Regional Financial Performance and Audit Opinion: Independence
and Comparison among Archipelagic Regions in Indonesia
IIS SURGAWATI
Faculty of Economics and Business, Siliwangi University,
INDONESIA
Abstract: This study aims to determine the relationship between regional financial performance, audit
opinion results, and the differences between the islands in Indonesia. The data used is in the form of
audit opinion results and audited budget realization reports for 2020 from 225 district governments
in Indonesia as samples to measure regional financial performance in the form of independence ratios,
efficiency ratios, effectiveness ratios, and regional income and expenditure growth ratios. All data
comes from the 2021 Semester I Examination Results Summary of the 2020 Fiscal Year Local
Government Financial Reports published by the Audit Board of the Republic of Indonesia. Using the
One Way ANOVA F-Test and the Chi-Square Pearson Test at a significance level of 5%, the results
show a significant relationship between the independence ratio, the effectiveness ratio, and the ratio
of regional revenue and expenditure growth to the results of the audit opinion. Another finding is that
there are significant differences in the independence ratio, the effectiveness ratio, the ratio of
expenditure growth, and the results of audit opinions between the Indonesian archipelago.
Key-words: financial performance of local governments, the results of audit opinions, One Way
ANOVA F-Test, Chi-Square Pearson Test
Received: March 18, 2024. Revised: August 14, 2024. Accepted: September 17, 2024. Published: October 17, 2024.
1. Introduction
Regional government financial performance is
a description of the level of achievement of
financial management for the implementation
of an activity/policy program in realizing the
goals, objectives, vision, and mission of the
local government [1]. Regional government
financial performance is an essential part of
local government performance. It is often the
subject of discussion because in addition to
showing the ability of the region to manage
and control its resources, regional financial
performance is also a factor that determines the
strategy of the regional government to be
implemented in the next period.
One means of evaluating government
(regional) financial performance includes
government (regional) financial reports that
are useful for evaluating the use of economic
resources managed by the (regional)
government to achieve planned performance.
Evaluation of the intended use of economic
resources includes [2]: (1) determining the
costs of programs, functions and activities to
facilitate analysis and make comparisons with
predetermined criteria, comparing with the
performance of previous periods and with the
performance of other units; (2) evaluating the
level of economy, efficiency and effectiveness
of certain operations, programs, activities and
functions within the government; (3)
evaluating the results (outcomes) of a program,
activity and function as well as the
effectiveness of achieving goals and targets;
(4) evaluating the level of equity and fairness.
Government Regulation (PP) Number 71
of 2010 concerning Government Accounting
Standards (SAP) defines financial statements
as a presentation of financial data including
accompanying notes (if any) intended to
communicate economic resources (assets)
and/or an obligation of a government entity to
certain time or changes in assets and/or
liabilities during a certain period following
government accounting standards. Regarding
local government, Mardiasmo (2018) explains
that financial reports are at the same time, an
effort by local governments to realize public
accountability as one of the objectives of
measuring their financial performance.
Meanwhile, Aswar (2019) states that local
government financial reports manifest regional
financial performance.
The Budget Realization Report (LRA) is
a regional government financial report which
is one of the objects of audit by the Supreme
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Audit Agency (BPK) as an independent
external auditor for local governments. The
LRA presents an overview of the sources,
allocation, and use of economic resources
managed by the regional government, which
illustrates the comparison between the budget
and its realization in one reporting period as
stated in the Regional Revenue and
Expenditure Budget (APBD). Technically
LRA provides information regarding the
realization of income, expenditure, transfers,
surplus/deficit, and financing of a reporting
entity, each of which is compared with its
budget. This information is useful for report
users in evaluating decisions regarding the
allocation of economic resources,
accountability, and the reporting entity's
compliance with the budget. Through LRA,
the local government's financial performance
can be assessed, one of which is measured by
financial ratios [5].
In the current era of regional autonomy, a
financial performance indicator that needs
serious attention is regional independence as
measured by the independence ratio, namely
the Regional Original Income (PAD) to Total
Regional Income (TPD) in percent units.
Based on data released by the Directorate
General of Fiscal Balance (DJPK) Ministry of
Finance of the Republic of Indonesia which is
shown in Table 1, information is obtained that
nationally the average regional independence
is still very low which can be seen from the
average independence ratio which is less than
25% [5].
