Implications and Conclusion Multivariate Analysis

- 1837 - According to agency theory tenets, it is believed that corporate governance, capital management initiatives, ownership concentration and firm size will influence voluntary disclosure of financial ratios. The descriptive statistics reveal that the extent of financial ratio is low in absolute terms. Only 5.3 of the 43 ratios are disclosed by Australian firms. Closer analysis shows that Share Market Measure sub-category are most disclosed by the firms, followed by Profitability and Capital Structure sub-categories. These finding is consistent with Watson et al. 2002 and suggested the possible reason is that these ratios are directly related and relevance to the shareholders. This finding is encouraging for stakeholders in that the Share Market Measure ratios are not readily calculated because of the non-availability of share price data in the annual reports. A lower disclosure score is evidenced for Liquidity and Cash Flow ratios. As suggested by Subramanyam and Wild 2009 and Dechow 1994, cash flow and liquidity information is less likely to directly impact share prices compared to net income information. Thus, companies may prefer to provide more information that has greater impact to their firms‘ value. The statistical tests demonstrate that profit firms are more likely to provide more financial ratio information in the annual reports. This is consistent with εitchell‘s β006 argument that firms provide ratios to signal favourable financial performance. Firms audited by Big4 audit firms also communicate more financial ratios. The result implies that Big4 audit firms encourage firms to provide financial ratios in the annual report. This is consistent with the notion that Big4 auditors have better audit quality Becker et al. 1998; Francis et al. 2005; Francis et al. 1999; Krishnan 2003, and possibly influence the reporting practices of the firms. Resource firms provide the least financial ratios. This is consistent with Mitchell 2006 and Watson et al. 2002 who respectively found that mining firms and utility and media firms scored - 1838 - the lowest levels of ratio disclosure. Watson et al. 2002 suggests that the firms believed that they do not need to disclose this information. This is possibly true for Resources companies because they may be concentrating on other non-financial issues such as reserve quantification, exploration and production, as well as environmental impacts. In contrast, financial firms contain more financial ratios in their annual reports. This is probably driven by the fact that they are in a high profile regulated industry, and therefore more likely provide more information to the users. The results demonstrate that corporate governance and capital management initiatives are not associated with the extent of financial ratio disclosure. Corporate governance mechanisms are not reducing the information gap between the firms and stakeholders. Similarly, higher levels of capital management activities such as capital raising activities and international operations do not impact a companies‘ decision to disclose or not to disclose financial ratios. Ownership concentration does impact on the financial ratio disclosure policy. The finding suggests that the more concentrated the shareholder structure, higher the level shareholdings, the lower the level of financial ratio provided in the annual reports. This result confirms the agency theory argument where concentrated ownership reduces the agency problem, and likely reduces the level of disclosure. Finally, the bigger the firm, the higher the level of financial ratio reported. 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Voluntary disclosure of accounting ratios in the UK. British Accounting Review 34 4: 289-313. - 1842 - APPENDIX Description of the Corporate Governance Items CG1 Is chairman of the board an independent director? 1=Yes; 0=No CG2 Are the roles of the chairman and chief executive officer performed by different persons? 1=Yes; 0=No CG3 If percentage of independent directors on the BODmedian=0; if percentage of independent director on the BOD =median=1 CG4 Does the nomination committee have a policy for the appointment of directors? 1=Yes; 0=No CG5 Has the board adopted a formal code of conduct that deals with personal behaviour of directors and key executives relating to insider trading, confidentiality, conflicts of interest and making use of corporate opportunities property, information, position? 1=Yes; 0=No CG6 Does the company have a formal plan, policy or procedures in respect of equity shares and options based remuneration paid to directors and key executives? 1=Yes; 0=No CG7 Does the company have a remuneration policy that outlines the link between remuneration paid to directors and key executives and corporate performance? 1=Yes; 0=No CG8 Does the audit committee have at least one member that has financial expertise i.e. is a qualified accountant or other financial professional with experience of financial and accounting matters? 1=Yes; 0=No CG9 Has the board adopted a formal integrated risk management policy that deals with risk oversight and management and internal control? 1=Yes; 0=No CG10 Has the CEOCFO stated that the company‘s risk management, internal compliance and control systems are operating effectively and efficiently? 1=Yes; 0=No CG11 Does the company have an audit committee AC charter? 1=Yes; 0=No CG12 Does the company have a formal written continuous disclosure policy? 1=Yes; 0=No CG13 If percentage of independent directors on ACmedian=0; if percentage of independent director on AC =median=1 Description of Capital Management Items CM1 Has the company engaged in capital raisings such as a new share issue in the current year? CM2 Has the company engaged in takeover or merger activity in the current year? CM3 Is the company listed on an overseas stock exchange? CM4 Does the company belong to a corporate group that has operations overseas? - 1843 - EVALUATION OF INDONESIAN LOCAL GOVERNMENT FINANCIAL DISCLOSURE LEVEL YEAR 2007 Nanda Ayu Wijayanti, University of Indonesia Yan Rahadian, University of Indonesia Sylvia Veronica Siregar, University of Indonesia ABSTRACT In 2005 the Government issued Peraturan Pemerintah PP or Government Decree Number 24 Year 2005 about Standar Akuntansi Pemerintahan SAP or Governmental Accounting Standard. This decree assigned the central and local government to report their financial transactions based on SAP. Although this decree will not be effective until 2011, but the preparation of central and local government in implementing the SAP has started since the release of PP No 24 in 2005. This research acknowledged that up until now there have not been any empirical investigations about the development of central and local government‘s Financial Statement FS that refer to the SAP. Several previous researches focused on the theoretical assessment towards PP SAP, but not on the investigation of PP SAP implementation. The audit conducted by The Audit Board of Republic Indonesia BPK RI was also limited to the compliance of one FS or more with the guidelines in PP SAP, but not evaluating the government‘s FS in its entirety. This research conducted an empirical investigation on the Financial Statement of Pemerintah Daerah PEMDA or Local Government in Indonesia in 2007. Initially, this research formulated and calculated the index of FS disclosure and FS components of each PEMDA with reference to SAP. The result showed that the disclosure level of Balance Sheet, Laporan Arus Kas LAK or Cash Flow Statement and Laporan Realisasi Anggaran LRA or Budget Realization Report tend to be high and consistent, whereas the disclosure level of Catatan atas Laporan Keuangan CaLK or Notes to Financial Statement tend to be low and consistent among all PEMDA. - 1844 - Secondly, this research conducted an explorative investigation on factors influencing the disparity of FS disclosure level among all PEMDA and the quality variance of FS components. The consistency of PEMDA‘s FS disclosure level score showed that the influencing factors were common, faced by all PEMDA and not related with the unique characteristics of each PEMDA. The result of an in-depth discussion with regulators, standard formulators, practitioners and PEMDA staff showed that those factors were related to: 1 technical guidelines of CaLK formulation; 2 the effects of other regulations; 3 CaLK socialization and formulation training; 4 priorities and concerns toward FS; and 5 human resources. Central government especially the Department of Finance and the Internal Affairs Department can use the result of this research to evaluate the readiness of PEMDA‘s FS disclosure in 2011. KSAP can utilize this research‘s checklist as an initial material in creating technical guidelines for CaLK formulation. PEMDA can use the result of this research for self- evaluation. This research recommends strategic steps i.e.: 1 FS disclosure regulations integration; 2 career development for government accountants; and 3 empirical and academic assessments on legal outcomesstandardsregulations bylaws. Furthermore the tactical steps proposed by this research are: 1 CaLK technical guidelines formulations; 2 CaLK socialization and formulation training; and 3 prompt decision-making to solve current issues, such as fixed asset. Keywords: PP No. 24 Year 2005, SAP, Governmental Accounting Standard, Local Government Financial Statement, Notes to Financial Statement, Audit Board of Republic Indonesia, BPK RI, Disclosure Level.

