Written by Eri Budiman and Fajri Yudha Pratama on 5/7/2024
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.
Financial Due Diligence (FDD) is a critical component of the investment decision-making process, providing in-depth insights into the financial health and regulatory compliance of potential investment targets. A fund and asset management company, hereinafter referred to as “The Company”, renowned for its strategic focus on real estate and venture capital within dynamic Asian markets, has engaged the service of Putranto Alliance to conduct an FDD on a prospective investment to ensure that the financial and tax records of the target company are accurate and reflective of actual operations. By leveraging the findings and recommendations provided by Putranto Alliance, The Company seeks to make an informed investment decision, aligning with its commitment to responsible and sustainable investment practices.
The Company specializes in investments primarily in real estate and venture capital within rapidly developing markets across Asia. The Company is committed to being a responsible investor and fund manager.
To achieve its investment goals, The Company adopts a long-term perspective, integrating Environmental, Social, and Governance (ESG) factors into its investment strategies and corporate operations. By prioritizing ESG considerations, The Company aims to foster sustainable growth, mitigate risks associated with environmental and social factors, and uphold the highest standards of governance.
The Company planned to invest in other entities as part of its investment strategy. As an early stage in the investment process, The Company conducted an in-depth evaluation to understand the actual financial condition of the entity targeted, hereinafter referred to as the “FDD Target”, for investment.
FDD Target is a technology-based enterprise in Indonesia, focusing on the waste management sector. Since the FDD Target started the business activities, the limited understanding of accounting standards and tax regulations has resulted in non-compliance with current standards and regulations, including:
These potential issues can bring the possibility for fines and tax underpayment in the future.
To address the issues above, Putranto Alliance was asked to provide FDD service that included an assessment of the accuracy of the financial statements, compliance with tax laws and regulations, as well as identification of critical findings and recommendations to improve their accounting & tax practices.
The FDD process involves a comprehensive analysis of the accounting standard’s application in their bookkeeping and the potential tax exposure of the FDD Target. This assignment aims to provide The Company with a comprehensive and detailed understanding to make informed and appropriate investment decisions.
During the assessment of the FDD Target, we identified the following key challenges in their finance, accounting, and tax practices:
Putranto Alliance conducted a thorough assessment of finance, accounting, and tax of the FDD Target.
The key points are as follows:
Financial statement analysis in FDD involves 3 (three) main aspects:
Tax compliance analysis in FDD includes:
The findings and recommendations process in the FDD aims not only to identify key findings but also to provide strategic direction that can improve accounting & tax compliance.
The summary of the key findings also provides a clear picture of the current financial state, while the strategic recommendations focus on prioritized actions to improve the operation of FDD Target.
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putranto@putranto-alliance.com
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Kompleks Menteri, Kuningan
Jakarta Selatan, 12950, Indonesia
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