Table 1. Independence ratio, Effectiveness Ratio and Financial Efficiency Ratio of Local
Governments (Provinces and Districts/Cities) 2016 – 2021
Year
Revenue
Realization
(trillion
Rp.)
Expenditure
realization
(trillion Rp.)
Efficiency
Ratio (%)
PAD (trilyun Rp.)
Independ
ence
Ratio
(%)
Effectiven
ess Ratio
(%)
Realiza
tion
Target
2016
2017
2018
2019
2020
2021
1.003,14
1.078,57
1.110,96
1.198,41
1.115,49
1.110,21
1.003,05
1.058,32
1.093,89
1.188,02
1.121,96
1.088.95
99,99
98,12
98,46
99,13
100,58
98,08
229,34
274,03
272,98
293,66
264,06
284,78
229,40
243,01
269,91
295,52
328,42
310,17
22,86
25,41
24,57
24,50
23,67
25,65
99,97
112,76
101,14
99,37
80,40
91,81
Source: DJPK Ministry of Finance of the Republic of Indonesia, processed
The regional government financial
independence figure aggregates provincial and
district/city regional independence figures.
According to data from the Central Statistics
Agency (BPS), the low figure is due to the
domination of the low independence ratio at
the district/city government level with an
average of only 11%. In comparison, at the
provincial government level it reaches
47.67%. This fact becomes ironic, considering
that the law has placed regional autonomy in
the district and city governments.
In addition to regional independence,
budget efficiency and the effectiveness of
extracting regional economic potential through
increasing PAD are also important issues.
Table 1 shows budget efficiency for almost the
entire 2016–2021 period except for 2020,
where there was inefficiency with a deficit of
up to 6.4 trillion rupiahs. In the same year, the
effectiveness of extracting PAD as a form of
regional autonomy implementation appeared
to have decreased sharply to close to 19%, in
line with the decline in the independence ratio
of more than 1%. This is understandable
considering that in 2020 there was a wave of
the Covid-19 pandemic which hit almost all
countries in the world and had a major impact
on the economy. The realization of a total
budget that has returned to efficiency in line
with the increasing effectiveness of extracting
PAD which will lead to increased regional
financial independence in 2021 is at least one
proof of the post-pandemic economic
recovery.
Identification results of Aswar (2019)
found that the financial performance of local
governments, among others, is related to the
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results of audits of the Regional Government
Financial Statements (LKPD) by the Supreme
Audit Agency (BPK) in the form of opinions.
Although not the only factor, it is proven that
audit opinion has a significant relationship
with local government financial performance
in addition to regional revenues and legislative
size in 108 local governments (provincial and
district/city) on the island of Java. Previously,
Ar Rozy & Wijayanti (2014) found findings
that supported the hypothesis that there was a
significant relationship between audit opinion
and regional financial performance in
districts/cities in Central Java. The same
conclusion was obtained in the research of
Prayitno & Novita (2013), namely that audit
opinions significantly affect regional financial
performance because the BPK opinion reflects
the quality of the regional financial reporting
concerned.
Several empirical studies have found that
the BPK's audit opinion on regional financial
reports is not a determinant in improving its
financial performance. Ilmiyyah et al., (2017)
stated that the financial performance of
district/city regional governments in the
province of South Sumatra is determined more
by the level of dependence of local
governments on the central government which
is reflected in the General Allocation Fund
(DAU). The same results were obtained by
Marfiana & Kurniasih (2013) for district/city
governments on the island of Java, which used
efficiency ratios as indicators of regional
financial performance.
Previous empirical studies generally
examined the relationship between regional
financial performance and the results of audit
opinions by including other factors, expressed
in a regression model and smaller area
coverage. Regional financial performance is
measured by selecting one of several existing
financial performance measurements so that
the recommendations from the research results
apply only to the one measurement in question.
Likewise, the results of audit opinions are
more often divided into two categories (WTP
and non-WTP) or treated as a dummy variable.
This research is specifically aimed at
finding out the relationship between local
government financial performance as
measured by the independence ratio, efficiency
ratio, effectiveness ratio and the ratio of
regional income and expenditure growth with
the results of audit opinions of unqualified
(WTP), qualified (WDP), disclaimer (TMP),
and adverse (TW) in district/city governments
in Indonesia considering the focus of regional
autonomy according to the law lies with the
regency/city government.
