THE
EFFECT OF LEVERAGE AND PROFITABILITY ON THE INTEGRITY OF FINANCIAL STATEMENTS
WITH MODERATION OF AUDIT QUALITY
Ricky Alpriyatna, Muhyarsyah
Universitas Mercu
Buana, Indonesia
Email: [email protected],
[email protected]
|
KEYWORDS Profitability, Leverage, Integrity Financial Report,
Audit Quality |
ABSTRACT Today's industrial revolution 4.0 requires companies to interact
directly with the global market. The intense global competition that we face
includes the rapidly growing economy accompanied by technological
developments. The purpose of this research is to examine several aspects that
affect the integrity of financial statements. The data analysis technique
used is multiple linear regression analysis. The population is companies
registered on the IDX. The data was collected using a purposive sampling
method, with a sample size of 75 samples. The independent variables of this
research are Profitability and Leverage. the dependent variable of this
research is the integrity of financial reporting. The research findings prove
that the variables of Profitability, and Leverage do not have an impact on
Financial Statement Integrity in all categories of this research, while
Profitability is able to moderate the influence on Financial Statement
Integrity. |
INTRODUCTION
The
current industrial revolution 4.0 requires companies to interact directly with
the global market. The intense global competition we are facing includes the
rapidly growing economy accompanied by technological developments (Yuliaty et al., 2020). It is
known that currently the number of companies registered on the IDX is
increasing, one example of the latest public company is PT Garuda Indonesia
with the stock code (GIAA), PT Garuda Indonesia (Persero) Tbk. in 2018 because
he was considered to have violated OJK regulation Number 29/POJK.004/2016
regarding the annual reporting of issuers or public companies. The sanctions
imposed by the Ministry of Finance. Integrity financial reports present the
true financial condition of a company, without anything being deliberately
concealed. Thus, when an auditor conducts an audit of financial reporting that does
not have integrity (does not reflect the company's actual financial condition) (Hardiningsih, 2010).
Fundamentally, financial reports are the output of an accounting mechanism that
can be utilized as an instrument in communicating between management and
external elements of the company regarding financial data or the company's
activities in a period (SAK-PSAK 1, 2016: 3). The purpose of financial
reporting is to present information regarding the financial condition,
performance and transformation of a company's financial position in a certain
period that has utility for all users in making economic decisions. The study aims to examine several aspects that affect
the integrity of financial statements.
RESEARCH METHOD
Signaling Theory
Signaling theory was originally initiated by Spence (1973) who
described that the sender (owner of the information) sends signals or signs in
the form of information that reflects the position of a company that brings
benefits to the investor (Riva'i, 2016). For
Brigham and Houston (2006) the signal in question is an action carried out by the
management of a company that instructs investors on how management assesses the
company's prospects. This theory also explains the company's motives in
presenting financial and non-financial reporting data to outsiders, including
holders with the aim of reducing asymmetry.
Leverage
The leverage ratio is the ratio used to measure how
much a company's assets are funded by debt. The use of debt that is too high
can bring losses to the company because the company will fall into the extreme
leverage group and will have difficulty paying off the debt burden (Wardhani &
Samrotun, 2020).
H1: Leverage has a positive effect on the Integrity
of Financial Statements
Profitability
Profitability reflects the level of effectiveness
achieved by the company's production activities (Trisnadewi, 2017). This
ratio measures how much a company is able to earn profits according to the
level of an asset. The greater the profitability ratio, the better the company
will earn profits. Companies that create profits tend to do their financial
reporting faster than companies with a low level of profitability (Himawan, 2019).
H2: Profitability has a positive impact on the
Integrity of Financial Statements
Audit
Quality Moderates Leverage
The company's high leverage reflects a high
financial risk because it encounters financial difficulties triggered by the
excessively high debt burden used to fund its assets (Sulistiyowati, 2021). The
high financial risk will increase the time needed by management to provide
information related to company performance and can increase the potential for
fraud in manipulating financial reporting (Rafika, 2018). This
will suppress the integrity of the company's financial statements. The high
leverage that becomes a burden on a company will trigger a low level of
integrity of the financial statements of that company. On the contrary, when
the leverage that is a burden on a company is low, the integrity of its
financial reports will be higher.
H3 : The Size of Companies moderate leverage has a
positive impact on the Integrity of Financial Statements
Audit
Quality Moderates Profitability
Profitability reflects the level of effectiveness
achieved by the company's production activities. This ratio measures how much a
company is able to earn profits according to the level of an asset. The greater
the profitability ratio, the better the company will earn profits (Chasana, 2018).
