FAUZAN MISRA

Abstract

The issue for governments in many developing and developed countries is how to improve their financial reporting. Too often this is regarded as a complex technical issue instead of a straight management process based on strategic planning principles. This study focuses on the improvement of the quality of financial reporting by local governments, instead of testing variables influenced local government accounting practice like many previous researches. This study also identify road map/action plan made by local government to get better audit opinion.

This research was conducted by analyzing the causes of audit opinions based on audited financial statement, while the roadmap/action plan undertaken by the Government carried out through interviews.

The result of this research shows that the some general reason for a “not-good” opinion are weaknesses in the application of accounting policies, weaknesses in accounting systems and procedures, management and administration of assets and the weakness of the internal control system.

The most important step they do is following-up recommendations from the audit board on the previous years audit findings, complement and improve the regulation concerning regional financial management and administration and prepare a better assets management and procedures. They are also concern about human resources management, both of quantity and quality and use of information technology in their accounting system. They also assume that the review of their financial statements by officials of Internal Oversight (BPKP, Bawasda, etc.) as one of the important things to improve the quality of their financial statements.

Keywords: Financial Reporting Quality, Audit Opinion, Road Map/Action Plan, Local Government

BACKGROUND

In recent decades, public sector reform and accounting in government has occurred in various countries, including Indonesia. Just like governmental accounting reform have occurred and been adopted in many countries, governmental accounting reform in Indonesia indeed have been going on through a long process started in about 1979-1980 undertaken by Financial Department with a plan for a study of modernization on governmental accounting system. The need for a standard of governmental accounting has been getting stronger in line with the reformation era that strongly demands transparency and accountability in the state financial management.

However, after a couple years the governmental accounting standard has been implemented, the implementation by local governments is still relatively weak. This is evident by the fact that many local governments are still incapable of devising financial statement in compliance with Generally Accepted Accounting Principle, although some regions have managed to devise reliable financial statement and obtained good audit opinion.

An interesting point is, till 2008, there are no local government can defend their previous year achievement, obtained ungualified opinion respectively. That reality bring us to a common consciouness that strategic action plan need by both of them, local government with unqualified opinion and with other than unqualified opinion.

Despite there are many studies of government accounting practices in Indonesia, but still a limited researcher who try to explain empirically causes of inability of local government to get a good audit opinion. Among them, Yudi, Sukoharsono and Affandi (2008) only focused on the weakness of implementation of public sector accounting controls (in this case local government). While it is true that this weakness affects the audit opinion on the financial statements but has not been able to explain more comprehensively the weaknesses in financial reporting by local government. Misra (2009) examined the extent the variables that influence financial accounting practices of local government in Indonesia but not in the form of identifying the problem and the roadmap towards a better financial reporting.

Based on the description of this background, research problem is formulated as follows:

1. What are the factors influence for the qualified opinion, adverse opinion and a disclaimer in the audit of local government financial statements?

2. How Local government action plan to get a better audit opinion based on factors that affect local government accounting practices?

3. How experiences local government who have obtained an unqualified opinion and their action plan to maintain these good opinion?

This study aims to:

1) Identify and classify the factors that the reason for qualified opinion(WDP), adverse opinion (TW) and disclaimer opinion (TMP) in the audit of Local Government Financial Statement.

2) Identify and analyze the experience of local government with the unqualified opinion and their strategic steps (roadmap) to maintain these opinions.

3) Identify and analyze the strategic plan (roadmap) by local governments with opinions other than unqualified opinion to get a better audit opinion.

LITERATURE REVIEW

Governmental accounting reform in indonesia got momentum with the publication of legislation concerning tripartite state and local finances that began with the issuance of Law No. 17 of 2003 concerning State Finance, which requires the existence of a governance Accounting Standards as the basis for preparing the financial statements of government agencies, and strengthened by Law No. 15 Year 2004 concerning the Management Audit and State Financial Responsibility. The law led to the urgent need for Accounting Standards as the basis for preparing and auditing financial statements of government agencies by the BPK (audit board). Without standards, BPK can’t issue the audit opinion. And was published Government Decree No. 24 of 2005 concerning Governmental Accounting Standards. The next challenges faced by government, both central and local, is moving toward accrual bases accounting. This project have been proven by issuance of Government Degree No. 71 year 2010

The issue in many developed and developing countries is how they improve their public sector financial reporting (Macmillan, 2003). Too often this is expressed as a complex technical issue rather than as a straight management process based on a strategic plan.

According to John (2009), the action plan should be implemented in the form of formal and changes made should always come from three aspects which is a prerequisite for improvement of financial management: (1) Competent Human Resources, (2) an established organization, and (3) a reliable infrastructure.

RESEARCH METHOD

This study is a descriptive research. This study will identify and analyze the factors that cause of local government financial statements not obtain an unqualified opinion. This research also will explain the action plan taken by local government to obtain a better audit opinion. This research was conducted on Local Government Financial Statements and Local Government officers as the provider of such financial statements. For purposes of identification and analysis of Local Government action plans, data obtained by structured interviews.

RESULTS AND DISCUSSION

Based on the analysis done, the reasons that make LKPD got opinions other than unqualified opinion will be presented based on classification related to internal control system weakness and compliance with the regulations aspects. More specifically, for local government with adverse and disclaimer opinion, internal control system problems found in audits by the Audit Board (BPK) are as follow: (1) Local government has not set the Systems and Procedures of financial accounting and accounting Policies, (2) Local Governments haven’t revised their regulation concerning Local Government Financial Management, (3) the weakness in the implementation of cash management, (4) appropiateness of letter of responsibility for expenditures, (5) a poor asset management, especially for fixed assets, (6) addition of budget is not followed by a bugdet revision, (7) Financial Administration in Government still not In accordance with Government Accounting Standards.

If analyzed in terms of compliance with laws and regulations, major problems are found on local government with adverse and disclaimer opinions are as follows, first, Several kinds of local revenue Has No Legal Basis. Second, actual social donation expenditure to public organizations have no adequate appropriation and some of them fictitious. Third, Financial assistance to political parties has not been accounted for and is not supported by complete evidence. Fourth, actual expenditure of coordination meeting, representations expenditure and outer regional consultation have no adequate appropriation. Fifth, Expenditure allowances of head of regional and some officers not accordance with the provisions. Sixth, Levy receipts are not deposited into the general cash and use it directly. This clearly violates the rules on income, and seventh, the presence of expenditures that are not based on evidence for fund disbursement (SP2D).

The most important step they do is following-up recommendations from the audit board on the previous years audit findings, complement and improve the regulation concerning regional financial management and administration and prepare a better assets management and procedures. They are also concern about human resources management, both of quantity and quality and use of information technology in their accounting system. They also assume that the review of their financial statements by officials of Internal Oversight (BPKP, Bawasda, etc.) as one of the important things to improve the quality of their financial statements, beside a strong commitment from the leader.

If these requirement present in order, at least there are four factors necessary to make it better. These four things are (1) strong leadership commitment (management commitment), (2) computer equipment, hardware and software, (3) human resources (brainware) who understand the accounting and computer operation as well as existing information systems and (4) sufficient budget to carry out the accounting system at each unit/agency.

Although unqualified opinion has obtained, Pariaman officers remain keep the commitment and attention to some important things to defend such achievement. Some things that still continues to be concern are:

1. Fundamental improvement of accounting and financial reporting systems.

2. Optimizing the application of computer and information technology

3. Better assets administration and management

4. Quality Assurance for LKPD by the Internal oversight board.

5. Improving human resources capacity in the are of accounting and financial management.