Determinants of Financial Reporting Quality in the Public Sector: Evidence from Indonesia

Rakhman, F. and S. Wijayana. 2019. Determinants of Financial Reporting Quality in the Public Sector: Evidence from Indonesia. The International Journal of Accounting, Vol. 54 Issue 3, September.

Posted: 14 Jun 2019 Last revised: 14 Oct 2019

See all articles by Fuad Rakhman

Fuad Rakhman

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB)

Singgih Wijayana

Universitas Gadjah Mada (UGM)

Date Written: May 2, 2019

Abstract

Most studies addressing the issue of financial reporting quality focus on corporations. This study investigates the determinants of financial reporting quality in the public sector. We use the type of audit opinion as a proxy for reporting quality, with an unqualified opinion representing the best reporting quality while a disclaimer of opinion represents the worst quality. Using manually collected data from 3,018 financial reports of local governments in Indonesia from 2008 to 2014, we find that a high proportion of capital expenditures in the total budget is associated with low financial reporting quality. Further, we find that larger and wealthier local governments are associated with higher financial reporting quality. Lastly, we find that local governments under more experienced mayors have higher reporting quality. Our results are robust to different measures of financial reporting quality. This study contributes to the reporting quality literature by providing empirical evidence on the determinants of financial reporting quality in the public sector, which has been relatively underexplored. We conclude that certain characteristics of local governments and of mayors are associated with the types of audit opinion and that financial incentives accelerate the improvement of reporting quality.

Keywords: financial reporting quality, public sector, local government, capital expenditures

Suggested Citation

Rakhman, Fuad and Wijayana, Singgih, Determinants of Financial Reporting Quality in the Public Sector: Evidence from Indonesia (May 2, 2019). Rakhman, F. and S. Wijayana. 2019. Determinants of Financial Reporting Quality in the Public Sector: Evidence from Indonesia. The International Journal of Accounting, Vol. 54 Issue 3, September., Available at SSRN: https://ssrn.com/abstract=3396365

Fuad Rakhman (Contact Author)

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB) ( email )

Bulaksumur
Yogyakarta 55281
Indonesia

Singgih Wijayana

Universitas Gadjah Mada (UGM) ( email )

Bulaksumur, Yogyakarta
Yogyakarta, Special Province of Yogyakarta
Indonesia

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