Moderating effect of institutional factors on organization factors and financial reporting quality: Case of IPSAS adoption in local governments of Nigeria

Abstract

The significance of financial reporting quality (FRQ) is said to be affected by organizational and institutional factors. Findings from previous studies that tested the effect of organizational factors on FRQ showed inconclusive results. The purpose of this paper is to analyze the moderating role of institutional factors on the relationship between organizational factors and FRQ. This study uses self-constructed questionnaire to generate data. 114 finance directors of local government councils in Nigeria responded to a 33-item questionnaire instrument. The PLS-SEM statistical tool was adopted for analysis. Findings from the study revealed that, organizational factors namely, internal audit quality and staff competence significantly influence FRQ, while the effect of information communication technology and councils’ size on FRQ showed insignificant result. Given the two moderating variables, significant moderating effect of professionalism was found between internal audit quality and FRQ, while insignificant moderating effect was found in the relationship between the variables involving information communication technology, accounting staff competence and FRQ. On the other hand, political influence moderates significantly the relationship between all the organizational factors and FRQ except for council’s size. Therefore, notwithstanding the adoption of accounting standards, to achieve optimal FRQ amongst local government councils, the management and regulators of local governments should focus on the effective performance of organizational factors, including high consideration for professionalism in accounting practices. In addition, efforts should be made to push-forth and maintain positive political interest when making decisions on how to improve local government FRQ.