Based on this explanation, it is suspected
that regional financial performance has a
positive relationship with the results of the
audit opinion:
H1a: there is a significant positive
relationship between the
independence ratio and the audit
opinion
H1b: there is a significant positive
relationship between the efficiency
ratio and the audit opinion
H1c: there is a significant positive
relationship between the
effectiveness ratio and the audit
opinion
H1d: there is a significant positive
relationship between the income
growth ratio and the audit opinion
H1e: there is a significant positive
relationship between the expenditure
growth ratio and the audit opinion
Throughout 2016 to 2020 fiscal year, audit
opinions on LKPD (provincial and
district/city) generally experienced
improvement. This is at least evident from the
increase in LKPDs that received WTP
(Unqualified) opinions from 70% in 2016 to
90% in 2020 and the decrease in LKPDs that
received WDP (qualified) and TMP
(disclaimer) opinions, respectively from 26%
and 4% in 2016 to 9% and 0.7% in 2020.
However, in 2020 2 LKPDs received TW
(adverse) opinions, whereas in the previous 4
years there had never been [10].
If observed by geographical area, the
highest percentage of unqualified opinions in
the 2020 fiscal year was obtained by provincial
and district/city LKPDs in the Java region,
which reached 97.5%, followed by
Kalimantan, Bali-Nusa Tenggara, Sumatra,
Sulawesi, and the lowest was the Maluku-
Papua which is "only" 71.6%. In contrast, the
highest percentage of achieving non-WTP
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opinion results was obtained by provincial and
district/city LKPDs in the Maluku-Papua
region, namely 26.9%, followed by Sulawesi,
Sumatra, Bali-Nusa Tenggara, Kalimantan and
the lowest in Java, which was only 2.5%. This
phenomenon indicates a disparity in the results
of audit opinions between islands.
Therefore, the hypothesis put forward to
determine whether there are differences in
audit opinion results between regions is as
follows:
H2 results of audit opinions among
archipelagic regions significantly differen
Furthermore, based on the fact that there
are gaps in both regional financial performance
and the results of audit opinions, this research
is also aimed at finding out differences in local
government financial performance between
archipelagic regions in Indonesia which are
divided into the islands of Java, Bali-Nusa
Tenggara, Sumatra, Kalimantan, Sulawesi and
Maluku-Papua.
Therefore, the hypothesis proposed to
determine differences in financial performance
between regions is as follows:
the independence ratio among
archipelagic regions is significantly
different
the efficiency ratio among archipelagic
regions is significantly different
the effectiveness ratio among
archipelagic regions is significantly
different
the revenue growth ratio among
archipelagic regions is significantly
different
the expenditure growth ratio among
archipelagic regions is significantly
different
2. Method
For analysis purposes and to answer research
problems descriptive and inductive methods
are used with a quantitative approach. The
descriptive method is carried out by reviewing
and analyzing documents in the form of
regional financial reports and regional
financial management policy documents. At
the same time, inductive analysis is used to test
the independence between regional financial
performance and the results of audit opinions
and examine differences in financial
performance and audit opinion results between
islands.
This research includes 2 main variables:
the financial performance of local
governments and the results of the BPK audit
opinion on district/city LKPD for the 2020 FY.
The research population includes all (508)
district/city governments in Indonesia spread
across 33 provinces (except DKI Jakarta),
namely each 113 regencies/cities are located in
the Java region, 41 in the Bali-Nusa Tenggara
region, 154 in the Sumatra region, 56 in the
Kalimantan region, 81 in the Sulawesi region
and 63 in the Maluku-Papua region. Sampling
was carried out using the Proportional
Stratified Random Sampling technique with a
minimum sample size using the following
Slovin formulation:
where:
n = the number of districts/cities in the sample
N = the number of districts/cities in the
population
e = margin of error = 5%
so that 224 districts/cities were obtained. In
order to minimize sampling error, the number
of districts/cities was rounded up to 225
districts/cities as the sample.
