Journal of Accounting and Investment Vol. 21 No. 1, January 2020 Article Type: Research Paper The Effect of External Pressure, Management Commitment, and Accessibility Towards Transparency of Financial Reporting Bambang Jatmiko* and Muhammad Budi Setiawan Abstract Research Aims: This study aims to examine and empirically prove the Effects of External Pressure, Management Commitment, and Accessibility of Financial Statements on Transparency of Financial Reporting in Regional Work Units in Yogyakarta City. Design/Methodology/Approach: The methodology used is survey with purposive sampling. The respondents of this study consists of 74 people. The analytical tool used in this study is multiple linear regression using the SPSS. Research Findings: The test results indicate that external pressures, management commitment, and accessibility of financial statements have a positive effect on financial reporting transparency. Theoretical contribution/Originality: this research filled the research gap related to the issue of determinants of transparency of financial reporting in local governments which has got minimal attention from researchers. Practitioner/Policy implication: departing from the results of this study, it is recommended to increase the transparency of financial reporting, external pressure, management commitment and accessibility must be encouraged. Research limitation/Implication: This research was only conducted in the city of Yogyakarta, so it has weak external validity. The generalization of this study results does not represent a broader scope. Keywords: Accessibility; Financial Statements; External Pressure; Management Commitment Introduction Based on Indonesian Law No. 14 of 2008 concerning Openness of Public Information, public bodies have the obligation to release public information on every activity carried out. The intended public bodies are the executive, legislative, judiciary, and other bodies related to the administration of the state. That way, the central and regional governments must be public and transparent to the community. In addition, the Minister of Home Affairs Instruction No. 188.52/1797/SJ/2012 concerning Transparency in Regional Budget Management (TPAD) also requires the Regional Government to manage regional finances transparently. With this awareness, the public demanded the government to be more transparent in financial reporting. Openness of government through various types of media is a form of public accountability (Jacobs & Schillemans, 2016). AFFILIATION: Department of Accounting Universitas Muhammadiyah Yogyakarta. Yogyakarta. Indonesia. *CORRESPONDENCE: bambang.jatmiko@umy.ac.id THIS ARTICLE IS AVALILABLE IN: http://journal.umy.ac.id/index.php/ai DOI: 10.18196/jai.2101140 CITATION: Jatmiko, B., & Setiawan, M. B. (2020). The Effect of External Pressure, Management Commitment, and Accessibility Towards Transparency of Financial Reporting. Journal of Accounting and Investment, 21(1), 114-124. ARTICLE HISTORY Received: 09 Sept 2019 Reviewed: 11 Nov 2019 Revised: 13 Dec 2019 Accepted: 05 Jan 2020 mailto:bambang.jatmiko@umy.ac.id http://journal.umy.ac.id/index.php/ http://journal.umy.ac.id/index.php/ai/article/view/7946 http://journal.umy.ac.id/index.php/ai Jatmiko & Setiawan The Effect of External Pressure, Management Commitment,… Journal of Accounting and Investment, 2020 | 115 Transparency in government makes the wishes of the community more understood by the government (McIvor, McHugh, & Cadden, 2002); (Da Cruz, Tavares, Marques, Jorge, & de Sousa 2016). Transparency of financial reporting is expected by the public to be able to conduct oversight of government performance. Even so, there are many obstacles faced by local governments in realizing financial report transparency. According to Purnamasari (2015), the absence of specific penalties clearly makes the implementation of transparency still difficult to optimize. Developed countries, like the United States, have experienced failure in doing transparency (Shkabatur, 2012). This proves that there is a need for external factors that compel an organization to have transparency in the preparation of financial reporting. External pressure is an impetus or pressure originating from outside the organization that is able to exert influence in carrying out a policy. The examples are regulations from higher institutions or demands from the public regarding financial reporting transparency. The lack of management commitment on transparency in financial reporting certainly affects the financial reporting itself. There is a need for mutual agreement among government officials wanting to be more open to the public. Organizational culture is one of the causes of the lack of transparency in government financial statements (Bolivar, Munoz, & Hernandez, 2013). That way, management's commitment also certainly affects the transparency of financial reporting (Gabriel, 2017). The responsibility of local governments as public sector organizations should be vertical and horizontal. Vertical accountability is an accountability to a higher authority, for example between the local government and the central government. Horizontal accountability is an accountability to the wider community (Mardiasmo, 2002). As an urban area and a city that is labelled as a city of Education, Yogyakarta City has a culture of society that has a high political awareness. This is proven by community participation in the 2017 City Election (Pilwalkot) of Yogyakarta City that reached 78% (source: tribunjogja.com). From this high number of participations, the people of Yogyakarta City wish for a clear, honest, and transparent government that works for a more developed and prosperous society. Besides that, the Yogyakarta City Government won Fairly Qualified Opinions (WTP) award nine times in a row from the DIY Representative Finance Inspection Board (BPK) (source: antaranews.com). Table 1 BPK Opinions on Local Government Financial Report (LPKD) in Regency and City of Special Region of Yogyakarta No. Entities LKPD Opinions 2013 2014 2015 2016 2017 1 Bantul WTP DPP 1 WTP DPP WTP 2 WTP WTP 2 Gunungkidul WDP 3 WDP WTP WTP WTP 3 Kulonprogo WTP DPP WTP DPP WTP WTP WTP 4 Sleman WTP WTP WTP WTP WTP 5 Yogyakarta City WTP DPP WTP DPP WTP WTP WTP Source: http://yogyakarta.bpk.go.id/ 