Lawyers as problem solvers

Lawyers are problem solvers. As problem solvers, lawyers must have extensive knowledge because in solving problems,legal aspect is not the only consideration. There are also other aspects that need to be considered so the decision made is the best step taken from various perspectives. Therefore, lawyers also need to have knowledge of other disciplines. By understanding numerous disciplines, lawyers can help their clients to find the best solution. Making decisions without realizing a blind spot could be dangerous and this may be fatal for the client. Blind spot means something visible but not recognized. Essentially, in making decision we need to consider its positive and negative effects from multiple aspects. After making broad analysis, lawyers can help the client in making decision. Detailed lawyers know what they are doing so there is no blind spot that could pose a risk to the client.

Additional skill

Surely not all disciplines must be understood by lawyers, but it can be inferred that there is an additional skill that lawyers in general needs, namely business skill. Human activities always involve business, such as purchasing, renting, loans, debts, cooperations, and other engagements. Therefore, lawyers must understand business. Since financial statement is an important documentation in business, lawyers more or less have to understand financial statement.

Compared to lawyers in other countries such as the United States, law education in Indonesia is much shorter. In the United States, lawyers need longer education because before taking a law major, lawyer candidates must pass 4 (four) years of pre-law study (equal to S1 in Indonesia) then continue to graduate degree for law study (equal to S2 in Indonesia). Equipped with a longer study period, lawyers in other countries usually have equipped themselves with education on business and/or financial statement or at least introduction to the aforementioned studies. When leading a transaction, those skills are very helpful. Without those skills, lawyers cannot lead transaction because if they don’t know the essential points, unwanted blind spots may appear. In Indonesia, study to become a lawyer is easier by sufficiently completing S1, and until now there is no obligation to take introductory classes of accounting, business, or financial management in law schools across Indonesia. College students are even reluctant to take classes that are considered ‘difficult’ and ‘optional’.

Therefore, lawyers that acquired additional knowledge are aware that such knowledge is actually needed for their capacity as lawyers.

What is financial statement?

Financial Statement is a company’s performance report within a specific period. From such data, accounting information users can surely identify the company’s financial condition.

Financial statement consists of balance sheet, profit or loss statement, cash flow, and notes to financial statement.

Financial statement is categorized into two types, audited and unaudited. Audited financial statement is made by public accounting company, while unaudited financial statement is made by the company itself.

The more accurate and understandable category of financial statement for lawyers is the audited financial statement since it is made according to the Indonesian Standardized Accounting Principles (PSAK) and contains further information of the figures inserted in the balance sheet.

Financial Statement is important for companies. According to the Indonesian Ministry of Trade Regulation No. 25 of 2020 concerning Company’s Annual Financial Statement (“Permendag No. 25/2020”), limited liability companies are obligated to submit Company’s Annual Financial Statement (LKTP) to the regulators which meet any of the qualifications as follows :

    1. 1. Public Company;
    2. 2. engaged in business related to community fundraising;
    3. 3. issuing debt securities;
    4. 4. having asset in amount of at least IDR 25,000,000,000.00 (twenty-five billion Indonesian Rupiah); or
    5. 5. a debtor which their annual financial statement is required to be audited by Bank.

Which lawyer must understand financial statement?

Basically, all lawyers must understand financial statement, not only corporate lawyers, but also litigation lawyers. However, in certain areas, understanding financial statement becomes a part of lawyers’ daily activities, such as lawyers in capital market, banking and finance, investment, Postponement of Debt Settlement Obligation (“PKPU”) administrator, insolvency curator, tax dispute, anti-trust, and commercial litigation lawyers.

Several example of situations that require lawyers to understand the material of a financial statement:

    1. 1. corporate lawyers who give business strategy advice must understand company’s financial condition, such as cash, receivables, debt, financial ratio, etc.;
    2. 2. corporate lawyers when preparing analysis study regarding settlement of a company’s obligations. If they don’t understand financial statement, the lawyers could give incorrect legal analysis because financial and legal matters are related. For example, if a financial statement states that a company has value of asset more than its liability, then company X’s dissolution process does not need insolvency process. The lawyers need to further understand if the assets documented by the company X are legally owned by that company X, if any assets are in receivables whether they are collectable, and under what item any disputed assets are to be documented, these things are required for the lawyers to significantly give meaningful output;
    3. 3. in distribution of a company dividend, the assisting lawyers must understand that reserve fund 20% (twenty percent) of paid-up capital in compliance to Law No. 40 of 2007 concerning Limited Liability Company as lastly amended by the Law No. 6 of 2023 concerning Stipulation of Government Regulation In Lieu of Law No. 2 of 2022 on Work Creation as Law is complied, and they can use the financial statement as a reference;
    4. 4. capital market lawyers, in their daily activity must be familiar with financial statement since there are numerous Financial Services Authority (OJK) regulations governing thresholds for which we must check financial statement, such as material transaction that refers to equity value, asset value, net profit, and/or income;
    5. 5. banking and finance lawyers, when preparing or revising loan agreements, must know the debtor’s financial ratios, so it is not categorized in default;
    6. 6. investment lawyers, when assisting in the processes of licensing and investment activities report must know where to find data source;
    7. 7. for administrators and curators, understanding financial statement is a must. Although administrators and curators can appoint an accountant to assist them, as the coordinator in PKPU and insolvency processes they must understand financial statement;
    8. 8. lawyers in tax dispute must deeply understand the client’s financial data before confronting the tax officer;
    9. 9. anti-trust lawyers must understand the client’s data to compare it with the threshold in PKPU regulation;
    10. 10. litigation lawyers who represent a company in a dispute with an employee or labor union, must understand the company’s financial position. For example, when the company is suffering loss, then severance pay could be paid in half. Such loss shall not only be based on the company’s verbal confirmation, but must also be verified;
    11. 11. there are litigation cases which can be settled by reviewing financial statement, such as a dispute between the company shareholders and the Board of Directors;
    12. 12. lawyers can even use the counterparty’s financial statement as a material to strengthen their evidence.

Is it difficult to understand financial statement?

Nowadays there are a lot of sources for self-learning, such as books, internet, or training. Formal education may also be taken by lawyers to upgrade their skills.

In conclusion, considering the competition in every profession, enriching skill is a must for consultants, including lawyers. By acquiring additional skills, lawyers can upgrade their qualification from perfect competition market level, where competition between lawyers is very tight, to monopolistic market where there is less competition since they are equipped with the competence of a ‘specialist’. Even if they can be ‘super specialist’, it may narrow to oligopoly market, where such lawyers are widely known of their skill in a specific field with less lawyers as competitors.

Hope you find this useful.

Author: Almaida Askandar, S.H. (MBA candidate) of IABF Law Firm

26th June 2023

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