The effect of audit committee quality and internal auditor objectivity on the prevention of fraudulent financial reporting and the impact on financial reporting quality (a survey on state-owned company in Indonesia)

The weakness of corporate governance is often called as the cause of some frauds and accounting scandals that were uncovered recently. Some cases, both nationally and internationally, indicate the occurrence of irregularities in financial reporting owing to the weakness of the company's internal control system, and the audit committee has not functioned optimally, resulting in low financial reporting quality (FRQ). The method of the research used explanatory approach. The data were collected through a survey by distributing questionnaires to 60 state-owned company (SOE's) in Indonesia and have been analysed by using partial-least-square modelling to test the hypotheses. The results have concluded that the role of internal controlling and supervision by an audit committee and internal auditor is not effective in conducting monitoring and evaluating on FRQ, because the lack of knowledge and experience in financial accounting, independency attitude, top management commitment and ethical values.