The Impact Of Financial Distress, Audit Committee, And Firm Size On The Integrity Of Financial Statements
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Abstract
This study aims to examine the impact of Financial Distress, Audit Committee, and Firm Size on The Integrity of Financial Statements. The integrity of financial statements can reflect the company's financial performance. The research sample obtained were based on purposive sampling technique, is including 32 consumer goods industry sectors firms listed in Indonesian Stock Exchange over the period of 2013-2017. Sources of research data are annual reports. Data analysis used descriptive statistics, classic assumption tests, estimation models, and panel data regression analysis. The panel data regressions analysis was the methodology employed for verifying the factors that may influence the integrity of financial statements. Based on the results of the Chow test and the Hausman test, the appropriate panel data regression model to be used for this study is the fixed effects model. This study provides empirical evidence that financial distress is negatively associated with the the integrity of financial statements, while audit committee and company size have positive effect on the the integrity of financial statements.
Keywords: Financial Distress, Audit Committee, Firm Size, Integrity of Financial Statements.
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References
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Arens, Alvin. A, Randal J. Elder, Mark S. (2014). Auditing and Assurance service.
Edisi keduabelas. Jilid Satu. Jakarta: Erlangga. Prentice Hall International. New
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A'yunin, Qurrota., Ulupui., I Gusti Ketut Agung., & Nindito, Marsellisa. (2019). The Effect of the Size of Public Accounting Firm, Leverage, and Corporate Governance on the Integrity of Financial Statement: A Study on Companies Listed on Indonesian Stock Exchange. KnE Social Sciences. doi: 10.18502/kss.v3i11.4053
Ball, R., & Shivakumar, L. (2005). The role of accruals in asymmetrically timely gain
and loss recognition. Journal of Accounting Research 44(2): 207–42. https://pdfs.semanticscholar.org/eb48/630627f7c25a67769dd86d00f722498fc0b2.pdf
Demonier, G.B., Almeida, J.E.F., & Bortolon, P.M. (2015). The Impact of Financial Constraints on Accounting Conservatism. Review of Business Management Brasil 17(57): 1264–78. https://doi.org/10.7819/rbgn.v17i57.2326
Fauziah, S. N., & Panggabean, R. R. (2019). Factors affecting the integrity of manufacturing company financial statements in Indonesian Stock Exchange and Malaysian Stock Exchange. International Journal of Recent Technology and Engineering, Vol. 8, Issue 4, pp 2252 - 2259. https://ssrn.com/abstract=3496142
Foroghi, Dariush., Amiri, Hadi,. &Fallah, Zahra Nokhbeh. (2013). Corporate Governance And Conservatism. International Journal Of Academic Research In Accounting, Finance And Management Sciences. Vol. 3, No. 4. Pp. 61–71.
http://hrmars.com/hrmars_papers/Article_08_Corporate_Governance_and_Conservatism.pdf
Givoly, Dan., & Hayn, Carla. (2000). The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?, Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320. https://ideas.repec.org/a/eee/jaecon/v29y2000i3p287-320.html
Grice, J. S., & Dugan, M. T. (2003). Re-Estimations Of The Zmijewski And Ohlson Bankruptcy Prediction Models. Advances in Accounting vol 20 (pp. 77- 93).
https://doi.org/10.1016/S0882-6110(03)20004-3
Gruszczynski, Marek. (2015). Issues in Modelling the Financial Distress and Bankruptcy of Companies. Quantitative Methods In Economics. Vol. XVI, No. 1, 2015, pp. 96 – 107. https://ssrn.com/abstract=2880146
Guse, Raluca., Calu, Adriana., Calu, Daniela Artemisa St., & Viorel, Avram. (2011). The Effect of Conservatism and Precautionary Principles on the Reporting Practices of Economic Entities. Revista Anale, Seria Științe Economice, TImișoara, Issue XVII, pp 829-836, 2011. https://ssrn.com/abstract=2866590
Hamdan, Allam., Kukreja, Gagan., Awwad, Bahaa., & Dergham, Maher Mousa. (2012). The Auditing Quality and Accounting Conservatism. International Management Review. Vol. 8 No. 2.
