Abstract
This study examines whether the internal control system moderates the relationship among budget expenditure, government size, legislative size, and audit findings on financial statement disclosure in Indonesia. This is a quantitative study that uses the purposive sampling technique to collect data from 240 local governments in Indonesia. Data were analyzed using Structural Equation Modelling (SEM) with Smart PLS. The results show that government size, legislative size, and audit findings had a positive and significant effect on financial statement disclosure, whereas budget expenditure does not. In addition, the findings revealed that the internal control system moderates the relationship between government size and legislative size and financial statement disclosure, but not by audit findings. The study contributed to extending the institutional and agency theory that explains these factors toward disclosure in the local government in Indonesia. The findings suggest that Indonesia’s local governments consider potential factors regarding increasing pressure to carry out disclosure of financial statements, as well as increasing the proper disclosure required by applicable Indonesian regulations.
Highlights
Every government in Indonesia, both regional and central, is to be more independent in the implementation of compiling its financial statements based on law No 32 as of 2004, replaced by law No 23 as of 2014, concerning regional government
This study assesses how Indonesian local governments deal with accounting compliance with government regulations using disclosure of financial statements by looking at the factors that influence it, namely, budget expenditure, government size, legislative size, audit findings, and internal control system as a moderating factor
The findings show that the local government has the most effective role over the disclosure of the 240 districts/cities
Summary
Every government in Indonesia, both regional and central, is to be more independent in the implementation of compiling its financial statements based on law No 32 as of 2004, replaced by law No 23 as of 2014, concerning regional government. Law No 17 as of 2003 ensures that regional government submits a more detailed accountability report for the implementation of the National or Local Budgetary Revenue and Expenditure (APBN /APBD). SAP is commonly used by the government in conjunction with the guidelines requiring the process of structuring and presenting financial statements and expanding disclosure attachments. The information generated by accrual-based accounting standards is considered superior when compared to cash-based standards. This is because accrual information is considered more able of providing an accurate picture of all financing and service provisions.
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