The effect of the quality of local government financial reports on corruption moderated with the audit findings

Economic Annals-XXI: Volume 197, Issue (5-6), Pages: 45-50

Citation information:
Aminah, Suhardjanto, D., Rahmawati, & Winarna, J. (2022). The effect of the quality of local government financial reports on corruption moderated with the audit findings. Economic Annals-XXI, 197(5-6), 45-50. doi: https://doi.org/10.21003/ea.V197-07

Aminah
PhD (Economics),
Associate Professor,
Universitas Bandar Lampung
Kota Bandar Lampung, 35142, Indonesia (Corresponding author)
aminah@ubl.ac.id
ORCID ID: https://orcid.org/0000-0002-6862-0316

Djoko Suhardjanto
PhD (Economics),
Universitas Sebelas Maret
Surakarta, Jawa Tengah, 57126, Indonesia
djoko.suhardjanto@yahoo.com
ORCID ID: https://orcid.org/0000-0002-5027-0311

Rahmawati
PhD (Economics),
Universitas Sebelas Maret
Surakarta, Jawa Tengah, 57126, Indonesia
rahmaw2005@yahoo.com
ORCID ID: https://orcid.org/0000-0002-9931-1380

Jaka Winarna
PhD (Economics),
Universitas Sebelas Maret
Surakarta, Jawa Tengah, 57126, Indonesia
jakwin08@gmail.com
ORCID ID: https://orcid.org/0000-0002-9817-3422

The effect of the quality of local government financial reports on corruption moderated with the audit findings

Abstract. The study examines the effect of the Quality of Local Government Financial Reports (LKPD) on corruption moderated by audit findings. The study was conducted on all provincial governments in Indonesia. Corruption is measured by data on corruption cases in the Attorney General’s Office. The audit findings are evaluated using weaknesses in the Information Control System (SPI) and discoveries of non-compliance with laws and regulations. This research use data regression, model testing, hypothesis testing, and coefficient of determination. The results reveal that the LKPD’s quality had a negative and significant impact on corruption. This analysis states that if the quality of LKPD increases by 1%, corruption will decrease by 0.80%. The audit findings strengthen the relationship between the quality of LKPD on corruption. This finding supports the agency theory and stewardship theory. Therefore, the provincial government should improve the quality of LKPD to minimize audit findings and corruption.

Keywords: Quality of Financial Reports; Corruption; Financial Audit System; Financial Management

JEL Classіfіcatіon: K20; K23; H11

Acknowledgements and Funding: The researchers would like to thank to the Universitas Bandar Lampung, Kota Bandar Lampung, Lampung and the Univerisitas Sebelas Maret, Surakarta, Jawa Tengah, Indonesia, for their support, so that this research can be completed.

Contribution: The authors have contributed equally to this study.

Data Availability Statement: All data will be provided on request.

