The Effect of Firm Size, Leverage, Profitability, and Audit Quality on the Integrity of Financial Statements

Abstract

This study aims to analyze the effects of firm size, leverage, profitability, and audit quality on the integrity of financial statements at energy sector companies listed on the Indonesia Stock Exchange for the 2020–2024 period. This study is motivated by the importance of financial statement integrity as a basis for decision-making, as well as the fact that previous research findings regarding the factors influencing it remain inconsistent. The study employs a quantitative approach using secondary data obtained from companies’ financial statements. The sampling technique utilized purposive sampling, resulting in a sample of 23 companies with 115 observations. Data analysis was conducted using panel data regression with the aid of EViews 13. The results indicate that firm size has a significant negative effect, leverage has a significant positive effect, and audit quality has a significant positive effect on financial statement integrity, whereas profitability has no effect on financial statement integrity. These findings indicate that oversight by creditors and independent auditors plays a role in enhancing the integrity of financial statements, whereas the size of assets and the ability to generate profits do not fully explain changes in the level of financial statement integrity among companies in the energy sector. This study offers theoretical implications by reinforcing Agency Theory, which posits that oversight mechanisms involving creditors and independent auditors play a role in enhancing the integrity of financial statements. In practical terms, the findings of this study are expected to serve as a basis for companies to strengthen their corporate governance and oversight mechanisms, as well as for investors to evaluate the quality of financial statements as a basis for investment decisions.