In order to obtain a representative sample,
stratification was first carried out based on
geographical location, namely, the islands of
Java, Bali-Nusa Tenggara, Sumatra,
Kalimantan, Sulawesi and Maluku-Papua. For
the 6 archipelagic regions, the determination of
the number of regencies/cities that will be
sampled from each archipelagic region is
determined proportionally with the following
general formulation:
, for i = 1, 2, 3, 4, 5, 6
Where:
ni. = number of districts/cities in the sample
from the archipelago – i
= total number of regencies/cities in the
archipelago area – i
= the total number of regencies/cities
throughout the archipelago
n = the total number of districts/cities in the
sample (from the Slovin formula)
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Second, stratification is also carried out
proportionally based on the results of the audit
opinion. Because BPK determines 4
classifications of audit opinion results, the
formulation used to determine the number of
districts/cities to be sampled with the results of
the audit opinion - j is as follows:
, for j = 1, 2, 3, 4
where:
n.j = number of districts/cities in the sample
with audit opinion results - j
= total number of regencies/cities with
audit opinion results - j
= the total number of districts/cities for all
opinion results
n = the total number of districts/cities in the
sample
The next step is determining the number
of districts/cities sampled for each group of
audit opinion results from each island region.
For this purpose, the following formulation is
used:
, for i = 1, 2, 3, 4, 5, 6 or
, for j = 1, 2, 3, 4
Where:
nij = the number of districts/cities in the
sample from the archipelago - i with the
results of the audit opinion – j
= the total number of regencies/cities in the
archipelago area – i with the results of
the audit opinion – j
Even though BPK has determined 4
classifications of audit opinion results, the
selected sample did not find districts/cities
with “TW” opinion results. A complete
description of the distribution of districts/cities
in the population and research samples can be
seen in Table 2.
Table 2. Distribution of Regencies/Cities in Population and Sample according to Audit Opinion
Results and Archipelagic Areas in Indonesia in 2020
Archipelago
Population
Amount
Sample
amount
WTP
WDP
TMP
TW
WTP
WDP
TMP
Java
Bali-Nusa Tenggara
Sumatra
Kalimantan
Sulawesi
Maluku-Papua
110
37
138
52
72
45
2
4
16
4
7
15
0
0
0
0
1
3
1
0
0
0
1
0
113
41
154
56
81
63
49
16
61
23
31
20
1
2
6
2
4
7
0
0
0
0
0
3
50
18
67
25
35
30
Total
454
48
4
2
508
200
22
3
225
Source: BPK RI 2021, processed
The final step in sampling is to determine
which districts/cities will be sampled using a
simple random sampling technique.
The type of data used is secondary data
with a cross-sectional data structure (cross-
sectional data) sourced from the Summary of
Examination Results for Semester I of 2021
[10] on Regional Government Financial
Reports for Fiscal Year 2020 (LKPD FY 2020)
obtained through online services Information
and Communication Center for the Supreme
Audit Agency (PIK BPK).
Regional financial performance variables
are measured through financial ratios which
include the independence ratio, efficiency
ratio, effectiveness ratio, income growth ratio
and expenditure growth ratio. In contrast, the
audit opinion variable consists of 3
classifications of WTP, WDP and TMP
because in the sample there were no
districts/cities with result of “adverse” opinion.
For processing purposes, the variable resulting
from the audit opinion is quantified to 1 =
WTP, 2 = WDP and 3 = TMP, while to
differentiate island areas 1 = Java, 2 = Bali-
Nusa Tenggara, 3 = Sumatra, 4 = Kalimantan,
5 = Sulawesi and 6 = Maluku-Papua. While the
5 financial performance indicators are
calculated through financial ratios with the
following formulation [5]:
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1. The independence ratio, shows the degree
of contribution of Regional Original
Income (PAD) to total regional income.
This ratio shows the level of authority and
responsibility the central government
gives to regional governments to carry out
development. The higher the contribution
of PAD, the higher the ability of local
governments in governance, development
and service to the community. The
following formula can calculate the
independence ratio:
2. The efficiency ratio is the ratio that
describes the comparison between the
realization of regional spending and the
realization of regional income. A region's
financial efficiency ratio that exceeds
100% indicates a low level of regional
financial efficiency. The following
formulation calculates the efficiency
ratio:
3. The effectiveness ratio measures the
ability of the region to realize the planned
PAD which is calculated by the ratio of
realization to the target PAD. The greater
the effectiveness ratio, the better (more
effective) the region's capacity. The
formulation used to measure the
effectiveness ratio is:
4. Revenue growth ratio is a number that
measures the ability of a region to
maintain and/or increase revenue in each
fiscal year. This ratio is calculated by the
formula:
5. Expenditure growth ratio is a number that
measures a region's ability to maintain
and/or increase spending in each fiscal
year. This ratio is calculated by the
formula:
Technically, to find out the relationship
between local government financial
performance and the results of audit opinions
and differences, a test was carried out for
differences in the average independence ratio,
efficiency ratio, effectiveness ratio, income
and expenditure growth ratio in all opinion
groups and regional groups using One Way
ANOVA F- Test facilitated by the SPSS 20.0
program. This test belongs to the parametric
test group. However, because the sample size
is quite large, the assumption of normality for
regional financial performance variables, a
requirement for using parametric statistical
techniques, can be ignored.
