The Effect Of Application Of Good Corporate Governance On The Integrity Of Financial Statements (Empirical Study Of Manufacturing Companies Listed On The Indonesia Stock Exchange For The 2018-2020 Period)

by ADMIN 205 views

The Effect of Application of Good Corporate Governance on the Integrity of Financial Statements

Empirical Study of Manufacturing Companies Listed on the Indonesia Stock Exchange for the 2018-2020 Period

Introduction

Good Corporate Governance (GCG) is a crucial aspect in ensuring transparency and accountability in a company. It is a set of principles and practices that aim to promote a company's long-term success by aligning the interests of stakeholders, including shareholders, employees, customers, and the wider community. In this context, this research focuses on the influence of the five main elements of GCG, namely the Board of Commissioners, Managerial Ownership, Audit Committee, Board of Directors, and Independent Commissioners, on the integrity of financial statements in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2018-2020 period.

Methodology

This study utilized secondary data obtained from the official IDX website. The population of this study consisted of 169 manufacturing companies listed on the IDX, and a sample of 118 companies was taken through the Simple Random Sampling method. The data collected were analyzed using various methods, including descriptive statistics, classical assumption tests, multiple linear regression analysis, and hypothesis testing.

Analysis of the Effect of Good Corporate Governance Element

Board of Directors

The Board of Directors is one important component in GCG that has direct responsibilities in company management. The results showing a significant positive influence of the Board of Directors on the integrity of financial statements may be caused by their active role in making strategic decisions and monitoring company performance. With the competent board of directors, the company is expected to produce more transparent and accountable financial reports.

The Board of Directors plays a crucial role in ensuring that the company's financial statements are accurate and reliable. They are responsible for overseeing the company's financial management, including the preparation and presentation of financial reports. A competent Board of Directors can help to prevent financial misstatements and ensure that the company's financial statements are in compliance with accounting standards and regulatory requirements.

Audit Committee

The Audit Committee, on the other hand, turned out to have a significant negative impact on the integrity of financial statements. This may be related to factors such as lack of independence or performance that is not optimal from the audit committee in carrying out their duties. If the audit committee cannot carry out its supervisory function properly, then the risk of inaccuracies can arise in the financial statements.

The Audit Committee is responsible for overseeing the company's financial reporting process and ensuring that the financial statements are accurate and reliable. However, if the audit committee is not independent or is not performing its duties optimally, it can lead to a negative impact on the integrity of financial statements.

Board of Commissioners, Managerial Ownership, and Independent Commissioners

This study found that the Board of Commissioners, Managerial Ownership, and Independent Commissioners did not have a significant effect on the integrity of financial statements. This might indicate that although theoretically these three elements are considered important in GCG, in practice they may not carry out their functions effectively in the context of the companies under study.

The Board of Commissioners is responsible for overseeing the company's overall strategy and direction. Managerial Ownership refers to the ownership structure of the company, where the management team has a significant stake in the company. Independent Commissioners are appointed to provide an independent perspective on the company's affairs. However, if these elements are not functioning effectively, it can lead to a negative impact on the integrity of financial statements.

Conclusion

From the research results, it can be concluded that the application of Good Corporate Governance has a significant influence on the integrity of financial statements, especially through the active role of the Board of Directors. On the other hand, challenges related to the effectiveness of the audit committee need to be handled in order to contribute positively. This study provides important insights for stakeholders in the manufacturing industry to improve GCG practices to ensure better quality of financial statements, which in turn can strengthen investor confidence and other stakeholders.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Improving the effectiveness of the Board of Directors: The Board of Directors should be composed of competent and independent members who can make strategic decisions and monitor company performance effectively.
  2. Enhancing the independence and effectiveness of the audit committee: The audit committee should be composed of independent members who can perform their duties optimally and provide an independent perspective on the company's affairs.
  3. Improving the ownership structure: The ownership structure of the company should be transparent and fair, with a clear definition of ownership rights and responsibilities.
  4. Strengthening the role of Independent Commissioners: Independent Commissioners should be appointed to provide an independent perspective on the company's affairs and ensure that the company's financial statements are accurate and reliable.

Limitations of the Study

This study has several limitations, including:

  1. Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
  2. Data quality: The data used in this study are secondary data obtained from the official IDX website, which may be subject to errors or biases.
  3. Methodology: The methodology used in this study is based on a multiple linear regression analysis, which may not capture the complexity of the relationships between the variables.