https://www.researchgate.net/publication/309349976_The_auditing_quality_and_accounting_conservatism
Jabbar, Fadhil Shaalan. (2019). The Accounting Conservatism and Its Effect on the Quality of Financial Reporting and Supply Chain of Organization in the Financial Market. International Journal of Supply Chain Management. Vol. 8, No. 1. https://ojs.excelingtech.co.uk/index.php/IJSCM/article/view/2558/1428
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm:Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. doi: https://doi.org/10.1016/0304-405X(76)90026-X
Kabir, Humayun. (2010). Positive Accounting Theory and Science (April 8, 2011). Journal of CENTRUM Cathedra, Vol. 3, Issue 2, pp. 136-149. https://ssrn.com/abstract=1806038
Kazemian, S., Shauri, N., Sanusi, Z., Kamaluddin, A., & Shuhidan, S. (2017).
Monitoring mechanisms and financial distress of public listed companies in
Malaysia. Journal of International Studies, 10 (1), 92-109. doi:10.14254/2071-
8330.2017/10-1/6
Kieso, Donald E., Weygandt, Jerry J., & WarfieldJoh, Terry D. (2012). Intermediate Accounting. (14th Edition). The United States of America: John Wiley & Sons, Inc.
Krishnan, Jayanthi, (2005). Audit Committee Quality And Internal Control: An Emperical Analisis. Accounting Review, vol 80 No 2 pp 649-675. https://doi.org/10.2308/accr.2005.80.2.649
Kuncová, M. & Hedija, V. & Fiala, R. (2016). Firm Size as a Determinant of Firm Performance: The Case of Swine Raising. AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 8(3), pages 1-13. doi: 10.22004/ag.econ.245886
Lessambo, F.I. (2014). Management Fraud. In: The International Corporate Governance System. Global Financial Markets series. Palgrave Macmillan, London.
https://doi.org/10.1057/9781137360014_23
Luqman, R., Ul hassan, M., Tabasum, S., Khakwani, M. S., & Irshad, S. (2018). Probability of financial distress and proposed adoption of corporate governance structures: Evidence from Pakistan. Cogent Business & Management, 5(1), 1492869. https://doi.org/10.1080/23311975.2018.1492869
Machdar, Nera Marinda., & Nurdiniah, Dade. (2018). The Influence of Reputation of Public Accounting Firms on the Integrity of Financial Statements with Corporate
Governance as the Moderating Variable. Binus Business Review, 9(3), 177-186. DOI: https://doi.org/10.21512/bbr.v9i3.4311
Mar’atus Sholikhah , R., & Wilujeng Suryani, A. (2020). The Influence of the Financial Distress, Conflict of Interest, and Litigation Risk on Accounting Conservatism. KnE Social Sciences, 4(7), 222–239. https://doi.org/10.18502/kss.v4i7.685
Mohamad Nor, Mohamad Naimi., Shafie, Rohami., & Wan hussin, wan nordin. (2010).
Corporate Governance and Audit Report Lag in Malaysia. Asian Academy of Management Journal of Accounting and Finance. Vol 6 (2).
https://www.researchgate.net/publication/228240024_Corporate_Governance_and_Audit_Report_Lag_in_Malaysia
Nurdiniah, Dade., & Pradika, Endra. (2017). Effect of Good Corporate Governance, KAP Reputation, Its Size and Leverage on Integrity of Financial Statements.
International Journal of Economics and Financial Issues, 7(4), 174-181. ISSN: 2146-4138. https://www.econjournals.com/index.php/ijefi/article/view/4737
Permatasari, I., Komalasari, A., & Septiyanti, R. (2019). The Effect Of Independent Commissioners, Audit Committees, Financial Distress, And Company Sizes On Integrity Of Financial Statements. International Journal For Innovation Education And Research, 7(12), 744-750. https://Doi.Org/10.31686/Ijier.Vol7.Iss12.2057
Pervan, M. I Višić, J. (2012). Influence Of Firm Size On Its Business Success. Croatian Operational Research Review, 3 (1), 213-223. https://hrcak.srce.hr/96821
Piot, Charles. (2005). The Existence and Independence of Audit Committees in France. Accounting & Business Research, Vol. 34, No. 3, pp. 223-246. https://ssrn.com/abstract=830505
Prananti, Putri Cintamy. (2018). Factors Affecting The Integrity Of Financial Statements In Manufacturing Companies Listed In Indonesia Stock Exchange. Rjoas, 11(83). https://Doi.Org/10.18551/Rjoas.2018-11.06
Priharta , A., & Rahayu , D. P. (2019). Determinants of Earnings Management and Its Implications on the Integrity of the Financial Statements. KnE Social Sciences, 3(26), 974–995.
