On 27 March 2017, the Financial Services Authority (Otoritas Jasa Keuangan - OJK) issued OJK Rule No. 13/POJK.03/2017 on Use of Public Accountants (PA) and PA offices (collectively referred to as the External Auditors) in Financial Services Activities. The new rule harmonizes the regulations relating to External Auditors previously issued by OJK (formerly Bapepam-LK) and Bank Indonesia. The issuance of this new rule has an impact on the engagement of External Auditors by publicly listed companies (Public Companies) given Public Companies are one of the subjects being regulated and supervised by OJK. We set out below the key impacts:

PA Rotation Requirements

The new rule limits the use of the same PA audit services to a maximum of three consecutive financial years. The new rule does not provide a rotation requirement for PA offices.

There is also a "cooling-off period" before a PA can be re-appointed to provide audit services, ie, for two consecutive reporting financial years (it was a three-year "cooling-off period" in the previous rule).

Appointment of External Auditor through a General Meeting of Shareholders (GMS)

In line with OJK Rule No. 10/POJK.04/2017 on the Amendment of the OJK Rule on the Plan and Procedures to Conduct GMS for Public Companies, the new rule clearly states that the appointment of an External Auditor must be done through a GMS taking into account the recommendations from the board of commissioners and the audit committee (if any) although the appointment can be delegated to the board of commissioners. The new rule also requires the External Auditors and any insider of the External Auditors to be independent from the Public Company.

Reporting Obligation

Under the new rule, both the External Auditor and its users (including Public Companies) must submit reports to OJK. Users of the External Auditor (including Public Companies) must submit reports on:

a. the appointment of the External Auditor by providing the document of appointment and the recommendation from the audit committee and the considerations for such recommendation, at the latest 10 working days after the External Auditor is appointed; and

b. results of the audit committee's evaluation of the audit services provided by the External Auditor, at the latest six months after the end of the relevant financial year.

For Public Companies, this report is submitted to OJK Capital Market.

Change of External Auditor

OJK may also instruct Public Companies in writing to:

a. change the External Auditor that has been appointed; and/or

b. re-examine or re-audit the audit reports.

Sanctions

OJK may also impose administrative sanctions to Public Companies that violate this rule. The administrative sanctions that may be imposed are:

a. written warning

b. fines

c. the inclusion of shareholders, member of the board of directors, commissioners or executive officers in the list of parties prohibited to be:

1. a controlling shareholder or owner;

2. directors, commissioners, or executive officers,

of Public Companies.

The sanction in letter (a) may apply to a Public Company if the appointment of its External Auditor does not observe the recommendations of the Board of Commissioners or audit committee.

The sanction in letter (b) may apply if a Public Company fails to submit its reports to OJK on time, with the fine being IDR 100,000 per day or a maximum of IDR 3,000,000 per report.

The sanction in letter (c) may apply if a Public Company does not carry out the instruction given by OJK to change its External Auditor and/or re-examine or re-audit its audit reports.