FINANCIAL REPORT QUALITY, ESG DISCLOSURE, RISK DISCLOSURE, AUDIT QUALITY AND IDIOSYNCRATIC RISK: EVIDENCE FROM INDONESIAN COMPANIES

Abstract

This research aims to examine how the quality of financial reports, environmental, social and governance (ESG) performance disclosures and risk disclosures influence idiosyncratic risks in a company. Furthermore, this research also aims to identify the role of a quality audit in strengthening the influence of financial information and non-financial information on idiosyncratic risks. This role is important to test considering that International Standards on Auditing (ISA) 720 expects a review by the auditor of all information accompanying financial reports. The difference between this research and other research is that in this research a quality audit is measured using a composite index that includes dimensions. input and process. By using cross section data on 348 firms. The data obtained was then processed using Structural Equation Modelling (SEM). The test results show that, in Indonesia, ESG disclosure and audit quality are able to reduce idiosyncratic risks. However, this does not happen with quality financial information and risk disclosure. However, this research cannot prove the role of a quality audit in strengthening the influence of financial and non-financial information on idiosyncratic risk. These results open opportunities for further research to explore the role of a quality audit based on SA 720. This research contributes in the form of empirical evidence regarding the role of non-financial information in investor decision making so that it can be used as a reference for regulators in formulating related provisions. presentation of financial and non-financial information.

Keywords: Financial report quality, ESG disclosure, risk disclosure, audit quality, idiosyncratic risk.