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The One Way ANOVA F-Test technique
is a comparative testing model using F-test
statistics. This study compares variations in
regional financial performance measures
(independence ratios, efficiency ratios,
effectiveness ratios, income and expenditure
growth ratios) between groups with variations
within groups audit opinion results. The
comparison or F test statistic is obtained by
comparing the variation in the research
variables between groups (
with the
variations in the research variables within the
group (
) using the formula (Spiegel and
Stephens, 2007):
where:
= the average value of the research variable
in row - i
= the overall average value of the research
variables
= the value of the research variable in row
- i column - j
= number of lines
b = number of columns
Differences in audit opinion results
between island regions as the third research
objective were determined through the Chi-
Square Pearson-Test, one of the
nonparametric tests. This is done considering
that the audit opinion group and the island
group are variables on an ordinal and nominal
scale. The statistical formulation of the Chi-
Square test is written as follows:
where
the number of districts/cities in the
archipelago area - i with the results of
the audit opinion - j obtained from the
observations (sample)
the number of regencies/cities with the
results of the audit opinion -j and located
in the supposed/hypothesized j-island
area
3. Finding and Discussion
Regional financial performance measures the
level of achievement of financial management
for implementing an activity/policy program
in realizing the goals, objectives, vision and
mission of the local government [1]. The
better the financial performance, the better the
ability of the region to manage and control its
resources so that it plays a role in determining
the strategy of the regional government that
will be implemented in the next period.
3.1 Descriptive Analysis
To get a clearer picture, the authors present a
description of the research data in table 3.
Table 3. Descriptive Analysis
Audit Opinion Results
n
Average Financial Ratios
IR
EffR
EftR
RGR
IGR
WTP
WDP
TMP
200
22
3
12,1480
7,7475
3,4161
101,1290
98,8840
96,6327
98,8900
88,0163
76,7871
- 6,1444
- 8,7291
- 14,009
- 3,9420
- 9,2282
- 16,402
Archipelago
Jawa
Bali-Nusa Tenggara
Sumatra
Kalimantan
Sulawesi
Maluku-Papua
50
18
68
25
36
28
20,4038
14,0391
9,6877
9,1581
8,7531
4,8062
99,0007
100,8610
101,1521
101,6836
101,8504
101,3770
109,9383
91,0907
92,4396
105,7368
96,1327
86,3603
- 5,0308
- 8,2823
- 6,5679
- 8,5231
- 5,4583
- 7,3622
- 5,3322
- 7,6012
-5,2602
- 3,6205
- 0,2969
- 6,3679
Total
225
11,6013
100,8495
97,5321
- 6,5020
- 4,6250
where:
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n = number of districts/cities in the sample
according to the results of the audit opinion
and island areas, IR = independence ratio,
EffR = efficiency ratio, EftR = effectiveness
ratio, RGR = revenue growth ratio, and EGR
= expenditure growth ratio
The highest independence ratio is obtained by
local governments that have WTP opinion, the
efficiency ratio is also obtained by local
governments that have WTP opinion, then the
highest effectiveness ratio is also obtained by
local governments that have WTP opinion.
The revenue growth ratio in the study period
all decreased. The lowest decline occurred in
local governments that have a TMP opinion.
Likewise, the expenditure growth ratio has all
decreased. The biggest decline occurred in
local governments that have TMP opinions.
Based on the archipelago area, the highest
independence ratio occurred on the island of
Java. Likewise, the ratio of efficiency and
effectiveness is the best on the island of Java.
Then, the revenue growth ratio and spending
all decreased. The ratio of the lowest decline
in income occurred on the island of Java.
Meanwhile, the lowest expenditure growth
decline occurred on the Sulawesi island.
3.2 Inductive Analysis
To find out the relationship between financial
performance and audit opinion in accordance
with the research objectives, it can be seen in
the results of the One Way ANOVA F-Test
presented in table 4.
