Tightening Inventory and Fixed Asset Control Frameworks — Indonesian Manufacturing Operations of a Global Textile Conglomerate
JCSS Indonesia tightened the inventory and fixed asset control frameworks for the Indonesian manufacturing operations of one of the world's largest textile conglomerates — identifying more than USD 500,000 in potential value through a comprehensive physical inventory and fixed asset verification that satisfied SAK Indonesia (PSAK 202), IFRS, and group accounting standards simultaneously.
The Challenge
Textile manufacturing operations in Indonesia generate complex inventory management challenges: raw material stores spanning hundreds of SKUs, work-in-progress across multiple production stages, finished goods across variants, and engineering stores containing slow-moving, obsolete, and hidden items that accumulate over years without detection.
| Challenge | Operational Reality | Business Risk |
|---|---|---|
| Unrecorded inventory stores | Significant quantities of raw materials and engineering items purchased but not entered into the ERP | Understated assets in the balance sheet; potential fraud risk if systematic |
| Idle and hidden inventory | Slow-moving items stored in secondary locations not mapped in the warehouse management system | Annual write-offs inflated; insurance under-coverage on unreported assets |
| Multi-standard compliance gap | Indonesian books maintained under legacy PSAK; group parent required reconciliation to its reporting standards | Consolidated group accounts contained unverified Indonesian inventory balances |
| Absence of physical verification protocol | No structured cycle counting or periodic physical verification programme | External auditors for both Indonesian and group statutory accounts raising qualifications |
| Fixed asset over-statement | Fully depreciated machinery still on the FAR with no physical location mapping | Ghost assets inflating the balance sheet; impairment indicators not assessed |
Our Approach
- 1
Pre-Verification Planning
Agreed scope with Indonesian management and group finance: designed count sheets, established cut-off procedures, mapped all warehouse locations (including secondary and overflow stores), and aligned the verification methodology with Indonesian KAP and group statutory auditors.
- 2
Physical Inventory Count
Deployed JCSS Indonesia teams across all manufacturing facilities simultaneously; conducted blind counts (count sheets printed from ERP without pre-disclosed quantities); reconciled physical count to system quantities for every SKU, lot, and batch; photographic evidence captured for every variance item.
- 3
Hidden and Unrecorded Inventory Discovery
Specifically searched secondary storage areas, engineering stores, and production floor overflow locations; identified multiple categories of unrecorded inventory including: bulk raw materials not logged at GRN, returned goods not restocked into ERP, and engineering spares purchased through capex but miscoded as expenses.
- 4
Multi-Standard Accounting Reconciliation
Prepared a reconciliation of physical count results to: (a) Indonesian books under SAK Indonesia / PSAK 202, (b) IFRS basis for group consolidation, and (c) group reporting standards — mapping the measurement differences across all applicable frameworks.
- 5
Fixed Asset Verification
Conducted simultaneous FAR verification: physically located and tagged all assets, identified ghost assets for removal, assessed condition and remaining useful life, flagged impairment indicators under PSAK 236 (formerly PSAK 48), and confirmed insurance coverage adequacy.
Outcomes
| Result | Metric | Strategic Impact |
|---|---|---|
| Potential value identified | USD 500,000+ | Control frameworks tightened; asset base accurately stated; balance sheet exposure quantified |
| Ghost assets eliminated | Multiple assets removed | Balance sheet corrected; depreciation charge right-sized going forward |
| Multi-standard compliance | SAK + IFRS + Group Standards | Group audit closed without Indonesia-related qualifications for the first time |
| Audit qualification resolved | Clean opinion achieved | Clean audit opinion on both Indonesian statutory and group consolidated accounts |
| Ongoing programme | Annual cycle established | Recurrence of control gaps prevented through structured cycle counting SOPs |
Frameworks Applied
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