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.
Highlights
The consistently low performance of local governments in Indonesia regarding accountability reports and financial performance for 2015-2019 fell below 25% of the total regional income or was included in the pattern of instructive relationships
The respondents amounted to 257 people from various positions such as head of accounting, senior and junior accounting which constitute the financial management in local governments (Districts) in Indonesia
This research investigated the relationship between Financial Reporting Quality (FRQ), Internal Control System (ICS), Regulation on Performance Measurement (RPM), and Commitment to Organization (COR) as moderating variables
Summary
The consistently low performance of local governments (districts) in Indonesia regarding accountability reports and financial performance for 2015-2019 fell below 25% of the total regional income or was included in the pattern of instructive relationships. Local governments are not able to finance regional activities independently This shows that the level of financial reporting of local governments (districts) is low compared to provinces and cities. Based on Law No 15/ 2004 concerning the Audit of State Financial Management and Accountability in Indonesia, providing audit opinions to produce financial reporting quality are based on general criteria These include the effectiveness of the internal control system, compliance with applicable laws and regulations, and compliance with Government Accounting Standards No 71/ 2010 [17]. This research can be used to evaluate the local government financial reporting quality and give provide motivation to the government related to using public funds and other entrusted assets This is because it provides an overview of the consolidated state of affairs and resources and improves the characteristics of accountability, decision making, understanding, comparability, verification, and timeliness. The country’s regulations determine the quality of the annual reports [30]
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