Government to Require Mandatory Legal Audit for Business Entities

Government to Require Mandatory Legal Audit for Business Entities

Government to Require Mandatory Legal Audit for Business Entities

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The Indonesian government introduced a draft Presidential Regulation on Legal Compliance in the Formation and Implementation of Law. This Draft Regulation highlights the government’s effort to enforce compliance by businesses, legal entities, and public institutions through mandatory legal audit.

Mandatory Legal Audit

Companies are required to hire certified legal auditors to assess operations, identify compliance issues, and suggest corrective measures. The Draft Regulation states that all business entities and public institutions in Indonesia, including the executive branch of government and state-funded NGOs, must perform legal audits.

The head of the National Legal Planning Center of the BPHN, Kemenkumham Arfan Faiz Muhlizi, said that this prospective policy will encourage business actors to comply with every applicable legal norm through a comprehensive legal audit.

A legal audit is crucial in anticipating potential law violations, such as money laundering, terrorism financing, and investment fraud. This Presidential Regulation is expected to prevent these violations from occurring.

Harvardy M. Iqbal, president of the Indonesian Legal Auditors Association (ASAHI), said his party had held several focus group discussions (FGD) with the BPHN Kemenkumham and related ministries to discuss this draft regulation.

Legal Audit Increase Business and Investor Valuation

The legal audit will examine the company’s legal documents, including permits, KBLI, and Articles of Association and Bylaws (AD/ART).

Business actors are expected to use the results as a reference to hold themselves accountable to the public and law enforcement for their decisions and activities.

ASAHI proposes standardizing legal audit fees according to business actors’ capabilities and providing incentives for those who fulfill their obligations instead of immediately imposing sanctions on those who have not.

Why should Indonesian businesses be ready for the Presidential Regulation on Legal Compliance?

As revisions to the Draft Regulation continue, these entities must stay updated and prepare for its eventual implementation. We encourage clients to strengthen their compliance efforts, particularly in reviewing their current operations, in anticipation of the regulation’s enforcement. However, although the full scope of the audit remains uncertain, it is advisable to begin enhancing compliance measures now.

If you have any questions, please feel free to contact our legal auditors and partners below, who are available to help you. Improve your company’s legal compliance with Legal Audit and Legal Due Diligence.


Contacts

Siti Muhyinatun M, S.H., C.LA., C.DPO., C.LDSP
Director
mey@csiconsultant.co.id

Dr. Eko Ariyanto, S.H., M.H., CPL., CLA., CPM.
Litigation Cooperation Partner

Dr. Setiyono, S.H., M.H., CPArb., CPA.
Litigation Cooperation Partner


CSI Consultant, an integrated law and consulting firm in Jakarta, assists business actors in managing legal compliance, including legal audit and due diligence, employment, industrial relations, taxes, business transactions, dispute resolution through litigation and non-litigation, and legal compliance.

This publication is only for informational purposes and does not constitute legal advice. We are not responsible in any way to any party who reads and/or uses any material contained in this publication. All CSI Consultant publications are copyrighted and may not be reproduced without the express written consent of CSI Consultant.

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