Indonesia Introduces Financial Record-Keeping Requirements Amid Growing Economy
In a move to enhance transparency and accountability in the financial sector, Indonesia has introduced new record-keeping requirements for businesses operating within its borders. This development is expected to boost the country’s business environment and aim for full convergence with International Financial Reporting Standards (IFRS) by 2016.
Tax Returns and Accounting Year
Companies in Indonesia are required to file tax returns on a calendar year basis, although they may opt to use an accounting year that aligns with their financial reporting requirements. The country’s accounting standards, known as Standar Akuntansi Keuangan (SAK), have been established by the Indonesian Financial Accounting Standards Board and show some convergence with IFRS standards.
Regulatory Bodies
Indonesia has two main regulatory bodies responsible for overseeing accounting practices:
- OJK
- Bank Indonesia
These institutions ensure that companies comply with financial reporting requirements, which include publishing annual reports containing a balance sheet, cash flow statement, and annexes.
Financial Reporting Requirements
For foreign investment (PMA) companies, permanent establishments, certain entities with foreign affiliations, and companies using US dollars as their functional currency, approval from the Ministry of Finance is required to maintain English language and US dollar bookkeeping. This allows for greater flexibility in financial reporting and compliance.
Financial statements must contain at least:
- A balance sheet showing constant capital excluding reserve accounts and carried-forward balances
- A cash flow statement
- Annexes
The statements of activity during the financial year include:
- Balance sheet
- Statement of assets and liabilities
- Intermediate balance
- Statement of source and application of funds
- Additional information statement
These documents are inseparable from each other.
Audited Financial Statements
Publicly listed companies, banks and financial institutions, state-owned companies, and companies with assets exceeding IDR 50 billion must publish audited financial statements approved by their general meetings of shareholders. Annual reports should be prepared in accordance with generally accepted accounting principles in Indonesia.
Accounting Profession and Authority
The Indonesian Institute of Accountants represents the profession of accountant, while the Department of Finance has the authority to issue recommendations and establish obligations for accounting.
Benefits of Increased Transparency and Accountability
Indonesia’s growing economy is expected to benefit from these developments, as increased transparency and accountability will boost investor confidence and attract foreign investment.