In line with the changing paradigm of public sector organization functions and domains that occurred around the 1990s, there were fundamental changes in funding, governance, and accountability related to the control and operation of public services, including the implementation of accounting and auditing (Broadbent & Guthrie, 2008). To fill the research gap about the relationship between accounting implementation and public sector auditing with public services, this research provides empirical evidence of how the influence of public sector audits on financial reporting quality and quality of public services. This study used the context of the application of the accrual accounting system in the Local Government in Indonesia.
This study aims to analyze the effect of audit findings and follow-up of audit recommendations on the quality of financial reporting and the quality of public services in the context of the application of accrual accounting systems to local governments in Indonesia. This study also examines whether the quality of financial reporting affects the quality of public services.
This study employs cross-sectional regression using data from 490 district/city governments in Indonesia and uses the year of 2016 as the observation. The financial report of local government in 2016 is used since it already based on the accrual accounting system.
The results of the study indicate that generally, the quality of financial reporting affects the quality of public services. Regarding the implementation of audits in the public sector, it was also found that audit findings have a negative impact on the quality of financial reporting and the quality of public services, while follow-up of audit recommendations play a positive role in improving the quality of financial reporting and the quality of public services.
The implication of the results of this study is closely related to efforts to realize the ultimate goal of recent government reforms. In order to increase the quality of public services in the era of higher reporting requirement through an accrual accounting system, the government should focus on the quality of financial report, audit
findings and following up the audit recommendations.
This research provides new insight on the link between the public sector auditing and the quality of accounting in accrual implementation context and the quality of public services.
