DETERMINANTS OF FINANCIAL REPORTING QUALITY: AN EMPIRICAL STUDY AMONG LOCAL GOVERNMENTS IN INDONESIA

Authors

Keywords:

Internal Control System, Information Technology Governance, Political Influence, Commitment to Organization, Transparency and Financial Reporting Quality

Abstract

The maintenance of financial reporting quality is a crucial concern for organizations due to pressure for compliance with increased regulations and legal requirements. One of the critical shortcomings of existing literature is the lack of studies to explain the factors affecting financial reporting quality. Therefore, this study aims to examine the determinants of Financial Reporting Quality (FRQ). An empirical study was conducted across local governments in Indonesia to test the hypothesis. In this study, 302 qualified questionnaires were collected from local government employees through self-administered surveys. Furthermore, the Partial Least Square-Structural Equation Modelling (PLS-SEM) technique was used for data analysis. The result showed that Internal Control System (ICS), Effective Information Technology Governance (ITG), Regulation on Performance Measurement (RPM), and Political Influence (PIN), as well as Transparency (TRS), have a relationship with FRQ. Meanwhile, the hypothesis that Commitment to Organization (COR) strengthens the effect of ICS, ITG on FRQ was rejected. The result provided evidence of the significant indirect effect of RPM and PIN on FRQ through TRS. In conclusion, FRQ, as the result of accounting activities, provided financial information understood by users and used for decision-making in the future.

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Published

2021-12-18