Audit and Compliance in Indonesia: A Guide for Foreign Investors

Posted by Written by Ayman Falak Medina Reading Time: 4 minutes

There is currently no single unifying regulation on auditing and compliance in Indonesia. Foreign investors will need to be aware that regulations regarding auditing, accounting, and financial reporting are stipulated over several laws and bylaws, and that a good understanding of these can ensure their business stays compliant.

Foreign investors should, however, focus on the Company Law, which dictates the terms for when audits become obligatory in addition to the accounting standards companies should adhere to when preparing financial statements.

Investors should use the services of registered local advisors to make sure they understand the prevailing regulations.

Auditing and compliance requirements

The Investment Law lays out the basic requirements on how to operate in Indonesia. These are part of key compliance norms:

  • Implementing good corporate governance;
  • Undertake corporate social responsibility activities;
  • Comply with the labor law;
  • Submit quarterly investment activities to the Investment Coordinating Board (BKPM); and
  • Honor the cultural traditions of communities. 

The Company Law mandates that the financial statements of a limited liability company must be audited by a public accountant registered in Indonesia if they meet at least one of the following criteria:

  • Companies with assets exceeding 50 billion rupiah (US$3.36 million);
  • Public companies;
  • Companies that issue debt instruments;
  • Certain types of state-owned enterprises; or
  • The company collects or manages public funds (such as banks and insurance companies).

By law, a company must keep its accounting records and books for at least 10 years from the end of its reporting period.

Public companies

Under the Capital Markets Law, foreign companies are allowed to be listed in the country’s bourse. Their prospectus, however, must first be audited by an auditing firm that is recognized by the country’s Financial Services Authority (OJK), the main regulator of Indonesia’s financial services sector.

The annual financial statement must be submitted to the OJK and announced to the public by no later than the end of the third month from the date of the annual financial statement. The submission of periodic financial statements must be conducted through the electronic reporting system of the OJK.

Public companies must also establish internal audit committees, an internal audit unit, and a company secretary. The audit committee supports the board of commissioners to ensure the effectiveness and integrity of a company’s financial statements and internal controls.

Auditor independence

Indonesian Auditing Standards require that the auditor must be a registered and independent public accountant as stipulated by the Ministry of Finance (MOF). They must avoid all potential conflicts of interest and adhere to MOF regulations.

The Indonesia Financial Services Authority stipulates the mandatory rotation of the public accountant every three years with a two-year cooling period. This only applies to the public accountant and not the public accountant firm.

Fiscal year

The annual deadline for reporting and paying corporate income tax is April 30 – if a company’s fiscal year begins from January 1 – December 30. If a company’s fiscal year differs from the calendar year, then its deadline is four months after the end of its fiscal year.

Accounting standards

Audits are to be conducted based on the Indonesian Financial Accounting Standards (SAK), which are set by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI), for sharia-based companies.

Since 2015, the DSAK IAI has converged its accounting standards with that of the International Financial Reporting Standards (IFRS), issued by the IFRS Foundation and the International Accounting Standards Board (IASB). Current harmonization revolves around the chronological adoption of past IFRS with an emphasis on closing the gap between Indonesia’s adoption status and the most up-to-date International standards.

Currently, SAK is broken down into two tiers:

  • Tier 1 –SAK: applies to listed companies and other entities with significant public accountability; and
  • Tier 2 – SAK ETAP: applies to entities with low public accountability. Tier 2 SAK ETAP was developed with IFRS for SE as its point of reference.

This is part of Indonesia’s efforts to make local financial statements more comparable and understandable across international boundaries as the country aims to attract greater foreign investment and play a more prominent role within the G20.

Annual reports

All registered company’s annual financial statements are to be submitted to a regional tax office once a year. Financial statements consist of the following:

  • Balance sheet;
  • Cash flows;
  • Profit and loss statement; and
  • Statement of changes in equity.

Financial statements are required to provide both the current and previous year’s figures and need to be presented on a comparative basis.

Periodic financial statements must be presented in the Indonesian language and a foreign language. The obligation to use foreign languages does not apply to small- and medium-sized enterprises. Periodic financial statements that utilize foreign languages must contain the same information as the periodic financial statements that use the Indonesian language.

If there is a difference in the interpretation of the information presented in foreign languages with those presented in the Indonesian language, the information in the Indonesian language shall be used as a reference. 

The accounting books must also use the rupiah as their currency. Companies will need to seek permission from the tax authorities for the use of the US dollar, the only other eligible functional currency. This must be done no later than three months before the start of the accounting year.

Penalties for non-compliance

Companies that fail to comply with Indonesia’s audit and tax requirements can expect to receive monthly interest penalties starting from two percent and up to 48 percent. Furthermore, issuing false tax and accounting documents can also result in imprisonment.


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