doi: https://doi.org/10.18502/kss.v3i26.54
Rajab, Ahmed., & Malik, Abdul. (2017). Investigating The Relationship Between Corporate Governance Principles And Accounting Conservatism For Companies Listed On Saudi Stock Exchange. European Journal of Accounting Auditing and Finance Research, vol.5, No.9, Pp.10-30. http://www.eajournals.org/wp-content/uploads/Investigating-the-Relationship-between- Corporate-Governance-Principles-and-Accounting-Conservatism-for-Companies-Listed-On-Saudi-Stock-Exchange.pdf
Rianti, Inten Puji Rianti., & Yadiati, Winwin. (2018). How Financial Distress Influence By Firm Size. International Journal Of Scientific & Technology Research. Volume 7, Issue 1.
https://www.ijstr.org/final-print/jan2018/How-Financial-Distress-Influence-By-Firm-Size.pdf
Sari, Warsani Purnama. (2020). The Effect of Financial Distress and Growth Opportunities on Accounting Conservatism with Litigation Risk as Moderated Variables in Manufacturing Companies Listed on BEI. Budapest International Research and Critics Institute-Journal (BIRCI-Journal). Volume 3, No 1. Page: 588-597. Doi: 10.33258/birci.v3i1.812
Smith, Alan D. (2010), Agency Theory And The Financial Crisis From A Strategic Perspective. Article in International Journal of Business Information Systems. doi: 10.1504/IJBIS.2010.031929.
Verma, Dr. Anu Verma., Pandit, Jyoti., Kalam, & Dr. A.P.J. Abdul. (2019). An Analysis Of Financial Distress Of Selected Public Sector Enterprises Of India Using Zmijewski X-Score Model. International Journal of Engineering Development and Research, Volume 7, Issue . https://www.ijedr.org/papers/IJEDR1901065.pdf
Wira, Henny., Muhyarsyah., & Sari, Eka Nurmala. (2019). The Impact Of CGPI, Company Size, And Leverage On Earnings Management And Their Implications To The Integrity Of Financial Statement. The 1st Multi-Discipinary International Conference University Of Asahan. Pages 798-813.
http://jurnal.una.ac.id/index.php/seminter2019/article/view/571
Adedapo Soyemi, K., & Olawale, L. S. (2019). Firm Characteristics and Financial Reporting Quality: Evidence from Non-Financial Firms in Nigeria. International Journal of Economics, Management and Accounting, 27(2), 445-472. https://journals.iium.edu.my /enmjournal/index. php/enmj/article/view/618
Arens, Alvin. A, Randal J. Elder, Mark S. (2014). Auditing and Assurance service.
Edisi keduabelas. Jilid Satu. Jakarta: Erlangga. Prentice Hall International. New
York.
A'yunin, Qurrota., Ulupui., I Gusti Ketut Agung., & Nindito, Marsellisa. (2019). The Effect of the Size of Public Accounting Firm, Leverage, and Corporate Governance on the Integrity of Financial Statement: A Study on Companies Listed on Indonesian Stock Exchange. KnE Social Sciences. doi: 10.18502/kss.v3i11.4053
Ball, R., & Shivakumar, L. (2005). The role of accruals in asymmetrically timely gain
and loss recognition. Journal of Accounting Research 44(2): 207–42. https://pdfs.semanticscholar.org/eb48/630627f7c25a67769dd86d00f722498fc0b2.pdf
Demonier, G.B., Almeida, J.E.F., & Bortolon, P.M. (2015). The Impact of Financial Constraints on Accounting Conservatism. Review of Business Management Brasil 17(57): 1264–78. https://doi.org/10.7819/rbgn.v17i57.2326
Fauziah, S. N., & Panggabean, R. R. (2019). Factors affecting the integrity of manufacturing company financial statements in Indonesian Stock Exchange and Malaysian Stock Exchange. International Journal of Recent Technology and Engineering, Vol. 8, Issue 4, pp 2252 - 2259. https://ssrn.com/abstract=3496142
Foroghi, Dariush., Amiri, Hadi,. &Fallah, Zahra Nokhbeh. (2013). Corporate Governance And Conservatism. International Journal Of Academic Research In Accounting, Finance And Management Sciences. Vol. 3, No. 4. Pp. 61–71.