Table 4. Analysis of the relationship between financial performance and audit opinion in various
archipelago areas
Financial Performance Measures
Inter-Results of
Audit Opinion
Among archipelago
F - stat
Sign.
F - stat
Sign.
Independence Ratio
Efficiency Ratio
Effectiveness Ratio
Revenue Growth Ratio
Expenditure Growth Ratio
3,630
2,158
4,222
2,735
7,441
0,028
0,118
0,016
0,067
0,001
20,755
1,333
8,037
1,166
3,003
0,000
0,251
0,000
0,327
0,012
Based on table 4, the analysis results
found that the independence ratio,
effectiveness ratio, and spending growth ratio
have a significance value below 0.05 so that
the hypotheses H1a, H1c, H1e are accepted.
This means that all three are significantly
related positively to the audit opinion. While
the efficiency ratio and income growth ratio
have a significance value above 0.05 so that
the H1b and H1d hypotheses are rejected. This
means that the efficiency and revenue growth
ratios have no significant relationship with the
audit opinion.
This study reconfirms that a high
regional independence ratio indicates better
regional performance. Regional governments
have been able to develop regional potential,
so that if regional independence increases, the
regions will not depend on assistance from the
central and provincial governments through
balancing funds. However, this does not mean
that the regions no longer need to receive
balancing funds if the regional financial
independence is high. Balancing funds are still
needed to accelerate the pace of development
growth in the regions [11]. So that what has
happened so far is that local governments that
have a greater ratio of regional independence
will maintain the quality of their financial
reports through better reporting in order to
achieve a WTP opinion. Usually local
governments that have WTP opinions show
better responsibility and transparency so that
the community and the central government
more trust them. The trust of all stakeholders
is intended to maintain the sustainability of
local government.
Meanwhile, effectiveness is also
important in the regional financial
management process. Regional financial
management aims to examine public financial
management managed by local governments
to achieve optimal levels of efficiency and
effectiveness. Thus, the large capacity of local
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governments in managing regional finances is
a manifestation of the ability of local
governments to carry out normative
regulations.
This study proves a significant
relationship between effectiveness and audit
opinion. A good audit opinion shows good
financial reporting. Local governments with a
high effectiveness ratio can manage the funds
that have been budgeted and used according to
predetermined needs. Therefore, the regional
government will show its responsibility for
financial management through the results of
auditing its financial statements with an
unqualified (WTP) opinion. Nonetheless,
Saraswati (2018) argues that problems often
arise in local governments with unqualified
opinions, namely cash management,
inventory, procurement of goods and services,
and fixed assets.
Another variable that has a significant
relationship with the audit opinion is the
expenditure growth ratio. Expenditures reflect
all expenditures made by local governments,
both for operating expenditures, capital
expenditures, unforeseen expenditures, and
transfer expenditures. The amount of
expenditure made by the local government
must be accounted for, especially presented in
audited financial reports with the results of a
unqualified opinion. It is therefore natural that
the financial performance of the local
government, in this case expenditure growth,
has a significant relationship with the results
of the audit opinion. This is in line with the
research of Schneider & Damanpour (2002)
and Giroux & Shields (1993) that quality local
government financial reports, especially those
related to audit opinions, have a relationship
with local government budgeting.
Another finding is related to the
government's financial performance in
relation to the archipelago. This analysis is
intended to find out whether there are
differences in the financial performance of
local governments from various regional
governments in different islands consisting of
Java, Bali-Nusa Tenggara, Sumatra,
Kalimantan, Sulawesi, and Maluku-Papua.
The results found that the independence ratio,
the effectiveness ratio, and the expenditure
growth ratio are financial performance that
differ significantly between the islands in
Indonesia. Therefore, the hypotheses H3a, H3c,
dan H3e are accepted. Meanwhile, the
efficiency and revenue growth ratios are not
significantly different, so H3b and H3d are
rejected.
The ratio of regional independence
which is very important for measuring the
success of regional autonomy [15], is even
used as a characteristic of regional
governments being able to carry out regional
autonomy [16], this of course must be
achieved by local governments everywhere.
Both in the Java archipelago, Indonesia's
business center, and outside Java. However,
what happens is that the independence ratio is
significantly different in each archipelago.
The data shows that the average independence
ratio in Java is 20%, while in other islands it is
no more than 15%. Even in the Maluku-Papua
islands it is only 4.8%. Of course, these
findings must receive follow-up from the
central government or other parties, especially
policies.