Companies that create profits tend to do their financial reporting faster than
companies with a low level of profitability.
H4: Moderate Profitability Company size has a
positive influence on the Integrity of Financial Statements.
The more assets a company
has, the bigger the company and the better its image. Of course, in order to
have an attractive appearance, managers try to portray that they can manage
their assets well in order to form a stable corporate structure (Oktamawati, 2017). The framework of thinking applied
to this research is as follows.
This research is intended to
identify the impact of Leverage and Profitability on the Integrity of Financial
Statements. This type of research is descriptive qualitative which is intended
to test hypotheses through theory validation or testing the application of
theory and explaining the characteristics of the variables studied.
Financial
Report Integrity
Financial Report Integrity Measurement:
Leverage
Leverage Measurement :
Profitability
Profitability Measurement:
Audit
Quality
Measurement of Audit Quality:
"Measured using a dummy,1 is a company audited
by the Big Four KAP and 0 are companies audited by non-Big Four"
The population used in
this research is Logistics Transportation Companies which are registered on the
IDX from 31 December 2016 to 31 December 2020, namely 15 companies. These
companies are utilized in this research because besides having an obligation to
carry out financial reports or annual reports for external parties, especially
policy makers.
RESULTS
Descriptive Statistics
There are 15 sample companies using secondary data, so the total
sample data for the period 2016 – 2020 is 75. Table 1 displays the findings of
a descriptive statistical study of manufacturing companies for 2016 – 2020.
Table 1. Descriptive Statistics
|
|
Y |
X1 |
X2 |
Z |
|
Means |
2.180742 |
0.680081 |
-0.016889 |
0.306667 |
|
Median |
0.692967 |
0.578902 |
-0.004042 |
0.000000 |
|
Maximum |
72.05100 |
4.431081 |
2.192030 |
1.000000 |
|
Minimum |
-4.699878 |
0.074970 |
-0.654912 |
0.000000 |
|
std. Dev. |
8.631850 |
0.648030 |
0.290567 |
0.464215 |
|
Skewness |
7.251627 |
3.489230 |
5.702987 |
0.838557 |
|
kurtosis |
58.86294 |
18.71249 |
46.27653 |
1.703177 |
|
|
|
|
|
|
|
Jarque-Bera |
10409.42 |
923.6913 |
6259,232 |
14.04518 |
|
probability |
0.000000 |
0.000000 |
0.000000 |
0.000892 |
|
|
|
|
|
|
|
sum |
163.5557 |
51.00609 |
-1.266647 |
23.00000 |
|
Sum Sq. Dev. |
5513654 |
31.07576 |
6.247753 |
15.94667 |
|
|
|
|
|
|
|
Observations |
75 |
75 |
75 |
75 |
Financial Report Integrity (Y) in table 1 descriptive
statistics have a minimum value of -4.699878 held by PT. AirAsia Indonesia Tbk
in 2017, while the maximum value is 72.05100 owned by PT. Steady Safe Tbk in
2017, with an average value of 1.984878, and a standard deviation of 7.244816.
Leverage (X1) in table 1 descriptive statistics have a
minimum value of -0.074970 held by PT. Pelayaran Nelly Dwi Putri Tbk in 2017,
while the maximum value is 4.431081 owned by PT, Steady Safe Tbk in 2016, with
an average value of 0.621917, and a standard deviation of 0.553479.
Profitability (X2) in table 1 descriptive statistics
have a minimum value of -0.654912 owned by PT. Express Transindo Utama Tbk in
2018, while the maximum value is 2.192030 owned by PT. Steady Safe Tbk in 2016,
with an average value of -0.002391, and a standard deviation of 0.244018.
Audit quality (Z) in table 1 descriptive statistics
has a minimum value of 0.000000 which is owned by a total of 52 samples of 75
data, while the maximum value is 1.000000 owned by a total of 23 samples of 75
data, with an average value of 0.300000, and the standard deviation has a value
of 0 .464215.
Observations in table
4.1 descriptive statistics have a value of 800 for the amount of data utilized
in this research a total of 75 sample companies.
Chow test
Table 2. Chow test
Based on the picture
above, the Chow test results above can be concluded that the Probability Cross-section F value is 0.1922 so that H1
is accepted and H1 is rejected with the Probability Cross-section F > 0.05,
so in this Chow test the model chosen is using Random Effects Model.