http://hrmars.com/hrmars_papers/Article_08_Corporate_Governance_and_Conservatism.pdf
Givoly, Dan., & Hayn, Carla. (2000). The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?, Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320. https://ideas.repec.org/a/eee/jaecon/v29y2000i3p287-320.html
Grice, J. S., & Dugan, M. T. (2003). Re-Estimations Of The Zmijewski And Ohlson Bankruptcy Prediction Models. Advances in Accounting vol 20 (pp. 77- 93).
https://doi.org/10.1016/S0882-6110(03)20004-3
Gruszczynski, Marek. (2015). Issues in Modelling the Financial Distress and Bankruptcy of Companies. Quantitative Methods In Economics. Vol. XVI, No. 1, 2015, pp. 96 – 107. https://ssrn.com/abstract=2880146
Guse, Raluca., Calu, Adriana., Calu, Daniela Artemisa St., & Viorel, Avram. (2011). The Effect of Conservatism and Precautionary Principles on the Reporting Practices of Economic Entities. Revista Anale, Seria Științe Economice, TImișoara, Issue XVII, pp 829-836, 2011. https://ssrn.com/abstract=2866590
Hamdan, Allam., Kukreja, Gagan., Awwad, Bahaa., & Dergham, Maher Mousa. (2012). The Auditing Quality and Accounting Conservatism. International Management Review. Vol. 8 No. 2.
https://www.researchgate.net/publication/309349976_The_auditing_quality_and_accounting_conservatism
Jabbar, Fadhil Shaalan. (2019). The Accounting Conservatism and Its Effect on the Quality of Financial Reporting and Supply Chain of Organization in the Financial Market. International Journal of Supply Chain Management. Vol. 8, No. 1. https://ojs.excelingtech.co.uk/index.php/IJSCM/article/view/2558/1428
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm:Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. doi: https://doi.org/10.1016/0304-405X(76)90026-X
Kabir, Humayun. (2010). Positive Accounting Theory and Science (April 8, 2011). Journal of CENTRUM Cathedra, Vol. 3, Issue 2, pp. 136-149. https://ssrn.com/abstract=1806038
Kazemian, S., Shauri, N., Sanusi, Z., Kamaluddin, A., & Shuhidan, S. (2017).
Monitoring mechanisms and financial distress of public listed companies in
Malaysia. Journal of International Studies, 10 (1), 92-109. doi:10.14254/2071-
8330.2017/10-1/6
Kieso, Donald E., Weygandt, Jerry J., & WarfieldJoh, Terry D. (2012). Intermediate Accounting. (14th Edition). The United States of America: John Wiley & Sons, Inc.
Krishnan, Jayanthi, (2005). Audit Committee Quality And Internal Control: An Emperical Analisis. Accounting Review, vol 80 No 2 pp 649-675. https://doi.org/10.2308/accr.2005.80.2.649
Kuncová, M. & Hedija, V. & Fiala, R. (2016). Firm Size as a Determinant of Firm Performance: The Case of Swine Raising. AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 8(3), pages 1-13. doi: 10.22004/ag.econ.245886
Lessambo, F.I. (2014). Management Fraud. In: The International Corporate Governance System. Global Financial Markets series. Palgrave Macmillan, London.
https://doi.org/10.1057/9781137360014_23
Luqman, R., Ul hassan, M., Tabasum, S., Khakwani, M. S., & Irshad, S. (2018). Probability of financial distress and proposed adoption of corporate governance structures: Evidence from Pakistan. Cogent Business & Management, 5(1), 1492869. https://doi.org/10.1080/23311975.2018.1492869
Machdar, Nera Marinda., & Nurdiniah, Dade. (2018). The Influence of Reputation of Public Accounting Firms on the Integrity of Financial Statements with Corporate
Governance as the Moderating Variable. Binus Business Review, 9(3), 177-186. DOI: https://doi.org/10.21512/bbr.v9i3.4311
Mar’atus Sholikhah , R., & Wilujeng Suryani, A. (2020). The Influence of the Financial Distress, Conflict of Interest, and Litigation Risk on Accounting Conservatism. KnE Social Sciences, 4(7), 222–239. https://doi.org/10.18502/kss.v4i7.685
Mohamad Nor, Mohamad Naimi., Shafie, Rohami., & Wan hussin, wan nordin. (2010).
