Ensuring Trustworthy Financial Reports: The Power of Auditor Independence in Audit for Borrowing and Related Costs

The independent auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Auditor independence refers to the impartiality and objectivity of an auditor in conducting an audit, free from conflicts of interest and bias. It aims to increase public confidence in financial reporting by ensuring that the auditor’s opinions and assessments are unbiased. In Indonesia, the audit is conducted in accordance with Standards on Auditing established by the Indonesian Institute of Certified Public Accountants (IAPI). 

Independent auditors conduct various strategies and procedures to examine management’s assertions, to improve the quality of financial reports for users. The complexity of recognizing, measuring, presenting, and disclosing, as management’s assertions regarding borrowing costs, which are recognized to expense directly and which are considered to still have probable future economic benefits, as the company’s assets.

audit for borrowing

Existence The borrowings and related borrowing costs are recorded in the financial statements actually exist and is a valid obligation of the company.
CompletenessAll borrowings and related borrowing costs that should be recorded are included in the financial statements.
Valuation and AllocationThe borrowings and related borrowing costs are recorded in the financial statements at the appropriate value, including any accrual of interest and any fees or costs associated with obtaining the borrowing; and properly classified as a short-term or long-term liability.
Rights and ObligationsThe company has a legal ownership or the right to receive the borrowings and related borrowing costs, also obligation to repay the borrowing to the lender, including to comply with terms & restrictions of the borrowing agreement.
Presentation and Disclosure Adequate presentation and disclosure have been made on the borrowings and related borrowing costs are recorded in the company’s financial statements. 

Critical Aspects of Borrowing Assertions

Valuation and rights & obligations assertions are generally what auditors have concerns about as they are related to the risk of misstatement due to the improper assessment of borrowing agreements. Meanwhile, the presentation and disclosure assertion of borrowing and related borrowing costs are also critical to ensure that all requirements of the borrowing, including its collateral, restrictions, or covenants are adequately disclosed as well as any non-compliance status.

  • Obtain borrowings confirmation from the lender/creditor to verify the outstanding balance and other relevant details e.g. borrowing facility amount, interest rate, collaterals.
  • Review the borrowing agreement, borrowing schedule, and related documentation to understand the terms and conditions of the borrowing, including interest rate, repayment terms, and any collaterals, covenants, or restrictions.
  • Verify that the company is in compliance with any borrowing covenants or restrictions, including financial ratio covenants; and ensure that any non-compliance is properly addressed, accounted and disclosed in the financial statement. 
  • Verify that the interest expense and accrued interest related to the borrowing have been calculated correctly based on the borrowing agreement and accounted for properly in the financial statements.
  • Verify recognition, measurement, presentation, and disclosures about borrowing costs, both costs are recognized as expenses directly in the income statement and costs are capitalized by attributing the costs to the acquisition value of qualifying assets. 
  • Evaluate the classification of the borrowing in the financial statements, ensuring that it is properly classified as either a short-term or long-term liability.
  • Assess the adequacy of the borrowing disclosure in the financial statements, including the disclosure of collaterals, any financial covenants, and any default or breach of borrowing agreements.

Looking for expert assistance with audit for borrowing in Indonesia? Look no further! SW Indonesia is your trusted partner for all your auditing needs. With a team of experienced auditors and in-depth knowledge of Indonesian auditing standards, we can help ensure your financial statements are free of misstatement and meet all regulatory requirements. Contact us today at +62 2993 2132 to schedule a consultation and let our professionals guide you through the auditing process with precision and expertise. Take the first step towards reliable financial reporting by reaching out to SW Indonesia now.


  • SW Indonesia

    As the webmaster and author for SW Indonesia, I am dedicated to providing informative and insightful content related to accounting, taxation, and business practices in Indonesia. With a strong background in web management and a deep understanding of the accounting industry, my aim is to deliver valuable knowledge and resources to our audience. From articles on VAT regulations to tips for e-commerce taxation, I strive to help businesses navigate the complexities of the Indonesian tax system. Trust SW Indonesia as your go-to source for reliable and up-to-date information, empowering you to make informed decisions and drive success in your business ventures.