One of the most common questions raised by finance and human resources teams is exactly when a company is required to involve an independent actuary in preparing its financial statements. This question has become even more relevant since PSAK 24 was renumbered to PSAK 219, a change that reaffirms the importance of actuarial-based calculations for employee benefit obligations.
The Basis for Employee Benefit Reporting Obligations
Any company that prepares its financial statements under Indonesian Financial Accounting Standards (SAK), whether general SAK or SAK for Private Entities (SAK EP), and that has permanent employees, generally carries post-employment benefit obligations. These may take the form of severance pay, long-service awards, or defined benefit pension programs. PSAK 219 requires these obligations to be recognized using an actuarial method, not a rough estimate based on final salary multiplied by years of service.
In other words, once a company has permanent staff and prepares financial statements in accordance with applicable standards, the need for actuarial calculations effectively already exists, regardless of the size of the business.
When a Company Must Engage an Independent Actuary
The following situations typically signal that a company should, and in many cases must, involve independent actuarial services.
- When preparing annual financial statements subject to audit. External auditors generally require an independent actuarial report as supporting evidence for the employee benefit liability shown on the balance sheet.
- When a company first reaches a significant number of permanent employees. Once the employee benefit obligation becomes material to the financial statements, rough internal estimates are no longer sufficient.
- When there is a change in employee benefit policy. This includes changes to severance schemes, the addition of supplementary pension benefits, or a significant restructuring of the salary system.
- When a company is planning an organizational restructuring. This covers mergers, acquisitions, or early retirement programs that affect the projected employee benefit obligation.
- When a company is preparing for an initial public offering (IPO) or requires audited financial statements to secure financing from a bank or other financial institution.
Consequences of Not Using Actuarial Services
Ignoring the need for actuarial calculations can create several risks that directly or indirectly affect a company’s credibility.
- A qualified audit opinion, since auditors cannot verify the fairness of the employee benefit liability without an independent actuarial basis for the figure.
- Misstated financial statements, which can mislead investors, creditors, and management in strategic decision-making.
- Inadequate funding preparation, since without an accurate actuarial projection, a company risks failing to set aside sufficient reserves to pay severance or pension obligations when they fall due.
- Non-compliance with regulatory requirements, particularly for companies under the supervision of the financial services regulator or subject to specific reporting obligations.
To avoid these risks, many companies choose to work with an experienced actuarial consultant that has handled clients across a range of industries and company sizes.
How Often an Actuarial Valuation Should Be Performed
As standard practice, an actuarial valuation for PSAK 219 purposes is performed annually, in line with the company’s financial reporting period. This is because several factors that affect the calculation results, such as headcount, salary structure, and economic assumptions like the discount rate, can change from one year to the next. An additional valuation outside the annual schedule is usually needed when a significant event occurs, such as a mass layoff or a material change in employee benefit policy.
How to Work Effectively with an Actuarial Consultant
To ensure the valuation process runs smoothly and produces reliable results, companies can take the following steps when engaging an actuarial consultant.
- Prepare complete and accurate employee data from the start, including date of birth, employment start date, and the base salary used for the calculation.
- Communicate internal employee benefit policies clearly, especially if there are supplementary benefits beyond the statutory labor requirements.
- Agree on a timeline with the auditor early on, so the actuarial report can be completed before the audit deadline.
- Discuss the key assumptions used, such as the discount rate and the expected salary growth rate, so management understands the basis of the resulting figures.
- Keep actuarial reports from previous years on file as a reference for trend analysis and future employee benefit policy decisions.
Frequently Asked Questions
Does a company without a pension program still need actuarial services?
As long as a company has a severance or long-service award obligation under applicable labor regulations, the need for actuarial calculations remains, regardless of whether a supplementary pension program exists.
What happens if a company is late in performing its actuarial valuation?
A delay can hold up the annual audit process and may push back the release of the financial statements, which in turn can affect the confidence of investors, creditors, or business partners in the company’s reporting timeliness.
Can a company change its actuarial consultant every year?
In principle, yes. However, companies should weigh the value of methodological consistency and the consultant’s familiarity with the company’s benefit policy history, since switching consultants can sometimes produce differences that are difficult to explain to auditors.
Conclusion
The obligation to use actuarial services generally arises as soon as a company has permanent employees and an employee benefit liability that is material to its financial statements. Ignoring this need is not only a risk to the audit opinion, but can also affect the company’s funding readiness in the future. Working with the right actuarial consultant from the outset helps a company approach every reporting period with greater confidence.
Kantor Jasa Aktuaria Syamsuddin B. Salam is ready to be your company’s partner in meeting employee benefit reporting obligations under PSAK 219. Contact our team through kkasbs.com for further consultation.
