The six criteria in Article 68
Article 68 paragraph (1) of Law No. 40 of 2007 on Limited Liability Companies requires the Board of Directors to submit the company’s financial statements to a public accountant for audit where the company meets any one of the following:
- It collects and/or manages public funds, which covers banks, financing companies, insurers, pension funds and similar entities.
- It has issued a debt acknowledgement instrument to the public, including bonds and publicly offered debt instruments.
- It is a public company, meaning it has made a public offering of its shares.
- It is a Persero, that is, a state-owned enterprise in the form of a limited liability company.
- Its assets and/or annual turnover reach at least Rp50,000,000,000 (fifty billion rupiah).
- An audit is required of it by any other law or regulation, a closing limb that pulls in obligations created elsewhere, such as sector rules for entities supervised by the financial services authority.
The fifth criterion is the one that catches ordinary private companies, and it is also where the reading most often goes wrong. The law writes assets and/or annual turnover. Many read it as though assets and turnover must both reach Rp50 billion. Either one on its own is enough.
A trading company holding Rp18 billion of assets with Rp62 billion of turnover meets the criterion. A property company holding Rp75 billion of assets with turnover of only Rp9 billion meets it as well.
If it is skippedThe statements are not ratified
Article 68 paragraph (2) provides that where the audit obligation is not met, the financial statements are not ratified by the General Meeting of Shareholders.
The consequences run on from there. Ratification of the annual report becomes legally defective, and the release of the Board of Directors and the Board of Commissioners from liability for that financial year is open to question. Minority shareholders may challenge the resolution.
The defect usually surfaces at the next transaction. During legal due diligence on an acquisition, a credit application or an incoming investor, the other side finds it and makes it a condition precedent to be cured first. Curing it later means auditing several prior years at once, with documentation that has already scattered.
Requirements outside the Company Law
An audit obligation often reaches a company before Article 68 does. These are the sources that tend to arrive first.
Bank loan covenants
Most banking facilities above the smaller tiers require audited statements within a set period after the financial year ends.
01Tenders and vendor registration
Government procurement and large corporate tenders generally ask for audited statements covering the last one to three years.
02Sector rules
Financial services entities, hospitals operating under the BLUD scheme and co-operatives above certain sizes each carry their own requirements.
03Foundations
Under the Foundations Law a yayasan must have its financial statements audited where it receives assistance of Rp500 million or more in one financial year, or where its assets excluding endowment reach Rp20 billion. Either threshold on its own is enough.
04Investment agreements
Institutional investors commonly require an annual audit as part of their information rights.
05Frequently asked
Is there an audit exemption for small companies in Indonesia?
There is no general small-company exemption written as such. Article 68 works the other way round: a limited liability company is required to be audited if it meets any one of the six criteria, and a company that meets none of them is not caught by that article. That is not the end of the question, because an audit obligation can still arise from a loan covenant, a tender requirement, a sector regulation or a shareholders’ agreement.
Do the Rp50 billion tests apply to assets and turnover together?
No, and this is the most common misreading. The law says assets and/or turnover, so either one on its own is enough. A trading company with Rp18 billion of assets and Rp62 billion of turnover is caught. So is a property company with Rp75 billion of assets and only Rp9 billion of turnover.
What happens if a company that should be audited is not?
Article 68 paragraph (2) provides that the financial statements are not ratified by the General Meeting of Shareholders. The release of the Board of Directors and the Board of Commissioners from liability for that financial year is then open to question, and the defect tends to surface later during due diligence on a loan, an acquisition or an incoming investor.
Does a PT PMA face different requirements?
The criteria in Article 68 apply to limited liability companies without distinguishing domestic from foreign-owned ones; foreign ownership by itself does not create or remove the obligation. In practice a foreign parent often asks for an audit regardless, and a separate group reporting package is prepared alongside the Indonesian statements.
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If your assets or turnover are moving toward the threshold, estimate the year-end position from the third quarter. Waiting for final figures in January costs you the preparation time.