Frequently Asked Questions: #internalaudit

Conducting an internal audit for a PMA company in Indonesia involves several key steps to ensure compliance with local regulations and maintain good financial practices. Here’s an overview of the process:

Preparation Phase: * Determine the scope and objectives of the audit * Create an audit plan and timeline * Assemble the audit team (internal or external auditors) * Gather relevant documents and financial records

Execution Phase: * Review financial statements and accounting records * Examine internal control systems * Assess compliance with Indonesian tax laws and regulations * Evaluate adherence to company policies and procedures * Conduct interviews with key personnel * Perform substantive testing on financial transactions

Analysis and Reporting: * Analyze audit findings and identify any discrepancies or areas of concern * Draft a preliminary audit report * Discuss findings with management and gather responses * Prepare the final audit report with recommendations

Follow-up: * Present the audit report to the board of directors or management * Develop an action plan to address any issues identified * Implement recommended changes and improvements * Schedule follow-up reviews to ensure corrective actions are taken

Key Areas of Focus for PMA Companies: * Compliance with foreign investment regulations (Positive Investment List, Perpres 10/2021 as amended) * Proper maintenance of statutory books and records * Accuracy of financial reporting and tax filings * Adherence to Indonesian accounting standards (PSAK) * Compliance with work permit and visa regulations for foreign employees * Proper documentation of related party transactions * Adherence to capital requirements and investment realization

Best Practices: * Conduct internal audits regularly (at least annually) * Maintain independence and objectivity throughout the audit process * Document all audit procedures and findings thoroughly * Ensure open communication between auditors and management * Stay updated on changes in Indonesian regulations affecting PMA companies

By following these steps and focusing on key areas specific to PMA companies, you can conduct a comprehensive internal audit that helps ensure compliance and identifies areas for improvement in your company’s operations and financial management.

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Conducting an internal audit for a PMA company in Indonesia offers several important benefits:

• Regulatory Compliance: Ensures the company adheres to Indonesian laws, regulations, and reporting requirements specific to foreign-owned entities.

• Financial Accuracy: Verifies the accuracy and reliability of financial statements, helping to identify and correct errors or discrepancies.

• Risk Management: Identifies potential risks and weaknesses in internal controls, allowing the company to implement preventive measures.

• Operational Efficiency: Evaluates business processes and procedures, highlighting areas for improvement and cost reduction.

• Fraud Prevention: Helps detect and deter fraudulent activities by reviewing financial transactions and internal controls.

• Investor Confidence: Demonstrates commitment to transparency and good governance, which can be crucial for attracting and retaining investors.

• Tax Compliance: Ensures proper tax reporting and helps identify potential tax savings opportunities within legal frameworks.

• Preparation for External Audits: Makes the company better prepared for mandatory external audits, potentially reducing time and costs associated with these audits.

• Decision-Making Support: Provides management with accurate and timely information for strategic decision-making.

• Asset Protection: Helps safeguard company assets by ensuring proper controls and procedures are in place.

• Continuous Improvement: Establishes a culture of ongoing evaluation and improvement within the organization.

• Stakeholder Trust: Builds trust with stakeholders, including local partners, suppliers, and regulatory bodies.

By conducting regular internal audits, PMA companies can maintain a strong financial position, ensure compliance with Indonesian regulations, and optimize their operations for long-term success in the Indonesian market.

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Usually not. Indonesian law requires an independent audit of the annual financial statements only for defined categories of company, principally:

• Companies whose assets meet the statutory threshold under the Company Law (set at IDR 50 billion)
• Companies that gather funds from the public (banks, insurers, finance companies and similar regulated entities)
• Companies that issue debt instruments, listed companies, and state-owned enterprises
• Companies whose sector regulator or licence imposes an audit requirement

A small services or trading PMA below the asset threshold, unregulated and unlisted, is not legally obliged to appoint a public accountant to audit its accounts. Its obligations are proper bookkeeping, tax filings, and its annual report duties as a PT.

Why small companies still commission audits, in practice:

• Shareholders demand it — foreign parents consolidating an Indonesian subsidiary routinely require audited statements regardless of local law
• Banks and counterparties ask — credit applications and tenders often specify audited accounts
• Disputes — a shareholder who suspects the numbers (a common inquiry we receive from minority partners) can commission an independent audit as the factual foundation for whatever comes next

Note the difference between this statutory audit question and the company’s annual reporting duties, which apply to all PTs regardless of size, and have their own current requirements. When in doubt, ask with your figures to hand: the asset test is mechanical.

Okusi Associates arranges statutory and special-purpose audits through licensed public accountants, and conducts internal audits and financial reviews directly.

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