Corporate Governance and Audit Report Lag in Malaysia. Asian Academy of Management Journal of Accounting and Finance. Vol 6 (2).
https://www.researchgate.net/publication/228240024_Corporate_Governance_and_Audit_Report_Lag_in_Malaysia
Nurdiniah, Dade., & Pradika, Endra. (2017). Effect of Good Corporate Governance, KAP Reputation, Its Size and Leverage on Integrity of Financial Statements.
International Journal of Economics and Financial Issues, 7(4), 174-181. ISSN: 2146-4138. https://www.econjournals.com/index.php/ijefi/article/view/4737
Permatasari, I., Komalasari, A., & Septiyanti, R. (2019). The Effect Of Independent Commissioners, Audit Committees, Financial Distress, And Company Sizes On Integrity Of Financial Statements. International Journal For Innovation Education And Research, 7(12), 744-750. https://Doi.Org/10.31686/Ijier.Vol7.Iss12.2057
Pervan, M. I Višić, J. (2012). Influence Of Firm Size On Its Business Success. Croatian Operational Research Review, 3 (1), 213-223. https://hrcak.srce.hr/96821
Piot, Charles. (2005). The Existence and Independence of Audit Committees in France. Accounting & Business Research, Vol. 34, No. 3, pp. 223-246. https://ssrn.com/abstract=830505
Prananti, Putri Cintamy. (2018). Factors Affecting The Integrity Of Financial Statements In Manufacturing Companies Listed In Indonesia Stock Exchange. Rjoas, 11(83). https://Doi.Org/10.18551/Rjoas.2018-11.06
Priharta , A., & Rahayu , D. P. (2019). Determinants of Earnings Management and Its Implications on the Integrity of the Financial Statements. KnE Social Sciences, 3(26), 974–995.
doi: https://doi.org/10.18502/kss.v3i26.54
Rajab, Ahmed., & Malik, Abdul. (2017). Investigating The Relationship Between Corporate Governance Principles And Accounting Conservatism For Companies Listed On Saudi Stock Exchange. European Journal of Accounting Auditing and Finance Research, vol.5, No.9, Pp.10-30. http://www.eajournals.org/wp-content/uploads/Investigating-the-Relationship-between- Corporate-Governance-Principles-and-Accounting-Conservatism-for-Companies-Listed-On-Saudi-Stock-Exchange.pdf
Rianti, Inten Puji Rianti., & Yadiati, Winwin. (2018). How Financial Distress Influence By Firm Size. International Journal Of Scientific & Technology Research. Volume 7, Issue 1.
https://www.ijstr.org/final-print/jan2018/How-Financial-Distress-Influence-By-Firm-Size.pdf
Sari, Warsani Purnama. (2020). The Effect of Financial Distress and Growth Opportunities on Accounting Conservatism with Litigation Risk as Moderated Variables in Manufacturing Companies Listed on BEI. Budapest International Research and Critics Institute-Journal (BIRCI-Journal). Volume 3, No 1. Page: 588-597. Doi: 10.33258/birci.v3i1.812
Smith, Alan D. (2010), Agency Theory And The Financial Crisis From A Strategic Perspective. Article in International Journal of Business Information Systems. doi: 10.1504/IJBIS.2010.031929.
Verma, Dr. Anu Verma., Pandit, Jyoti., Kalam, & Dr. A.P.J. Abdul. (2019). An Analysis Of Financial Distress Of Selected Public Sector Enterprises Of India Using Zmijewski X-Score Model. International Journal of Engineering Development and Research, Volume 7, Issue . https://www.ijedr.org/papers/IJEDR1901065.pdf
Wira, Henny., Muhyarsyah., & Sari, Eka Nurmala. (2019). The Impact Of CGPI, Company Size, And Leverage On Earnings Management And Their Implications To The Integrity Of Financial Statement. The 1st Multi-Discipinary International Conference University Of Asahan. Pages 798-813.
http://jurnal.una.ac.id/index.php/seminter2019/article/view/571
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