1. INTRODUCTION

Financial information disclosure and governmental financial disclosure practices have a considerable attention from all parties ever since 1998. This was caused by the policy of the Indonesian government to carry out an extensive reformation of all aspects especially the local financial aspect. This substantial reformation was marked by the change of government from the New Order era to the Reformed Order era. In local financial management, the reformed era was marked by the execution of decentralized government system specifically the local autonomy. The research conducted by Halim 2002 revealed that local government financial reformation was marked by the implementation of UU no. 22 Year 1999 about Local Government and UU no. 25 Year 1999 about Financial Conformity of Central and Local Governments which replaced UU no. 5 Year 1974 about Local Governmental Items and UU no. 32 Year 1956 about Financial Conformity of the State with Self-Regulating Municipalities. Another package from the local and central government reformation was the release of PP no. 24 Year 2005 about Governmental Accounting Standards on 13 June 2005 that act as guidelines for the government, central and local, to perform accounting functions in the administration. Although PP SAP was released in mid 2005, the 2005 FS must be prepared according to PP SAP. In his opening speech at the Training of Trainers TOT for SAP batch II, Mr. Timbul Pudjianto, General Director of Bina Administrasi Keuangan Daerah BAKD or Local Financial Administration Guide of the Internal Affairs Department, who was also the Consultative Deputy of KSAP, stated that of 476 PEMDA, whether it was province, municipality or town, only 212 PEMDA that had tried to present the 2006 FS according to SAP and Peraturan Menteri Dalam Negeri Permendagri or Internal Affairs Minister Decree no. 13 Year 2006 http:www.ksap.orgdetilberita37.php . The aforementioned number was certainly expected to increase every year, so that in 2011 all PEMDA and central government can prepare and present an annual financial statement. Aside from the number, the FS quality is also expected to improve, in its 1846 compliance with SAP as well as the reliability and relevance of the information presented and disclosed in the FS. To ascertain that goal, an independent routine and periodical evaluation of the government FS preparation is needed. This evaluation is conducted comprehensively and is aimed to assess the completeness and quality of the FS as well as the subsequent strategic and tactical steps required to accomplish the 2011 target. Apart from the review by BPK, until now there have not been any specific researches that evaluate the government FS preparation. Yuhertiana 2006, Bastian 2006 and Himawan 2006, for instance, focused their researches on the theoretical qualitative assessment of SAP technical bulletin which was issued by Komite Standar Akuntansi Pemerintahan KSAP or the Committee for Governmental Accounting Standards, but did not conduct an empirical investigation on the FS preparation and presentation. Meanwhile, the review by BPK focused more on PEMDA compliance level in their financial statement presentations with respect to various regulations, including SAP, but not evaluating comprehensively the readiness of PEMDA to present an extensive FS with quality. For example, several PEMDA had only prepared and presented one FS, but BPK gave an unqualified opinion as long as that FS complied with SAP. In other words, the assessment performed by BPK had not included completeness evaluation and the relevance of the information presented in the government FS. Based on the abovementioned considerations, this research conducted the first empirical investigation on PEεDA‘s FS in Indonesia for β007. At the first stage of this research a mapping of FS disclosure level of all PEMDA in Indonesia is performed, with regards to guidelines in PP no. 24 Year 2005. Afterwards, the factors that influenced the disparity of PEεDA‘s FS disclosure were investigated. Finally, a strategic and tactical proposal was formulated to increase the readiness and competence of PEMDA in presenting a reliable and relevant FS.