Financial Crime World

Financial Record-Keeping Requirements in Indonesia: A Must-Know for Foreign Investors

Indonesia’s financial landscape can be complex and daunting for foreign investors, with multiple regulations and laws governing auditing, accounting, and financial reporting. Understanding these requirements is crucial to ensure compliance and avoid penalties.

Company Law and Investment Law

Foreign investors should focus on the Company Law, which outlines the terms for when audits become obligatory and the accounting standards companies must adhere to when preparing financial statements. Additionally, the Investment Law sets out key compliance norms, including:

  • Implementing good corporate governance
  • Undertaking corporate social responsibility activities
  • Complying with labor laws
  • Submitting quarterly investment reports
  • Honoring cultural traditions

Audit and Compliance Requirements

The Company Law mandates that limited liability companies with assets exceeding IDR 50 billion (approximately USD 3.36 million) or meet certain criteria must be audited by a public accountant registered in Indonesia. This includes:

  • Public companies
  • Those issuing debt instruments
  • State-owned enterprises
  • Companies collecting or managing public funds

Companies must also keep their accounting records and books for at least 10 years from the end of their reporting period. Publicly listed companies must submit annual financial statements to the Financial Services Authority (OJK) and announce them to the public by the end of the third month after the statement’s release.

Public Accounting Firms

Auditor independence is a critical aspect in Indonesia, with auditors required to be:

  • Registered and independent public accountants as stipulated by the Ministry of Finance
  • Avoiding conflicts of interest
  • Adhering to MOF regulations

The OJK also requires the mandatory rotation of public accountants every three years, with a two-year cooling period. This applies only to individual accountants, not accounting firms.

Accounting Standards

Indonesian Financial Accounting Standards (SAK) are set by:

  • The Financial Accounting Standards Board (DSAK IAI)
  • The Indonesian Sharia Accounting Standards Board (DSAS IAI)

Since 2015, DSAK IAI has converged its standards with International Financial Reporting Standards (IFRS). SAK is divided into two tiers:

  • Tier 1 for listed companies and other entities with significant public accountability
  • Tier 2 (SAK ETAP) for entities with low public accountability

This harmonization aims to make local financial statements more comparable and understandable across international boundaries.

Annual Reports

All registered companies must submit annual financial statements to regional tax offices once a year. These statements include:

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

Financial statements must be presented on a comparative basis and in both Indonesian and foreign languages (except for small- and medium-sized enterprises).

Penalties for Non-Compliance

Companies failing to comply with Indonesia’s audit and tax requirements can face:

  • Monthly interest penalties ranging from 2% to 48%
  • Issuing false tax and accounting documents can also result in imprisonment

In conclusion, understanding financial record-keeping requirements in Indonesia is crucial for foreign investors. By complying with these regulations, companies can avoid penalties and ensure a smoother business operation in the country.