Engagement Letter For Audit Services Template for Indonesia

An Engagement Letter For Audit Services is a legally binding contract that establishes the professional relationship between an audit firm and your company in Indonesia. This document serves as the foundation for all audit activities and must comply with strict requirements under Indonesian law, particularly Law No. 5 of 2011 on Public Accountants and regulations issued by the Indonesian Financial Services Authority (OJK).

When do you need this document?

You need an engagement letter before any audit work begins on your company's financial statements. This requirement applies when your company is subject to mandatory statutory audits under Indonesian Law No. 40 of 2007 on Limited Liability Companies, particularly for companies meeting specific asset, revenue, or equity thresholds. The letter is also essential if you're planning an initial public offering, seeking bank financing that requires audited statements, or if your company falls under OJK supervision. Foreign investors often require audited financial statements prepared under Indonesian Financial Accounting Standards (PSAK), making this engagement letter crucial for international business relationships.

Key legal considerations

The engagement letter must clearly define the audit scope, including which financial statements will be audited and the applicable reporting framework, typically PSAK for Indonesian companies. It should specify the audit firm's responsibilities under Indonesian Professional Standards of Public Accountants (SPAP) and your management's responsibilities for preparing financial statements and maintaining internal controls. The document must address independence requirements, ensuring the audit firm has no conflicts of interest that could compromise their professional judgment. Fee arrangements, timing of payments, and potential additional services should be explicitly stated. Limitation of liability clauses must comply with Indonesian Civil Code provisions while protecting both parties' interests.

Legal requirements in Indonesia

Under Indonesian law, the engagement letter must be signed before audit fieldwork commences and should be addressed to those charged with governance, typically your Board of Directors or Audit Committee. The document must confirm that the audit will be conducted in accordance with International Standards on Auditing as adopted in Indonesia and relevant SPAP requirements. For companies under OJK supervision, additional regulatory requirements may apply, including specific reporting obligations and compliance confirmations. The letter should reference applicable Indonesian Financial Accounting Standards and confirm the audit firm's registration with the Indonesian Institute of Certified Public Accountants (IAPI). Professional indemnity insurance requirements and quality control procedures must also be addressed to ensure compliance with Law No. 5 of 2011 on Public Accountants.