Determinants of the Quality of Financial Reports

Abstract

Purpose: This study aims to determine the effect of the internal control system, information technology, applying of accounting standards, human resources competence, and the role of internal auditors on the quality of financial reports of local governments. Theoretical framework: Internal control system, information technology, applying of accounting standards, human resources competence, and the role of internal auditors affect the quality of financial reports. According to the agency theory, the quality of financial reports improves government performance and increasing accountability by reducing the information asymmetry. Additionally, under the agency theory approach, transparency and information are useful in controlling managers and making them responsible for their decisions, as well as overall organizational performance. Design/Methodology: The sample in this study was 126 respondents who were obtained using purposive sampling technique from the financial management and accounting officials of Kendari City, Southeast Sulawesi Province, Indonesia. The analytical method used is multiple linear regression analysis. Findings: The results support the agency theory and found that the internal control system, information technology, applying of accounting standards, and the role of internal auditors had a positive and significant effect on the quality of financial reports of local governments. Meanwhile, human resource competence has a positive but not significant effect on the quality of financial reports of local governments. This shows that the better the internal control system, information technology, applying of accounting standards, and the role of internal audit, the quality of local government financial reports will be better. Research, Practical & Social implications: This study can fill gaps in the results of previous research and helps to provide useful information for local governments in improving the quality of financial reports as an important part of efforts to increase transparency and accountability in the management and reporting of local government finances. Originality/Value: The findings suggest several consequences for the fields of public sector accounting and government governance. Additionally, recent empirical evidence shows that the implementation of accountability in many developing countries, including local government in Indonesia has not yet reached general standards and mainly focuses on compliance with applicable regulations, that this study aids in resolving by examining the factors that determine the quality of local government financial reports.

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