Financial Quality of Companies in Indonesia and Its Implications for Company Values in the Era of the Industrial Revolution 4.0

Financial Quality of Companies in Indonesia and Its Implications for Company Values in the Era of the Industrial Revolution 4.0

by Eirinne Carenina de Poere

Along with advances in science and technology, there is fierce competition for company owners, which requires every company to work efficiently and be able to develop the right strategy, so that the company is able to survive and compete in running its business. The rapid development of an industry will certainly increase the economic growth of a country. Every company has a long term to optimize the value of the company. The increase in the value of the company can illustrate the welfare of the owner of the company, so that the owner will encourage managers to work harder by using various incentives to maximize the value of the company. To realize this goal, the company needs to increase the value of the company, because the higher the value of the company, the higher the prosperity of the shareholders. The value of the company is the selling price of the company that is considered feasible by potential investors so that investors are willing to pay it, if a company is to be liquidated. A high company value is the hope of every company because it will have a positive impact on the company.

Almost all companies require financial reporting. Financial statements can be used as a reference for managers information to make decisions related to company assets. Information in financial statements is needed by various parties involved in the company such as business owners, investors, company managers, financial institutions, governments, and issuers. So that financial reports are made and published by the institution periodically which can be done annually, semi-annually, quarterly, monthly, even daily. To be meaningful to decision makers, financial statements must be prepared using financial accounting standards and applicable regulations stating that if the quality of financial reports decreases, it will result in information asymmetry and wrong perceptions for users. In addition, it can lead to a decrease in competitiveness. The benchmark used by shareholders to assess the performance and financial position of a company can be seen from income or profit. Companies that have a continuous increase in profits, their shares will have a premium value, otherwise companies that have decreased profits will certainly have a low value.

Of course, this will motivate management to present more profitable profits. Earnings management occurs when management uses its opinion on financial statements and the preparation of transactions to change financial statement information, to change the perception of users of financial statements. Earnings management is management intervention with a deliberate intention. The behavior of avoiding losses and not reporting a decrease in earnings will obscure the relationship between accounting earnings that represent economic performance which will consequently reduce earnings quality. There are several aspects of earnings management that can be used as indicators in assessing the quality of financial statements, Loss Avoidance Ratio (LAR), Profit Decline Avoidance Ratio (PDAR), and Qualified Adit Opinion Ratio (QAOR).

In avoiding losses and decreasing profits, the term deferred expense is known. Deferred expenses often occur in deferred tax expenses that arise due to temporary differences in the calculation of accounting profit and taxable profit. Deferred tax expense can be used in predicting earnings management to fulfill 2 objectives, namely, to avoid losses and decrease profits. Deferred tax expense has a relationship with companies that have profitability in managing earnings to avoid losses. The loss avoidance ratio is calculated by comparing the number of companies with small profits divided by the number of companies with small losses, the profit reduction ratio is calculated by dividing the total small profit increase by the total small profit decrease, and the audit opinion quality ratio is calculated by dividing the total number of opinion quality. Audit with the total number of auditors.


Adebayo, O. (2011). An Empirical Analysis of the Impact of Auditors Indeendence on the Credibility of Financial Statement in Nigeria. Research Jornal of Finance and Accounting, 2(3), 82-98.

Antonius, R., & Tampubolon, L. D. (2019). Analisis Penghindaran Pajak, Beban Pajak Tangguhan, dan Koneksi Politik terhadap Manajemen Laba. Jurnal Akuntansi, Keuangan, dan Manajemen, 1(1), 39-52.

Indra Kusuma, I. G. B., & Mertha, I. M. (2021). Manajemen Laba dan Nilai Perusahaan (Studi Empiris pada Perusahaan Manufaktur di Bursa Efek Indonesia). E-Jurnal Akuntansi, 31(1), 182.