Hausman test
Table 3. Hausman test
From the figure above the results of
the Hausman Test show that the value of the Random Cross-section Probability is
0.4755 so that it can be concluded that H0 is accepted and H1 is not accepted
with a Random Cross-section Probability number exceeding 0.05, so in this test
the Random Effect Model is determined as model.
Lagrange
Multiplier Test
Based on this research, it cannot be
used using the Lagrange Multiplier Test, which means that it shows the value of
the Breusch-Pagan Both Probability, a number of 0.0000. Thus, it can be
concluded that H0 is accepted with the Breusch-Pagan Both Probability of
<0.05 and H1 is accepted, so in the test, the Random Effect Model is determined as
the model used.
Inferential
Statistics Results
Table 4. Inferential Statistics Results
|
Test |
Test
Criteria |
Significance |
Results |
|
Chow |
Cross-section
Chi square |
0.1922 |
Random
Effects |
|
Hausman |
Cross-section
Random |
0.4755 |
Random
Effects |
|
Lagrange
Multiplier |
Breush-Pagan |
0.0000 |
Random
Effects |
Based on table 4, the
best panel model test shows that the random effect is the best model, because
the probability of the cross-section chi-square is lower than 0.05, so we
choose the random effect. It can be concluded that the results of testing the
influence of Leverage and Profitability on the Integrity of Financial Statements,
utilize the random effect approach.
F test
Table 5. F test
The F test was carried out
in order to identify whether the regression model in this research was
appropriate or not. The results of the F test as shown in table 5 show that the
Prob value (F-Statistics) for table 4.5 is 0.663282>
0.05 which means that simultaneously the Leverage and Profitability variables
have no impact on the Integrity of Financial Statements.
T
test
Table 6. T test
The impact of the
Profitability variable on the Integrity of Financial Statements has a
significant value of 0.7606, where the value exceeds 0.05. In other words, the
Leverage variable has no impact on the Integrity of Financial Statements. The
impact of the Profitability variable on the Integrity of Financial Statements
has a significance value of 0.5855, where this value exceeds 0.05. In other
words, the Leverage variable has no impact on the integrity of financial
reporting. The impact of the Audit Quality variable on the integrity of
financial reporting has a significance value of 0.2742, where the value exceeds
0.05. In other words, the Audit Quality variable does not have an impact on the
Integrity of Financial Statements.
X1 moderation
Table 7. X1
moderation
X2 moderation
Table 8. X2 moderation
1)
The influence of the Leverage variable is
moderated by Audit Quality on Disclosure of the Integrity of Financial
Statements which has a significance value of 0.0350, where the value is below
0.05. In other words, the Leverage variable is moderated by Audit Quality
having an impact on Disclosure of Financial Reporting Integrity.
2)
The impact of the variable Profitability
moderated by Audit Quality on Disclosure of the Integrity of financial
reporting has a significance value of 0.0723, where this value exceeds 0.05. In
other words, the variable Profitability is moderated Audit Quality has no
impact on Disclosure of Financial Reporting Integrity.
The test
results for the moderating variable, namely audit quality, have an impact on
leverage on the integrity of financial reporting. It can be concluded that the
results in this research fall into pure moderation or predictive moderation.
Test R2
Table 9. Test
R2
Adjusted
R-square value is 0.019432 or 1.95%. This value can be explained that the variation
of the Financial Statement Integrity variable can be described by the variables
of the variables leverage, profitability, Audit Quality, while the overall
factor result value minus R (1 – 0, 019432) obtained 0.980568 or 98.05% can be
described by other factors that are not included in this research model. The
impact of leverage, profitability, and audit quality is due to other factors
related to the integrity of financial statements, such as the quality of
financial reports, liquidity and other independent variables that are not
included in this research.
CONCLUSIONS
The findings of this research prove that the
Leverage and Profitability variables do not affect the Integrity of Financial
Statements in all categories of this research, while Audit Quality is able to
moderate the effect of the Integrity of Financial Statements. The
findings of this research show that Leverage and Profitability do not have a
substantial effect on the Integrity of Financial Statements. For future
research, you should include other variables or look for independent variables
outside of this study because in this study "Leverage, Profitability, and
Audit Quality" contributed to an adjusted R Square value of only 018319 or
1.83% which had an impact on the dependent variable "Integrity of
Financial Statements", while the remaining 0.981681 or 98.17% is found in
other independent variables.
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Copyright holders:
Ricky Alpriyatna, Muhyarsyah (2023)
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