Financial statements under Indonesian Company Law (UUPT) function not only as regulatory compliance tools but also as key instruments of corporate accountability and transparency. They are prepared based on proper bookkeeping and presented in the annual report submitted by directors to shareholders through the General Meeting (RUPS). The law emphasizes collective responsibility through mandatory signatures of directors and commissioners, ensuring the validity of the report. Certain companies are required to undergo audits to guarantee credibility, and failure to comply may invalidate the financial statements. Even after approval, misleading reports can result in joint liability for management. Ultimately, financial statements play a crucial role in maintaining trust, which is essential for sustainable business operations.
Financial Statements Under the Limited Liability Companies Act: Between Compliance and Accountability
In the business world, financial statements are more than just numbers. They reflect a company’s health—and in a legal context, they also serve as a tool for accountability. Law No. 40 of 2007 on Limited Liability Companies (UUPT) establishes this aspect as the foundation of good corporate governance.
Compliance with bookkeeping and financial reporting is not merely an administrative obligation of the Board of Directors. More than that, it reflects a commitment to transparency and accountability. Within the framework of the UUPT, bookkeeping and financial statements are inseparable.
Bookkeeping serves as the foundation, while financial statements are the accountable output presented to shareholders through the General Meeting of Shareholders (GMS).
As the political philosopher John Locke once reminded us, “Where there is no law, there is no freedom.” In the corporate context, without compliance with reporting regulations, there is no trust—and without trust, a business struggles to survive.
Financial Statements as the Core of the Annual Report
The UUPT does not regulate bookkeeping in detail in a specific article. However, this obligation is inherent in the Board of Directors’ responsibility to prepare the annual report. Article 66 of the UUPT stipulates that the Board of Directors must submit the annual report to the GMS no later than six months after the fiscal year ends.
Within that annual report, financial statements are the primary component. Their preparation must adhere to Financial Accounting Standards (FAS), including the balance sheet, income statement, cash flow statement, statement of changes in equity, and notes to the financial statements. This means the state explicitly positions financial statements as the center of the company’s accountability mechanism.
Signatures: More Than Just a Formality
Article 67 of the UUPT adds an important dimension: validity. The annual report must be signed by all members of the Board of Directors and the Board of Commissioners serving during the relevant fiscal year. The document must also be available at the Company’s office from the date of the General Meeting of Shareholders’ (GMS) notice, so that shareholders may inspect it.
This signature is not merely a formality. It is a statement of collective responsibility.
If any member of the Board of Directors or Board of Commissioners fails to sign, they must provide a written explanation. Without such an explanation, the law deems them to have approved the contents of the report. This mechanism demonstrates that the law leaves no room for a “hands-off” attitude in corporate management.
When Must Financial Statements Be Audited?
Not all companies are required to undergo an audit. However, Article 68 of the UUPT stipulates specific conditions that require an audit by a public accountant if:
- Companies that collect or manage public funds (e.g., banks or insurance companies),
- Companies that issue debt securities to the public,
- Public Companies,
- State-Owned Enterprises (SOEs) in the form of a corporation,
- Companies with assets or revenue of at least Rp50 billion,
- Or as required by other laws and regulations.
If this obligation is not fulfilled, the financial statements cannot be approved by the General Meeting of Shareholders (GMS). This means that the legitimacy of the financial statements is highly dependent on compliance with audit requirements.
After being audited and approved, for companies that collect or manage public funds (such as banks or insurance companies), companies that issue debt securities to the public, and/or publicly listed companies (listed on a stock exchange), the audited balance sheet and income statement must be published in a newspaper. This reinforces the principle of transparency for companies with public accountability.
In practice, many companies that meet one of the mandatory audit requirements mentioned above fail to comply and instead report their financial statements in their tax returns. Consequently, these companies receive a notice from the Indonesian tax authority to undergo an audit of their financial statements.
Legal Risk: Joint and Several Liability
Article 69 of the UUPT stipulates that approval of the annual report is carried out by the General Meeting of Shareholders (GMS). However, such approval does not automatically absolve the Board of Directors and the Board of Commissioners of liability.
If the financial statements are proven to be false or misleading, the management may be held jointly and severally liable to the aggrieved parties. They can only be exonerated if they can prove that the error was not due to their negligence or actions.
This is where the law acts decisively: financial statements are not merely administrative documents, but legal documents carrying serious consequences.
Between Numbers and Trust
From the overall provisions of the UUPT—particularly Articles 66 through 69—it is clear that financial statements are the primary instrument in a corporation’s accountability system. They are not merely a performance metric but also a safeguard for shareholders and other stakeholders.
Neat bookkeeping without transparent financial statements loses its meaning. Conversely, financial statements without a strong bookkeeping foundation are merely empty numbers. In modern business practice, trust is the invisible currency. Financial statements are one of the most concrete ways to maintain it.
SW Indonesia has long assisted numerous clients in preparing financial statements, ranging from Foreign Direct Investment (FDI) companies to startups led by local entrepreneurs. Additionally, over 500 companies have entrusted their financial reports to be audited by KAP Suharli, Sugiharto & Partners, one of SW Indonesia’s business units, ranging from multinational conglomerates, publicly listed companies, banks, to family-owned businesses in Indonesia.
As the legendary economist Warren Buffett once said, “Accounting is the language of business.” It is in this language that companies speak—and it is through this language that the public assesses whether a corporation is trustworthy or not.