DOI: https://doi.org/10.21003/ea.V197-07

References

1. Arakelova, I. (2020). The influence of the internally displaced persons forced migration on the dynamics of regional social and economic security indicators. Economic Annals-XXI, 182(3-4), 4-14.
   https://doi.org/10.21003/ea.V182-01
2. Arifuddin, M., Darwis, S., & Sundari, S. (2021). Behaviour models of audit quality reduction associated with auditor’s work stress. Economic Annals-XXI, 187(1-2), 215-222.
   https://doi.org/10.21003/ea.V187-21
3. Berková, K., Krpálek, P., & Krelová, K. K. (2019). Future economic professionals: development of practical skills and competencies in higher education from the point of view of international employers. Economic Annals-XXI, 176(3-4), 91-98.
   https://doi.org/10.21003/ea.V176-09
4. Donatella, P., Haraldsson, M., & Tagesson, T. (2019). Do audit firm and audit costs/fees influence earnings management in Swedish municipalities? International Review of Administrative Sciences, 85(4), 673-691.
   https://doi.org/10.1177/0020852317748730
5. Ferrali, R. (2020). Partners in crime? Corruption as a criminal network. Games and Economic Behavior, 124, 319-353.
   https://doi.org/10.1016/j.geb.2020.08.013
6. Frolov, Yu., & Bosenko, T. (2020). The impact of armed conflict on economic performance and enterprise value in the country. Economic Annals-XXI, 182(3-4), 49-55.
   https://doi.org/10.21003/ea.V182-06
7. Hudori, R., & Mustikasari, E. (2020). The strength of audits, reporting standards and corruption, on tax evasion: A cross-country study. International Journal of Economics and Business Administration, 8(2), 554-567.
   https://doi.org/10.35808/IJEBA/481
8. Hung Son, T., Gia Khanh, H. C., & Thanh Liem, N. (2020). Credit information sharing, corruption and financial development: International evidence. Cogent Business & Management, 7(1), 1851856.
   https://doi.org/10.1080/23311975.2020.1851856
9. Jaff, R. A. S., Al-Kake, F. R. A., & Hamawandy, N. M. (2021). The impact of the sustainable development dimensions on the quality of financial reports. Accounting, 7, 363-372.
   https://doi.org/10.5267/J.AC.2020.11.016
10. Kaletnik, H., & Zdyrko, N. (2021). Public financial control in Ukraine: state, problems, prospects. Economic Annals-XXI, 187(1-2), 163-176.
    https://doi.org/10.21003/ea.V187-16
11. Karabayev, E. B., Sembiyeva, L. M., Zeinelgabdin, A. B., Beisenova, L. Z., & Pankou, D. A. (2021). The role of external public audit in ensuring the financial stability of the budgets of developing countries. Public Policy and Administration, 20(1), 108-117.
    https://doi.org/10.5755/j01.ppaa.20.1.28389
12. Lassou, Ph. J. C., Hopper, T., & Ntim, C. (2021). How the colonial legacy frames state audit institutions in Benin that fail to curb corruption. Critical Perspectives on Accounting, 78, 102168.
    https://doi.org/10.1016/j.cpa.2020.102168
13. McVay, S., & Szerwo, B. (2021). Preparers and the financial reporting system. Accounting and Business Research, 51(5), 484-507.
    https://doi.org/10.1080/00014788.2021.1932257
14. Montoya, J. C. C. (2018). The impact of IFRS on financial report quality in Latin America and the Caribbean. Contaduría y Administración, 63(2), 13-14.
    https://doi.org/10.22201/FCA.24488410E.2018.1233
15. Muda, I., Harahap, A. H., Ginting, S., Maksum, A., & Abubakar, E. (2018, March). Factors of quality of financial report of local government in Indonesia. In IOP Conference Series: Earth and Environmental Science, 126(1), 012067.
    https://doi.org/10.1088/1755-1315/126/1/012067
16. Nelson, F. M., & Santoso, T. (2020). Plea Bargaining in Corruption Cases: A Solution for the Recovery of Financial Losses by Indonesia? Pertanika Journal of Social Sciences & Humanities, 28(2), 1233-1248.
    https://scholar.ui.ac.id/en/publications/plea-bargaining-in-corruption-cases-a-solution-for-the-recovery-o
17. Pachmann, A. (2018). Corruption and deforestation in Indonesia. Regional Formation & Development Studies, 25(2), 55-62.
    https://doi.org/10.15181/rfds.v25i2.1745
18. Pamungkas, B., Avrian, C., & Ibtida, R. (2019). Factors influencing audit findings of the Indonesian district governments’ financial statements. Cogent Business & Management, 6(1), 1673102.
    https://doi.org/10.1080/23311975.2019.1673102
19. Sarwono, A. E., Rahmawati, R., Aryani, Y. A., & Probohudono, A. N. (2018). Factors Affecting Corruption in Indonesia: Study on Local Government in Indonesia. Indonesian Journal of Sustainability Accounting and Management, 2(2), 79-89.
    https://doi.org/10.28992/IJSAM.V2I2.41
20. Sujana, E., Kurniawan Saputra, K. A., & Manurung, D. T. (2020). Internal control systems and good village governance to achieve quality village financial reports. International Journal of Innovation, Creativity and Change, 12(9).
    http://repository.stiewidyagamalumajang.ac.id/id/eprint/764

Received 20.01.2022
Received in revised form 22.02.2022
Accepted 26.02.2022
Available online 22.06.2022