Furthermore, the effectiveness ratio
also shows differences among the islands in
Indonesia. The ability of the regions to realize
their funds is of course different in each
archipelago. This is of course also influenced
by the size of the budget set by the local
government. Is the budget prepared too large
so that it does not match the needs and
capabilities of the region or is it purely due to
the failure of the regional government to
realize its budget. Java and Kalimantan are
islands that have achieved high effectiveness.
Regional original income is greatly supported
by regional economic progress so that it
impacts the high PAD obtained by each
region. Java is an island that has the largest
economic contribution in Indonesia [17].
Almost 60% of business activities are on this
island [18]. So that local governments in the
Java archipelago benefit enough from
business centers that can increase PAD in
Java.
Meanwhile, Kalimantan has an
advantage compared to other islands because
it has abundant natural resource wealth as well
as plantations, mining, oil palm and coal
which are the mainstays of the regional
economy. so that the government takes
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advantage of this situation with many projects
that can support increased regional income.
This condition is expected to support the
effectiveness of local governments in these
two islands.
Spending growth is also a significantly
different variable. Based on available data, all
regional spending decreased in 2020. This is
in line with the Covid-19 pandemic which is
still peaking. Local governments in islands
such as Bali-Nusa Tenggara and Maluku-
Papua have experienced a greater reduction in
spending compared to other islands. Usually
regions that have high service needs cause
regional spending to increase. Almost all local
governments have always experienced an
increase in spending. However, the Covid-19
pandemic that hit Indonesia in 2020 caused
regional spending to decline across all islands.
In contrast to the two islands above, Sulawesi
is the island that experienced the least
decrease in spending.
Table 5. Different Tests of Audit Opinion Between Archipelago (Chi-Square Tests)
Value
df
Asymp. Sig. (2-sided)
Pearson Chi-Square
30.685a
10
.001
Likelihood Ratio
23.334
10
.010
Linear-by-Linear Association
15.586
1
.000
N of Valid Cases
225
Furthermore, to find out the
distribution of audit opinion in the Indonesian
archipelago, it needs to be proven by statistical
testing so that the hypothesis can be answered.
Table 6 is the output of the different test using
chi square. The results found significant
differences regarding audit opinions among
the 6 islands in Indonesia, so the H2 hypothesis
was accepted. It can be seen that the most
unqualified opinions in 2020 are on the island
of Java with 98%, followed by Kalimantan
with 92%, Sumatra with 91.04%, Bali-Nusa
Tenggara with 88.89%, Sulawesi with
88.57%, and Maluku- Papua as much as
66.67%. This data can illustrate that the farther
the archipelago from the capital city, the fewer
unqualified opinions. Maybe due to
demographic conditions, distance, or
resources that don't have the capacity as well
as in other areas. So that the quality of local
government financial reports is also affected.
4. Conclusion
This study provides an overview of the
relationship between regional financial
performance and audit opinion. The local
government manages finances that originate
from the community and are used for public
services and must be able to account for their
finances while at the same time having good
performance. Statistics find a significant
relationship between financial performance as
measured by the independence ratio, the
effectiveness ratio and the regional
expenditure growth ratio to the audit opinion
results in 2020. Local governments with
greater independence mean that PAD can be
obtained to the maximum so they must be
properly accountable through achieving a
reasonable audit opinion. Likewise,
effectiveness which can describe the success in
using the budget is also expressed in a
reasonable opinion. On the other hand, regions
that experience large declines in spending also
have a relationship with opinion. It can be
concluded that a fair opinion on local
government can show good accountability to
the community so that it is always shown by
good financial reporting through the results of
an auditor's examination with a unqualified
opinion.
Another important finding is that the
distribution of islands in Indonesia shows
differences in the quality of regional financial
management. This was identified from the
existence of significant differences between
the six islands related to the results of the audit
opinion. Differences in financial performance
also occur in different islands, especially in the
independence ratio, effectiveness ratio,
spending growth.
This research has implications for
government policies related to the distribution
of unqualified opinions that are not yet
comprehensive, especially in the eastern
islands or those far from the national capital.
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So there is a gap between different islands.
This correlates with financial performance, in
which local governments with good financial
performance, especially in the independence,
effectiveness, and spending growth ratios, will
also have good quality financial reports. Even
so, this research also has limitations, especially
at the time the research was only conducted in
2020. Where this period was when the Covid-
19 pandemic occurred.
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