The Zeitgeist of "Financial Reporting Quality" Predictors: An Empirical Study among Local Governments (Districts) in Indonesia

Abstract

The research investigated the relationship among FRQ, ICS, RPM, and COR as moderating variables. The research recommends that local governments should improve in the field of financial management and implement an effective internal control system. Aligning the research problem and objectives, this research adopted the agency theory for local government. This theory includes information asymmetry, where the agent has more information and understands more about the actual financial position than the principal. Modern democracies are based on a series of principal-agent relationships, which may lead to problems in the public sector. In this research, 257 qualified questionnaires were collected from local governments in Indonesia, using self-administered surveys. Furthermore, Partial Least Square-Structural Equation Modelling (PLS-SEM) technique was used for data analysis. The results showed that ICS, COR, and RPM have a positive relationship with FRQ, while the hypothesis that COR strengthens the effect of ICS on FRQ was rejected. High COR does not significantly improve the FRQ without being supported by a good ICS. With a high or low COR, the ICS will continue to be carried out properly by leaders and superiors. Therefore, a good COR does not significantly moderate the effect of the ICS on the FRQ. The quality of financial reports is the result of accounting activities that can provide financial information which can be understood by users and be used for decision-making in the future.

Determinants of Local Government Financial Reporting Quality: Evidence from Jambi, Indonesia

“…Previously, Indonesia has experienced the development of government accounting. Problems regarding the quality of financial reports are increasingly being discussed, and the number of cases regarding the weak quality of local government financial reports in Indonesia is still a topic problem that must be studied more deeply (Hariani & Fakhrorazi, 2021). The government is still trying to change all aspects of achieving the country's prosperity, especially in managing reliable, accountable, and transparent state financial reports.…”