In Indonesia, Financial Due Diligence (FDD) often uncovers patterns that don’t fully surface in an audit due to their focus on compliance.
A. Related-party transactions (very common)
- Sales inflated via affiliated entities
- Expenses shifted between group companies
- Non-arm’s length pricing
Risk: Artificial profitability
B. Tax exposure (high risk area)
- Aggressive VAT (PPN) treatment
- Unrecorded tax penalties
- Transfer pricing exposure
Even if compliant under accounting standards like PSAK, a tax risk may still exist.
Risk: Future cash outflow + penalties
C. Weak working capital discipline
- Receivables not collectible (but not impaired)
- Inventory overstated or slow-moving
- Supplier terms artificially stretched
Risk: Hidden funding requirements post-deals
D. Informal practices / undocumented liabilities
- “Off-book” agreements
- Side letters with customers or suppliers
- Unrecorded employee obligations
Risk: Legal and financial surprises
E. Revenue concentration
- 1–2 major customers driving majority revenue
- Contracts not legally binding or short-term
Risk: Earnings collapse if customer leaves
F. Capex underinvestment
EBITDA looks strong because maintenance capex is deferred
Risk: Future cash drain not visible in an audit
G. Bank covenant pressure
Financials “managed” to avoid covenant breach
Risk: Earnings quality questionable
H. Land & property issues (for real estate / JV)
- Land not fully certified (SHGB / SHM issues)
- Disputes not disclosed clearly
- Revenue recognized before legal certainty
Risk: Severe valuation impairment
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Trust Moores Rowland Indonesia to support your due diligence and transaction advisory needs. Our specialists provide financial due diligence, M&A advisory, business valuation, and strategic risk assessment to help investors identify hidden liabilities, strengthen negotiation positions, and execute transactions with greater certainty.
Contact Moores Rowland Indonesia today to explore how a thorough due diligence approach can protect your investment and support stronger long-term acquisition outcomes.
