A voluntary audit makes sense for a foreign-owned company in Indonesia when shareholders, lenders, or transaction parties need independent assurance over the company’s financial statements even though Indonesian law does not require an audit. It may be unnecessary when the concern is limited to a specific tax, accounting, or transaction issue that can be examined through a narrower review.
Indonesian companies can, however, become subject to mandatory financial-statement audits because of their size, activities, or other legal requirements.
When Is an Audit Mandatory in Indonesia?
Under Indonesia’s Company Law, a company must have its financial statements audited when specified conditions apply. These include assets and/or annual business turnover of at least IDR 50 billion (USD 3.0 million), collecting or managing public funds, issuing debt acknowledgements to the public, being a public company or state-owned company, or being subject to another audit requirement under applicable legislation.
The IDR 50 billion threshold is not the only test. A foreign-owned company below that level may still require an audit because of its activities or another rule applying to the business.
Companies that do not fall within a statutory audit requirement can then consider whether an audit would provide enough value to justify the cost and work involved.
When Foreign Shareholders Need Independent Assurance
A voluntary financial-statement audit can be useful when an overseas shareholder relies on financial statements prepared by the Indonesian subsidiary but does not directly oversee the company’s accounting records.
An external auditor provides an independent opinion on whether the financial statements are presented fairly, in all material respects, under the applicable financial reporting framework. This provides a different level of assurance from management accounts prepared internally.
The case becomes stronger when a parent company, lender, investor, or another party requires audited financial statements.
Considering a voluntary audit? Email MAP Resources Indonesia at info@mapresourcesindonesia.com
For an overseas shareholder, the benefit is independent assurance over the financial statements as a whole rather than additional internal reporting from the Indonesian subsidiary.
Using Audited Financial Statements Before a Transaction
A voluntary audit can also make sense before a planned sale, investment, financing, or restructuring when another party will rely on the Indonesian company’s historical financial statements.
Audited statements provide an independent opinion on that historical financial information, but they should not be treated as a substitute for financial due diligence. An audit addresses the financial statements as a whole, while due diligence examines issues specific to a transaction.
A company preparing for a transaction may require both when the parties want audited historical financial statements as well as a separate examination of issues specific to the proposed deal.
When Tax Risk Is the Real Concern
Indonesia operates under a self-assessment tax system, meaning companies are responsible for correctly calculating and reporting their tax liabilities.
A financial-statement audit can identify matters with tax implications, but its purpose is not to provide a comprehensive review of the company’s tax position. If the concern relates specifically to VAT treatment, withholding tax, tax filings, or supporting documentation, a targeted tax review may be more appropriate.
Commissioning a full voluntary audit solely to investigate a narrow tax concern may add work without providing the depth of tax analysis the company needs.
For a targeted review of your Indonesia exposure, contact MAP Resources Indonesia: info@mapresourcesindonesia.com
A company seeking an external examination of a particular account, balance, or process may also be better served by a targeted review rather than an audit of the complete financial statements.
When a Full Voluntary Audit Is More Than the Company Needs
A full audit may add limited value for an early-stage Indonesian company with few transactions and simple accounts, particularly where no shareholder, lender, or transaction party requires audited financial statements.
A narrower review can also be more suitable when management needs a specific question answered. Tax exposures can be examined through a tax review, transaction issues through due diligence, and specific financial information through a review focused on that issue.
A voluntary audit assures the financial statements as a whole. It should not be commissioned simply because the company wants an external party to examine an isolated issue.
Voluntary Audit Support from MAP Resources Indonesia
MAP Resources Indonesia helps foreign-owned companies determine whether a full financial-statement audit or a more targeted review is appropriate for what the company needs and prepares the Indonesian entity for the process. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com.