Future Research Directions

This study provides a foundation for future research in the area of Good Corporate Governance and its impact on the integrity of financial statements. Future research should aim to:

  1. Investigate the impact of GCG on other aspects of company performance: Future research should investigate the impact of GCG on other aspects of company performance, such as profitability, efficiency, and innovation.
  2. Examine the role of other GCG elements: Future research should examine the role of other GCG elements, such as the Board of Commissioners, Managerial Ownership, and Independent Commissioners, in ensuring the integrity of financial statements.
  3. Develop a more comprehensive model of GCG: Future research should develop a more comprehensive model of GCG that captures the complexity of the relationships between the variables.

Conclusion

In conclusion, this study provides important insights into the impact of Good Corporate Governance on the integrity of financial statements in manufacturing companies listed on the Indonesia Stock Exchange. The findings of this study suggest that the application of GCG has a significant influence on the integrity of financial statements, especially through the active role of the Board of Directors. However, challenges related to the effectiveness of the audit committee need to be handled in order to contribute positively. This study provides a foundation for future research in the area of Good Corporate Governance and its impact on the integrity of financial statements.
Frequently Asked Questions (FAQs) on the Effect of Good Corporate Governance on the Integrity of Financial Statements

Q: What is Good Corporate Governance (GCG)?

A: Good Corporate Governance (GCG) refers to a set of principles and practices that aim to promote a company's long-term success by aligning the interests of stakeholders, including shareholders, employees, customers, and the wider community.

Q: What are the five main elements of GCG?

A: The five main elements of GCG are:

  1. Board of Directors: responsible for overseeing the company's overall strategy and direction.
  2. Audit Committee: responsible for overseeing the company's financial reporting process and ensuring that the financial statements are accurate and reliable.
  3. Board of Commissioners: responsible for overseeing the company's overall strategy and direction.
  4. Managerial Ownership: refers to the ownership structure of the company, where the management team has a significant stake in the company.
  5. Independent Commissioners: appointed to provide an independent perspective on the company's affairs.

Q: What is the significance of the Board of Directors in GCG?

A: The Board of Directors plays a crucial role in ensuring that the company's financial statements are accurate and reliable. They are responsible for overseeing the company's financial management, including the preparation and presentation of financial reports.

Q: What is the role of the audit committee in GCG?

A: The audit committee is responsible for overseeing the company's financial reporting process and ensuring that the financial statements are accurate and reliable. However, if the audit committee is not independent or is not performing its duties optimally, it can lead to a negative impact on the integrity of financial statements.

Q: What is the impact of GCG on the integrity of financial statements?

A: The findings of this study suggest that the application of GCG has a significant influence on the integrity of financial statements, especially through the active role of the Board of Directors. However, challenges related to the effectiveness of the audit committee need to be handled in order to contribute positively.

Q: What are the limitations of this study?

A: This study has several limitations, including:

  1. Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
  2. Data quality: The data used in this study are secondary data obtained from the official IDX website, which may be subject to errors or biases.
  3. Methodology: The methodology used in this study is based on a multiple linear regression analysis, which may not capture the complexity of the relationships between the variables.

Q: What are the implications of this study for stakeholders?

A: This study provides important insights for stakeholders in the manufacturing industry to improve GCG practices to ensure better quality of financial statements, which in turn can strengthen investor confidence and other stakeholders.

Q: What are the recommendations for improving GCG practices?

A: Based on the findings of this study, the following recommendations are made:

  1. Improving the effectiveness of the Board of Directors: The Board of Directors should be composed of competent and independent members who can make strategic decisions and monitor company performance effectively.
  2. Enhancing the independence and effectiveness of the audit committee: The audit committee should be composed of independent members who can perform their duties optimally and provide an independent perspective on the company's affairs.
  3. Improving the ownership structure: The ownership structure of the company should be transparent and fair, with a clear definition of ownership rights and responsibilities.
  4. Strengthening the role of Independent Commissioners: Independent Commissioners should be appointed to provide an independent perspective on the company's affairs and ensure that the company's financial statements are accurate and reliable.

Q: What are the future research directions?

A: This study provides a foundation for future research in the area of Good Corporate Governance and its impact on the integrity of financial statements. Future research should aim to:

  1. Investigate the impact of GCG on other aspects of company performance: Future research should investigate the impact of GCG on other aspects of company performance, such as profitability, efficiency, and innovation.
  2. Examine the role of other GCG elements: Future research should examine the role of other GCG elements, such as the Board of Commissioners, Managerial Ownership, and Independent Commissioners, in ensuring the integrity of financial statements.
  3. Develop a more comprehensive model of GCG: Future research should develop a more comprehensive model of GCG that captures the complexity of the relationships between the variables.