FINANCIAL REPORTING QUALITY: HOW TO OPTIMIZE THE ROLE OF INTERNAL AUDIT

The purpose of the study is to investigate the role of the internal audit function (IAF) in improving the quality of financial reporting. This is because the effectiveness of the FAIs role is often questioned considering its status as an employee who must serve two masters namely the board of directors and the audit committee as representatives of the board of commissioners. On the other hand, financial statements represent reports on the performance and quality of the companys management. The research method uses quantitative methods with multiple linear regression analysis. The research data is based on a questionnaire survey with purposively selected respondents from accounting, finance, auditing, and audit committee practitioners. The research findings indicate that the competence and objectivity of the IAF have a positive effect on the quality of financial reporting. Thus, to enhance the quality of financial reporting, internal auditors must be able to improve their competence and objectivity. Meanwhile, the most important quality of financial statements is the fundamental qualitative characteristics of faithful or honest representation by management. The results of this study answer doubt about the unique role of the IAF as a servant of the two masters, and implicitly the partnership with the audit committee enhances the check and balance function through the role of the IAF. The limitation of the study is that the low determinant coefficient which indicates that there are many other factors that affect the quality of financial reporting. For further research, it is recommended to add other factors and increase the number of sample respondents.