In Indonesia, many companies close their accounts in December, and as the end of the year approaches, it's time to start preparing for financial statements and year-end accounting audits.

Accounting audits are different from tax audits conducted by tax offices in terms of purpose and implementation body. For the management departments of Japanese companies, important practical points are how to respond to requests for materials from auditing firms and by when to prepare financial statements.

In this article, we will summarize the points that Japanese companies should check regarding accounting audits in Indonesia, while also touching on the differences from tax audits.

Companies that require accounting audit in Indonesia

In Japan, large companies under the Companies Act, that is, companies with capital of 500 million yen or more or total debt of 20 billion yen or more, are subject to corporate law audits.

In Indonesia, certain companies are required to have their financial statements audited by a certified public accountant. According to Article 68 of the Companies Act, the following companies are subject to audit, for example:

• A company that collects or manages funds from the public
• Companies that issue corporate bonds, etc.
• Listed company
• state-owned society
• Companies with assets or sales above a certain amount
• Other companies that are required to be audited by law

Therefore, not all Indonesian corporations are uniformly subject to accounting audits.

However, in practice, audited financial statements are often required for foreign corporations, including Japanese companies. For example, companies may be subject to audits for reporting to the Japanese headquarters, bank loans, shareholder relations, annual financial reporting, licensing/compliance, etc.

Therefore, Japanese companies need to check not only whether their company is legally subject to auditing, but also whether there are any practical situations in which audited financial statements are required.

Difference between accounting audit and tax audit

Accounting audits and tax audits both use the word "audit," but the entity, purpose, and frequency are different.

Accounting audits are conducted by certified public accountants or auditing firms. The purpose is to confirm whether the company's financial statements are properly prepared in accordance with accounting standards. This is usually done at the end of each fiscal year.

On the other hand, tax audits are conducted by the tax office. The purpose is to confirm that taxes are calculated, declared, and paid correctly. Tax audits are not necessarily conducted every year, but are conducted at the discretion of the tax office.

In other words, an accounting audit is a procedure to confirm whether financial statements are appropriate from an accounting perspective, and a tax audit is a procedure to confirm whether tax returns and tax payments are correct.

If you do not understand this difference, you may confuse requests for materials from auditing firms with requests for materials from tax offices. In practice, it is important to consider accounting audits and tax audits separately.

What is checked in an accounting audit?

Accounting audits check whether each item in the financial statements is properly displayed.

For example, items to be checked include cash, deposits, accounts receivable, inventories, fixed assets, accounts payable, accounts payable, parent company loans, capital, sales, cost of goods sold, selling, general and administrative expenses, and non-operating expenses.

Auditors check these items against evidence such as receipts, invoices, bank statements, bank statements, sales data, acceptance reports, contracts, and fixed asset registers.

Also, it's not just about checking the evidence. Fluctuation analysis such as previous period comparisons and monthly trends, confirmation of future plans, and confirmation of the validity of tax calculations are also performed.

As a result, the auditor expresses an opinion on whether the financial statements have been properly prepared in accordance with accounting standards.

Practical points for smooth auditing

In order to proceed smoothly with accounting audits, it is important to organize accounting processing and evidence management from the monthly stage, rather than hastily collecting materials at the end of the fiscal year.

Companies that have fewer errors in their journal entries and double-check their entries internally will have fewer questions and requests for additional information from auditors. As a result, it is easier to obtain an audit opinion.

On the other hand, if there are many errors in journal entries or the location of evidence is unclear, it will take time to respond to questions from auditors. Delays in submitting materials may delay the completion of the audit and impact the schedule of shareholder reports, corporate reports, and annual reports.

In particular, we recommend that you organize the following materials as early as possible.

• Bank balance proof, bank statement
• Details of accounts receivable and payable
• Inventory details, inventory results
• Fixed asset ledger
• main contract
• Confirmation of contracts and balances for borrowings and parent company loans
• Tax calculation information
• Details of related party transactions
• Breakdown of accrued expenses and prepaid expenses

In order to carry out year-end audits smoothly, it is important to improve the accuracy of monthly financial statements and to clarify where documents are stored and who is in charge.

Keystone Consulting Group provides practical support for Japanese companies regarding Indonesian accounting audits, monthly accounting, settlement of accounts, tax returns, and accounting audits.
Related services:Indonesian accounting/tax support