A first statutory audit is rarely difficult because of the accounting. It is difficult because the auditors ask for evidence that supports the numbers, and evidence is either assembled contemporaneously or reconstructed painfully after the fact. Companies that prepare well are not the ones with the most sophisticated finance function. They are the ones that decided in advance what would be asked for.
Establishing whether you need one
An audit obligation can arise from several directions, and it is worth checking all of them rather than assuming:
- Statutory thresholds. Indonesian company law requires an audit where the company meets specified criteria, including asset size and the nature of the business — for example where it raises funds from the public, issues debt instruments, or is a state-owned entity.
- Sector regulation. Financial services, insurance and certain licensed activities carry their own audit requirements irrespective of size.
- Group policy. A parent’s consolidation and control framework frequently requires an audit of the local entity regardless of local law.
- Contractual obligation. Lenders, investors and some counterparties require audited statements as a condition.
Where any of these apply, the audit is not optional, and the timetable is set by the earliest binding deadline — usually a reporting or filing date, not the auditor’s convenience.
What auditors will ask for
The request list is fairly predictable. It divides into three groups.
Entity and governance records
- Deed of establishment and all amendments
- Current licences and registrations
- Shareholder register and evidence of capital injection
- Minutes of shareholder and board meetings for the period
- Significant contracts, loan agreements and related party arrangements
Financial records
- Trial balance and general ledger for the full period
- Bank statements for every account, and reconciliations to the ledger
- Fixed asset register with additions, disposals and depreciation
- Accounts receivable and payable ageing, agreed to the ledger
- Inventory records and count documentation where applicable
- Payroll records reconciled to the accounts
- Tax returns filed during the period, reconciled to the ledger
Third party confirmations
Auditors confirm bank balances, loan terms, significant receivables and payables, and related party balances directly with the counterparty. These take time — bank confirmations in particular — and cannot be accelerated once requested. They should be initiated at the very start of fieldwork.
Where first audits stall
- The opening balance. For a first audit, the opening position has not been audited. Expect additional work to support it, and expect that work to be harder if the records for the prior period are incomplete.
- Related party transactions without documentation. Management fees, intercompany funding and cost allocations that exist in the ledger but not in a signed agreement will be challenged, and they carry a transfer pricing dimension as well.
- The employee benefit provision. Statutory termination entitlements require actuarial valuation. Companies preparing their first accounts routinely omit this, and it depends on an external party with its own lead time.
- Revenue cut-off. Whether revenue belongs in the period depends on delivery, acceptance and contract terms. Documentation around the period end is examined closely.
- Reconciliation between the accounts and the tax returns. Where VAT reported does not agree to revenue recorded, or payroll expense does not agree to PPh 21 reported, the difference must be explained. Twelve months of unexplained variance is the single most common cause of a first audit running late.
A sensible preparation timeline
| When | Action |
|---|---|
| Three months before year end | Appoint the auditor, agree scope, fees and timetable |
| Two months before | Obtain the request list; identify anything not currently held |
| One month before | Commission the actuarial valuation; document related party arrangements |
| At year end | Attend inventory count if applicable; freeze the cut-off |
| First two weeks after | Complete reconciliations; issue confirmation requests |
| Before fieldwork | Deliver a complete pack, not a partial one |
Delivering an incomplete pack to start fieldwork earlier is a false economy. Auditors work through a file in sequence, and gaps mean revisiting completed sections — which costs more time than the delay would have.
Handling the management letter
Alongside the opinion, auditors issue observations on internal control. For a first audit these commonly concern segregation of duties, approval thresholds and documentation of judgements. They are not a criticism of the finance team; in a small function, some of them are structurally unavoidable.
What matters is the response. Points repeated across consecutive years are treated much more seriously than points raised once and addressed — by auditors, and by anyone conducting due diligence later.
Audit requirements depend on the entity’s size, sector and circumstances, and thresholds are set by regulation. Corevia Prima International supports companies through audit preparation and statutory reporting in Indonesia — get in touch to discuss your requirements.