1 WTP-DPP = unqualified with an explanation paragraph; 2 WTP = Unqualified Opinion; 3 WDP = Qualified Opinion Jatmiko & Setiawan The Effect of External Pressure, Management Commitment,… Journal of Accounting and Investment, 2020 | 116 This research is conducted in the Special Region of Yogyakarta, which is a special area that receives special privileges fund from the central government. External parties, such as the legislature, have formed a special committee to oversee the use of privileged funds (Atmasari, 2016). The purpose of this study is to examine external pressures, management commitment, and accessibility to the transparency of government financial statements. The social impact of this research is to increase community participation in overseeing government by getting information on the results of transparency carried out by the government. Literature Review and Hypotheses Development According to Donaldson and Davis (1991), Stewardship Theory is a situation where stewards do something based on the attitude of serving the interests of others. They do not have personal interests but rather prioritize the interests of the wider community. The attitude of serving as an attitude replaces personal interests with service as the basis for ownership and use of power. Management in the public sector must be based on the attitude to serve others as well as possible. Public sector organizations are not for profit purposes but they should provide good services on behalf of others. Although there is no doubt that public sector organizations need a source of income to run an organization, however, profit is not the main orientation. Stewardship theory is more in line with cases in public sector organizations because the relationship between the two is based on the service. External pressure is able to provide impetus for an organization to do what is expected by parties outside the organization. In this case, the local government will certainly pay attention to the aspirations of various groups. Pressure from the community for the realization of a transparent government must be given serious attention from the local government as the party that gets the mandate from the community. Many cases of corruption make people aware that those who sit as public officials have the potential to commit these crimes. That awareness requires the public to participate more and oversee government performance. Pressure from the community is able to make the government more public to the community. Openness of information provided by the government is able to provide public confidence in government performance. Research by Halmawati and Mustin (2015), Purnamasari (2015), also Basuki and Ridha (2012) have also proven that external pressures have a significant positive effect on financial reporting transparency. Encouragement, demands and aspirations from the community, as well as the existing Law are able to force the central and regional governments to pass public information on the administration of government to the public. Thus, in addition to Situbondo, external pressures affecting financial reporting transparency were also evident in Rokan Hilir District. Therefore, based on that, external pressures can have an effect on transparency in financial reporting because the consequences coming from the outside are firmer than the consequences decided by internal parties. External pressure can also Jatmiko & Setiawan The Effect of External Pressure, Management Commitment,… Journal of Accounting and Investment, 2020 | 117 occur, where the pressure comes from the outside of the organization. For example, the government regulations (regulations). These changes will result in a low understanding of the organization in transforming into new regulations, and result in practices in organizations that are only formalities. From the explanation above, the researcher derived the hypothesis as follows: H1: External pressure has a significant positive effect on financial reporting transparency. In realizing financial reporting transparency, management commitment from all elements in the organization is needed. Without management's commitment to continue to improve their performance, everything will be difficult to achieve. Research by Halmawati and Mustin (2015) shows that management commitment has a significant effect on financial reporting transparency. These studies are different from research from Purnamasari (2015) which states that management commitment does not significantly influence financial transparency. This could have happened because of the low integrity of Regional Working Unit (RWU) employees in the Situbondo district government environment. In addition, loyalty to achieve organizational goals and a sense of love for their duties is still low. The difference in results makes the writer want to reexamine the effect of management's commitment to financial reporting transparency. From the explanation above, it reveals the following hypothesis: H2: Management commitment has a significant positive effect on financial reporting transparency. Ease of obtaining information is needed by the community. In accordance with Law No. 14 of 2008 concerning Transparency of Public Information, the central government and regional governments must provide the widest possible space for the public to be able to access financial information. The preparation and management of good financial statements need to be accompanied by the ease which the community is able to access them. At present, there are many media that can be utilized by the government to publish financial information, such as printed media, electronic media, and the internet. According to Hehanussa (2015), Accessibility of financial statements also has a significant effect on financial reporting transparency. Transparency and accountability will be effective if the presentation is easy to read and understand and also easy for the public to access. Saragih (2015) also proves that financial statement accessibility has a significant positive effect on financial reporting transparency. From the explanation above, the following hypotheses are derived: H3: The accessibility requirement has a significant positive effect on financial reporting transparency. The conceptual framework