Calculating Financial Year And Annual Report
Financial Year, also commonly known as Fiscal Year, is a term that is used to identify the beginning and ending months for a country’s accounting period of twelve (12) months. In Indonesia, Financial Years commonly follows the calendar year, starting in January and ending in December. However, companies in Indonesia are allowed to change the period of their Financial Year to become a Non-Calendar Financial Year for various reasons, including to match the Financial Year of their Parent Company overseas.
At the end of each Financial Year, companies will prepare their financial statements or reports, and balance their bookkeeping. What companies, especially PMA Companies must be aware of is that there are several legal obligations stipulated in Law No. 40 of 2007 on Limited Liability Company (“Company Law”) in regards to the end, and/or after the end of their Financial Year, that has to be executed by the General Meeting of Shareholders (“GMS”), or via a Circular Resolution of Shareholders in lieu of GMS.
1. Approving Annual Reports and Ratifying Financial Reports
Annual Reports are different from the Annual Financial Reports that is prepared by the Public Accountant. These reports are prepared by the Board of Directors and assessed by the Board of Commissioners. The signed Annual Report is submitted to the Company GMS at the latest 6 (six) months after the Company Financial Year ends at the Annual GMS.
Article 66 (2) of Company Law regulates that the Annual Reports must contain at least the following:
- A Financial Report compiled with the financial accounting standards, consisting of at least:
- the last balance sheet for the financial year just ended in comparison with the previous financial year;
- a profit and loss statement for the financial year concerned;
- a cash flow report;
- a report on changes in equity; and
- notes on the financial report;
- A Report on all of Company activities during the Financial Year just ended;
- A Report on the implementation of Environmental and Social Responsibility by the Company;
- Details of problems which arose during the Financial Year which influenced the Company business activities, if exists;
- A report on the duty of supervision performed by the Board of Commissioners during the financila year just ended;
- The Names of the members of the Board of Directors and members of the Board of Commissioners and the Salaries and Allowances/Honoraria for each member.
Approval of Annual Reports includes ratification by the GMS of financial reports and reports of the supervisory tasks of the Board of Commissioners. The approval may also be composed in the form of Circular Resolution of Shareholders in lieu of GMS, signed by all shareholders of the Company or their authorized representatives.
2. Deciding the Use and Allocation of Company Net Profits
Article 71 of Company Law regulates that the GMS decides the use of Company Net Profits, including determining the amount to be set aside for reserves, or allocation of such profits to the shareholders as dividends. Usually, the GMS waits until the Public Accountant finishes preparing their Financial Report for the Financial Year just ended, before determining the use of the Company Net Profits as calculated in the Financial Report.
It must be noted that these obligations (setting aside net profits as company reserves and allocating dividends to shareholders) only applies to the GMS if the Company has a positive balance of profits, after the Financial Report has been completed.
3. Holding the Annual GMS
Article 78 (2) of Company Law regulates that Annual GMS shall be held within a period of not more than six (6) months after the Company Financial Year ends. This also applies for the Circular Resolution of Shareholders in lieu of Annual GMS, should the GMS chose to sign the Circular instead of holding the Annual GMS.
Company documents such as Annual Report as described above, and Financial Report as prepared by Public Accountant must submitted in the Annual GMS. In case of the GMS deciding to sign the Circular Resolution of Shareholders in lieu of Annual GMS, note that by signing the Circular, the shareholders are giving their approval to the Annual Report and the Financial Report.
TIP: Circular Resolution of Shareholders in lieu of Annual GMS is an important legal document to have in the Company Records, aside from the annual Financial Report. It is a legal document that is stipulated by the Company Law for companies to compose. If your company does not have this document, it is advised for you to find a Corporate Legal Services company that will compose it for you.
HOW CAN SMART LEGAL CONSULTING HELP YOU?
SMART Legal Consulting is an Indonesian Corporate Legal Services. We assist Companies in closing their Financial Year, which also includes composing the Company Annual Report in coordination with the Financial Report as prepared by the Public Accountant. We also provide public accounting services for Companies looking to compose their Financial Report.
If you need immediate assistance, please contact the SMART Help Desk at: