In any country, after successful registration of a company, there are certain rules and regulations that a company have to abide by, especially when it comes to financial statements and reports. It is common for small businesses to manage their own accounting functions and this only becomes a hinderance when the business starts to expand.
Smaller companies are usually exempted from certain regulations but once the company grows, the responsibility of keeping up the records and financial statements grows as well. One of the important records is the annual financial statements in Indonesia.
Definition of Annual Financial Statements
Annual financial statements are financial reports that record accounts such as expenses, revenue, and profits. It is based on a time period, usually spanning over 12 consecutive months.
The most common 12-month period used for financial statements is that of the calendar year. Companies that have a fiscal year that do not overlap with the financial year may base their financial statements with the company’s fiscal year.
Public companies are required to issue statements at certain periods throughout the year on top of reports that cover the complete year’s financial activity. They are also obligated to disclose certain events, information or material facts that may influence or affect the company’s price of securities or investor’s decisions to the public.
Narrowing into the annual financial statements, these encompass the full-year reports that include information such as:
The purpose of these information is to help investors and creditors make corporate decisions after analysing the information in these reports.
Why Must Indonesian Companies File Annual Financial Statements in Indonesia?
There are many reasons why companies must file annual financial statements in Indonesia:
1. Sharing of company’s well-being
The main purpose of the annual financial statements is to inform shareholders, investors, and the public of the financial well-being of the company. The annual financial statement must also be made available to any authorities who request access to them.
The mentioned authorities may refer to Indonesia’s official government bodies or other interested parties such as shareholders or investors to assess the level of security of their investments in the company.
2. Legal compliance
Another reason why it is important to file annual financial statements is legal compliance. In Indonesia, there are filing requirements imposed for all companies from their incorporation to their dissolution.
By abiding by these filing requirements, some businesses may face certain difficulties, especially businesses in charge of the Indonesian branch of a foreign company. Such owners often consult tax professionals to ensure legal compliance with all important filing deadlines.
3. Internal communication
An accurate annual financial statement displays not only the company’s financial situation but also ensures accountability, which helps with internal communication.
The management is obliged to provide evidence for how and why capital has been used. Through this information, the management of the company will be able to assess the level of the success or failure brought about by their managerial policies.
What is the Information in an Indonesian Company’s Annual Financial Statements
There is a number of statements that are included in the annual financial statement. Let us break it down and see what information these statements entail.
1. Balance sheet
The balance sheet contains the information regarding the company’s assets, liabilities, and equity at the end of the period specified in the annual financial statement. It is mostly used by investors to access the company.
2. Income statement
This document provides information about the income and expenses of the company during the financial year. This information provides a more reliable overview of the company’s financial well-being than the balance sheet as it shows the breakdown of the source of the company’s income as well as the expenses they incur.
3. Cash flow statement
When it comes to cash flow statement, it reports how the company generates and uses the cash acquired in the period specified. It is also further classified into three distinct categories, namely:
Ultimately, the financial statement should include all transactions that affected the equity of the company during the stated period. Some examples of these transactions include but not limited to:
All the information will be used by the management of the company to analyse and discuss. However, final decisions made by the management are usually not made until sometime after the first viewing of the annual financial statement itself.
Legal Matters Related to Annual Financial Statements in Indonesia
As Indonesia has imposed certain measures as well as requirements regarding filing annual financial statements, failure to comply may result in an interest penalty on the late payments which varies from 2% to 48%.
Those who has exceeded the deadline will be subjected to tax penalties imposed by Indonesia’s tax officials accordingly. Companies who have violated these requirements will also receive increased scrutiny from tax officials in the future.
Indonesia’s tax laws have undergone many changes. However, a lack of awareness of these regulations does not excuse one from having to adhere to them. Failure to accurately report taxes correctly is a common mistake made by foreign and local investors alike in Indonesia.
FAQs
Indonesia has lots to offer, from agriculture, to manufacturing and business. Depending on the industry you are looking at, there are different areas in Indonesia that excels in these areas.
For example, Surabaya, East Java is popular for foreign investments as it has one of the highest property growth in Indonesia, also ranking top five cities in Asia to invest in.
In order to work in Indonesia, a foreign worker will need to obtain a work permit. Work permit holders then are eligible to apply for dependant visas for their dependants which include, their spouse and children if they intend to live in Indonesia
Financial statements specify the details of all income earned and spent by the company. Thus, it includes all profits and losses, and therefore states all expenses which are related to taxes. The statement includes information about the company’s pre-tax income; it also takes into account the subtraction of any tax payments so that the company’s net income after taxes have been paid can be determined. The use of financial statements therefore allows companies to more accurately estimate their income tax liabilities.
The cash flow statement also includes information about the tax expenses of the company. The details of the company’s tax expenses include both long-term and short-term tax liabilities. After taxes have been paid during the cash flow period which had been mentioned in the statement, the resulting change will be shown as a decrease in the amount of tax money which has been paid.
The PSAK and IFRS have certain similarities and differences. Some of the standards as stated in the PSAK find a counterpart in a related IFRS standard. PSAKs 53, 58, 64, 71, and 72 are consistent with IFRSs 2, 5, 6, 9, and 15 respectively in all significant respects. Some PSAKs are mostly consistent with an IFRS counterpart but have slight differences through additional references, additional requirements, or amendments made by the Indonesian accounting authorities. These PSAKs are 22, 60, 62, and 65. Their counterparts are IFRSs 3, 4, 7, and 10.
Among the key differences between the PSAK and IFRS relate to IFRSs 1 and 14. IFRS 1 will not be adopted in Indonesia. This is because the standards which have been stated in IFRS 1 have already been indirectly mentioned in the PSAK. They are included as part of the transitional provisions which have been listed in the PSAK’s individual standards and interpretations.
IFRS 14 has not been officially adopted in Indonesia. However, certain entities nevertheless use the standards specified in IFRS 14. IFRS 14 applies to all entities in Indonesia that have voluntarily adopted IFRS 1 and have also adopted the standards provided by IFRS for the first time. After these entities adopt IFRS standards, they will be permitted to continue to use the accounting policies which they had been previously using for the recognition, measurement, impairment, and de-recognition of any of their regulatory deferral accounts.
