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Benefits of Audit in Indonesia

5 min read|Last Updated: August 29, 2022|
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Auditing is an important step in maintaining your compliance with regulations and ensuring governance after your company is incorporated. With good auditing practices, you can achieve many benefits from risks mitigations and enhanced security.

No matter the type of business entities you have incorporated, auditing still remains as a key function for you to understand your business operations and grow your business.

What is a Business Audit?

The results of auditing will be written in the audit opinions and auditors of a company usually reports on the following items in a company:

1. Financial Statements

An auditor reports whether or not the financial statements are error-free from material misstatement. Material means the significant damage that will be faced by the company due to a misstatement or missing information. This action will be large enough to impact the auditor’s opinion of the financial statement.

2. Internal controls

Most business audits require an auditor to assess the effectiveness of the company’s internal control upon incorporation. Internal controls are ‘rules that are put in place in the company’s daily operation to allow the company to produce fair and accurate financial statements and prevent theft of assets. If weakness in any internal control is found, it must be disclosed immediately to avoid any further misstatements.

Indonesia Incorporation Specialist Eric

Why is Business Audits Necessary in Indonesia?

If you are looking to seek confidence that you and your company is meeting its core business goals, internal auditing is essential and would give you a clear vision of how well your company’s internal operation is and where the problem lies if misstatements were to be found.

At the same time, having internal audits can also protect your company against fraud and prevent fraudulent activities such as thefts, unauthorised personnel’s entry into the warehouse, etc. These will cause overstatements in goods in the company’s record if inventories were to be stolen or damaged.

If you are worried that your company is not following the current laws, regulations and standards that applies to your organisation, having internal audits will help reduce the hassle of you having to study all laws and regulations again.

Benefits of Auditing your business

Completing an audit shows your company can be trusted and reliable. There are companies in which their reputations build around how well they manage their assets. When a company is doing what they are supposed to, the audit should go off without a hitch. It shows the company is fulfilling necessary responsibilities and obligations.

Auditors works from within your company serving as a watchdog over your company’s integrity and accountability, scrutinising your financial reporting, safeguarding your company against frauds, errors, and risks while providing objective assurance that your entity is following the rules and regulations and standards. By doing so, your company can avoid penalties that will amount up as financial losses.

Some of the benefits of auditing include:

1. Strong internal controls

Internal audits evaluate your internal control activities, which comprise of:

  • Physical control over assets and records

  • Adequate documentation

  • Proper procedures for Authorization

  • Independent internal verification

  • Segregation of duties

2. Process Efficiency

Internal audits help to identify gaps in your business operations, procedures and your governance processes while providing appropriate recommendations on how to solve the misstatements.

3. Security

Internal audits review through your business’s cybersecurity environment to check for any vulnerabilities and if they are secured to your security standards. Auditors will provide and recommend on the possible ways to mitigate the issues raised.

Apart from cyber security, physical security is also reviewed on as to how accessible the storage room storing the inventories is. The easier it is to access, the higher the chance of goods and inventory being stolen which is not ideal for the company.

4. Integrity

Internal audits analyse and review your financial statements and verify their accuracy and integrity. Especially in recent times, fraud has been increasingly common, hence the need for audit is extremely necessary to avoid financial losses.

5. Reduced risks

Internal audits consider all the identified risks to your enterprise and analyse whether your risk mitigations are strong. Again, your auditor will identify the gaps and report back to you on the potential ways to go about resolving the issues.

6. Improved compliance

Internal audits check the laws, regulations, and industry standards with which your organisation needs to comply and whether the company is adhering to these guidelines. If there are any issues on compliance, your auditor will have to raise an issue and provide suggestions on how to solve them.

An audit is a perfect opportunity to review business financials to make sure everything is running smoothly. As a certified public accountant (CPA), we guide businesses to success based on insights drawn from auditing. Reach out to us for a free consultation.

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What are 3 types of audits?2021-11-09T12:24:44+08:00

There are three main types of audits: external audits, internal audits, and Internal Revenue Service (IRS) audits. External audits are commonly performed by Certified Public Accounting (CPA) firms and result in an auditor’s opinion which is included in the audit report. 

Which is the first largest accounting body in the world?2021-11-09T12:24:30+08:00

The Chartered Institute of Management Accountants (CIMA) is the world’s largest and leading professional body of management accountants.

Does Indonesia adopt IFRS?2021-11-09T12:24:25+08:00

Yes. Indonesia has not adopted IFRS Standards. Indonesia’s commitment is to support IFRS Standards as the globally accepted accounting standard and to continue with the IFRS Standards convergence process, further minimizing the gap between SAK and IFRS. 

Who is obligated to be audited?2021-11-09T12:22:52+08:00

The Company Law mandates that financial statements of a limited liability company must be audited by a public accountant registered in Indonesia if they meet at least one of the following criteria: 

  • Companies with assets exceeding 50 billion rupiah (US$3.6 million);
  • Public companies;
  • Companies that issue debt instruments;
  • The company is a state-owned enterprise; or
  • The company collects or manages public funds (such as banks and insurance companies).

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