Indonesia to mandate Compulsory Annual Legal Audit

In an effort to enhance legal certainty, the Indonesian government is planning to introduce a new regulation mandating an annual legal audit for Indonesian legal, business and public entities (collectively referred to as ‘Corporation’).

In the second quarter of 2024, the government began more intensive discussions on a draft regulation on legal compliance in the preparation and implementation of laws and regulations (‘draft regulation’).

Mandatory Annual Legal Audit

The draft regulation requires Indonesian Corporations, including foreign investment companies (or PT PMA), to conduct an annual legal audit. This audit must be performed by a certified legal auditor. Details regarding the scope of such legal audit have not yet been disclosed.

The result of the audit, as well as any recommendations and their implementation by the Corporation, must be reported to the Ministry of Law and Human Rights (‘Ministry of Law’), other line ministries and the regional government(s) (if and as applicable). Failure to do so will result in sanctions, which will be detailed in subsequent ministerial regulations to be issued as the implementing regulation of the draft regulation.

Certified Legal Auditor

According to the draft regulation, a legal auditor is defined as an individual with competencies in the field of legal auditing who obtained a specific certification from the Ministry of Justice. The draft regulation also provides that the Ministry of Justice will perform mentoring and supervisory activities for the legal auditor profession.

In addition, the Ministry of Justice is authorised to issue regulations or guidelines regardingg the conduct of such legal audits, the improvement of the skills and competencies of legal auditors through training and continuing professional development, and the evaluation of the standard of services provided by legal auditors through certification, accreditation and other means.

Our View

The intention behind the draft regulation is commendable, however it will bring about drastic changes to current practice and its full implementation may take some time. Many of the instruments referred to in the draft regulation do not currently exist, meaning that the government will need to develop these instruments from scratch.

Rödl & Partner will monitor the situation closely and provide regular updates. Please do not hesitate to contact us if you have any questions on this topic.