Foreign companies operating through an Indonesian entity generally prepare their statutory financial statements under the accounting standards applicable in Indonesia. A multinational group may also require the Indonesian subsidiary to submit financial information under IFRS for consolidation at the parent-company level.
For a PT PMA, the issue is therefore not simply choosing between PSAK and IFRS. The company needs to meet its Indonesian reporting requirements while determining whether additional adjustments are required for group reporting.
Which Accounting Standards Apply in Indonesia?
Indonesia’s financial accounting standards are issued by the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia/IAI).
Indonesia’s financial reporting framework includes SAK Indonesia, which is substantially converged with IFRS, as well as SAK Internasional, a full adoption of IFRS Accounting Standards available to entities permitted by the relevant regulator. Most PT PMAs prepare their local financial statements under the Indonesian accounting framework applicable to them rather than simply choosing IFRS because their parent company uses it.
How Closely Are Indonesian Standards Aligned With IFRS?
SAK Indonesia is substantially converged with IFRS and covers the same major accounting areas, including financial instruments, revenue recognition, leases, and insurance contracts.
However, convergence does not mean that the two frameworks are identical at every point in time. Differences can arise from the timing of adoption, local requirements, transitional provisions, or differences between the standards applicable to the Indonesian entity and those used by its parent company.
Does a PT PMA Need Separate IFRS Financial Statements?
A PT PMA does not generally need to maintain a second set of statutory books simply because its foreign parent reports under IFRS.
Need to align Indonesian accounts with group reporting? MAP Resources Indonesia can help. Contact info@mapresourcesindonesia.com
Instead, the Indonesian company can prepare its local accounts under the applicable Indonesian standards and map the relevant balances into the group’s reporting structure. Where the parent’s accounting policies or IFRS treatment differs, adjustments can then be made through the group reporting package.
Where Can PSAK and IFRS Differences Affect Group Reporting?
Leases, financial instruments, expected credit losses, revenue recognition, impairment, employee benefits, financing arrangements, and intercompany transactions may need to be reviewed when mapping Indonesian accounts into an IFRS reporting package.
Not every balance requires adjustment. Companies should identify material differences affecting their financial statements and document the treatment used for group reporting.
What About Bookkeeping Currency and Language?
Indonesian taxpayers generally maintain their books in Indonesian and rupiah. However, qualifying taxpayers, including certain foreign-investment companies and subsidiaries of overseas parent companies, can use English and US dollars where the applicable requirements are satisfied. Taxpayers can also use English while retaining rupiah under the applicable notification procedure.
This should also be distinguished from an entity’s functional currency for financial reporting purposes. The functional currency reflects the currency of the primary economic environment in which the entity operates and is determined under the applicable accounting standard rather than simply selected for convenience.
A multinational group may ultimately translate the Indonesian subsidiary’s foreign-currency financial information into another presentation currency when preparing its consolidated financial statements.
When Does a PT PMA Need a Statutory Audit?
An Indonesian company may be subject to mandatory audit requirements based on its activities, public-interest status, or financial thresholds.
Need support with PSAK reporting? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com
Companies meeting the applicable criteria, including certain companies with assets or annual turnover of at least IDR 50 billion (USD 3 million), may be required to have their annual financial statements audited by an Indonesian public accountant. Foreign ownership by itself does not determine whether the company must undergo a statutory audit.
Where an Indonesian subsidiary is also included in an overseas group’s audit, its local statutory audit and the work required for group consolidation should be coordinated to reduce duplicated requests and reconciliation work.
Align Local and Group Reporting With MAP Resources Indonesia
MAP Resources Indonesia can help foreign-owned companies maintain their Indonesian accounting records, prepare financial statements, coordinate statutory audits, and align local reporting with overseas group requirements. Contact us at info@mapresourcesindonesia.com.
