the end of the tax year. Eligible companies may obtain a filing extension of up to two months.
Under Indonesia’s Company Law, companies with assets or annual revenue of at least IDR 50 billion (USD 3.1 million) are among those required to have their financial statements audited. Other statutory audit triggers include specified public-interest activities, while additional requirements may apply under sector-specific regulations.
A foreign parent may also require an audit of its Indonesian subsidiary for group reporting purposes, even where a statutory audit is not independently required under Indonesian law.
Preparing Consolidation-Ready Accounts
A group reporting package typically includes the Indonesian subsidiary’s trial balance, financial statements, intercompany balances, accounting adjustments, and supporting schedules.
Where the subsidiary’s reporting date differs from the parent’s, the group must comply with the applicable accounting requirements governing financial statements prepared at different dates.
Chart of Accounts and Accounting Policies
The subsidiary’s chart of accounts should be mapped to the group’s reporting structure, allowing local transactions to be classified consistently without changing the accounts used for Indonesian statutory reporting.
The reporting package should separately identify local figures and adjustments required under the parent’s accounting policies.
Intercompany and Tax Reconciliations
Intercompany balances should be matched against the corresponding records of other group entities, with discrepancies resolved before consolidation.
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Tax schedules should identify current tax liabilities, deferred tax balances, and withholding taxes, allowing the parent company to verify the amounts incorporated into group reporting.
Consolidation Systems
The reporting system should distinguish local statutory figures from group reporting adjustments and retain supporting records for audit purposes.
Simplify Group Financial Reporting with MAP Resources Indonesia
MAP Resources Indonesia assists foreign-owned companies with accounting, financial reporting, tax reconciliation, and audit preparation in Indonesia. Contact us at info@mapresourcesindonesia.com for support.