is used to show and explain the relationship between the dependent variable and the independent variable to be examined, namely financial Jatmiko & Setiawan The Effect of External Pressure, Management Commitment,… Journal of Accounting and Investment, 2020 | 118 H1+ H2+ H3+ reporting transparency with external pressures, management commitment, and financial statement accessibility. In order to make it easier to understand this framework, a conceptual framework is provided as shown in Figure 1. Figure 1 Conceptual Framework Research Method The object of this research is the Regional Work Unit (RWU) in the Government of the City of Yogyakarta which includes the financial office of the Office and the Regional Financial and Asset Management Agency. The data obtained in this research is a field survey using all original data collection methods. The type of data used in this study is primary data, in the form of a questionnaire. The sample selection of respondents uses purposive sampling. Respondent criteria are: (1). Employees who carry out the function of accounting/financial administration in RWU; (2). Respondents in this study are the heads of the financial and financial staff subsections, and each RWU is determined by cluster sampling of 5 people as respondents. The reason for choosing the sample is because the employee in the position knows about financial reporting. Questionnaires were given to respondents to find out information about the effects of external pressures, management commitment, and accessibility to financial reporting transparency. Variable Operationalisation Measurement of the external pressure variable uses indicators developed by Basuki and Ridha (2012) related to external pressures, namely: the issuance of laws and regulations related to transparency, demands of the Governor/Regent/Mayor, reports in the mass media, public criticism increase, NGO attention and demands from employers or business community. The measurement of management commitment variables uses indicators developed by Basuki and Ridha (2012) related to management commitment, namely: the desire of top management, the need for improvement, the improvement of the education standards of members of the organization, the ethical culture building, the needs of RWU1 and community participation. Indicators to measure the accessibility External Pressure Management Commitment Accessibility of Financial Statement Transparency of financial Reporting Jatmiko & Setiawan The Effect of External Pressure, Management Commitment,… Journal of Accounting and Investment, 2020 | 119 of financial statements are: open for mass media, easy to access, and the availability of information (Yuliani 2017). Measurement of transparency variables uses indicators developed by Basuki and Ridha (2012) related to financial reporting transparency, namely: conveying the success and failure of RWU through financial reports, providing accurate and timely financial reports, providing financial information about inputs; outputs; and outcomes openly, and providing access to parties who have an interest in the financial statements. This study uses multiple regression to test the hypothesis proposed. Result and Discussion Based on the results of the questionnaire that has been distributed, the data obtained are described in table 1 which shows the number of samples and the rate of the returned questionnaire answered by respondents. Table 1 shows that out of the 105 questionnaires distributed to respondents, a total of 92 were returned. However, out of the 92 returned questionnaires, there were 18 incomplete questionnaires. That way, the total number of questionnaires that are complete and can be processed later are 74 copies or in other words, it has 70% response rate or return rate. Table 1 Samples and Returns Description Total Total of distributed questionnaires 105 Number of not returned questionnaires 13 Number of returned questionnaires 92 Number of not filled in completely questionnaires (flawed) 18 Total of questionnaires to be processed 74 Response Rate 70% The validity test in this study used was the Pearson correlation. The results of the validity test showed that all items in question for each variable (external pressure, management commitment, accessibility of financial statements, and transparency of financial reporting) have values above 0.25. It can be concluded that all variable items are said to be valid. The reliability test in this study used the Cronbach Alpha (α). The reliability test results showed that all variables (external pressure, management commitment, financial statement accessibility, and financial reporting transparency) have values above 0.6. It can be concluded that all variables in this study can be said to be reliable. The classic assumption test in this study consists of a normality test, a multicollinearity test, and a heteroscedasticity test. Normality test shows the Asymp value. Sig. (2-tailed) of 0,200> α (0.50). It can be concluded that the data is normally distributed. All variables (external pressure, management commitment, financial statement accessibility) show VIF values above 0.1 on the multicollinearity test. It can be concluded that each independent variable is free from multicollinearity. Whereas, all variables (external Jatmiko & Setiawan The Effect of External Pressure, Management Commitment,… Journal of Accounting and Investment, 2020 | 120 pressure, management commitment, and accessibility of financial reports) on the heteroscedasticity test show the value of sig. above 0.05. It could be concluded that each independent variable in the regression model did not occur in the variance from the residuals of one observation to another. Results of Individual Parameter Specifications (t-test) This test was conducted to determine whether the independent variable partially influences the dependent variable. Table 2 Hypothesis Test Results Model Unstrandardized Coefficients Standardized Coefficients T Sig. B Std. Error Beta 1 (constant) X1 X2 X3 7,200 0,185 0,247 0,373 2,368 0,086 0,118 0,165 0,279 0,229 0,262 3.040 2.144 2.102 2.253 0.003 0.036 0.039 0.027 External Pressure and Transparency of Financial Reporting From the first hypothesis test, the regression coefficient value is 0.185 with a significance value of 0.036