EFFECTS OF AUDIT QUALITY, CULTURE VALUE, AND FIRM’ SIZE ON EARNINGS REPORTING QUALITY

This study investigates the association between audit quality, culture value, size of firm and earnings reporting quality, using a sample of 328 transportation firms for the period of 2004-2009 in seven Asian countries. This study fails to confirm that Big 4 auditors function as a constraint on earnings management practices. However, the empirical evidence reveals that firms in the countries scoring high on uncertainty avoidance tend to have lower levels of earnings management and thus higher quality of reported earnings. This study results also strongly support the political costs hypothesis which argues that larger firms are subject to more public scrutiny and political actions therein exhibiting less aggressive earnings management behavior.


INTRODUCTION
This study investigates the relationship between culture value, audit quality, and size of firms and earnings reporting quality in 328 listed transportation firms of seven key Asian countries (China, Hong Kong, India, Japan, Korea, Malaysia and Singapore). These countries represent well the Asian work ethic in that they offer a mixed sample of economic vibrancy, impact of the Global Financial Crisis (GFC), size, cultural and business ethos. Evidence on corporate management behavior in managing reported earnings has been reported extensively in subsequent earnings management research. However, there are fewer insights within Asia and no known studies examining earnings management, and thus quality of earnings, in the transportation industry.
Transportation is a high profile industry in that it affects all aspects of business and government (Gong, Firth and Cullinane 2006). Transportation services are inextricably linked with the world economy and technological development. The significance of the transportation industry has been acknowledged since the 18th century, Adam Smith (1776) noted that shipping is one of the major catalysts of economic development. Transportation is also a highly capital-intensive industry (Rodrigue 2010). The large sums of money involved in investment and infrastructure need careful investment decisions thus the financial performance of transportation companies is of major importance particularly to investors and financial analysts (Gong et al. 2006).
In recent times the transportation industry has faced two significant problems: the energy and global economic crises. There have been tremendous variances in global oil prices both up and down, since the fourth quarter of 2007 with prices skyrocketing by mid-2008. These events clearly had a major impact on their business performance specifically operation costs as transportation firms are large consumers of energy, especially oil 1 . Approximately 25% of world's energy demands and more than 55% of all the global oil consumption each year is attributed to transportation activities (Rodrigue and Comtois 2009). In addition, the global economic crisis that began in July 2007 reduced demand for transportation services resulting in a substantial decrease in revenues. The combination of these two crises has had a complex but negative effect on the transportation firms. These negative impacts on transportation firm's financial performance placed substantial pressure on managers to manage their firm's reported earnings (Gramlich 1992).
Earnings management is an issue of ongoing international importance to investors, policy makers, market analysts and public at large. In recent years, this topic has spawned many academic studies (e.g., Arya, Glover and Sunder 2003;Imhoff 2003) due to the rising number of high profile accounting scandals (e.g., Enron, Parmalat, HIH Insurance, Informatics group). These unanticipated scandals erode investors' confidence in financial reporting quality and arguably impede the efficient flow of capital in financial markets (Jackson and Pitma 2001). The inherent discretion in accounting standards allows corporate management to exercise judgment in preparing their financial reports. This judgment permits management to select or change accounting methods exercising their judgment in order to increase, decrease or smooth earnings figures, creating opportunities for earnings management (Atik 2009).
This study generates new insights on three main fronts. Firstly, this study, using data from several different country settings provides further evidence on the incentives of company managers to manage their reported earnings. Previous studies (e.g., Burgstahler and Dichev 1997;Degeorge, Patel and Zeckhauser 1999;Burgstahler and Eames 2006;Daske, Gebhardt and McLeay 2006;Gore, Pope and Singh 2007) generally limit their sample to U.S. or European firms. Using data from the Asian region generates broader insights and builds a better international profile of the earnings management behavior in an area of vastly increasing international economic importance. Secondly, Asian countries are characterized as possessing relatively weaker corporate governance systems and facing lower litigation risks than the U.S. or European countries (Shleifer and Vishny 1997;Leuz, Nanda and Wysocki 2003;Jaggi and Leung 2007). These differences in corporate governance structures and litigation risks are expected to influence the level of earnings management in unique ways. Thirdly, this study improves the focus and limits exogenous issues by focusing solely upon the transportation industry. Recent energy and global economic crises have had a marked negative impact on both cost of operation and revenue of transportation firms, which in turn increases pressure on their financial performance (Jaggi and Lee 2002;Steven 2002;Agarwal, Chomsisengphet, Liu and Rhee 2007;Charitou, Lambertides and Trigeorgis 2007). Such circumstances encourage corporate management to 'creatively' manage the firm's reported earnings (Gramlich 1992).
The remainder of this paper is organized as follows. The next section establishes the theoretical framework underlying the beha-vior of earnings management. Section 3 describes the research design. Primary results including descriptive statistics, correlations and regression analysis are presented in Section 4. Key results of the study and implications for future research are discussed in Section 5.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
This study, in response to both the growing concern for earnings quality and calls for more empirical research in academic literature, investigates the effects of culture value, audit quality and size of firm on the quality of financial reporting. Consistent with previous research (e.g., Francis, LaFond, Olsson and Shipper 2004;Velury and Jenkins 2006;Ball and Shivakumar 2008;Tong and Miao 2011), the current study employs earnings management as proxies for quality of financial reporting. Earnings management occurs when management take deliberate steps within the constraints of GAAP (Generally Accepted Accounting Principles) to bring about a desired level of reported earnings (Tseng and Lai 2007). Numerous studies have investigated whether managers manage reported earnings opportunistically under the flexibility of accounting rules.
A second group of literature looks at managerial motivation to manage accounting earnings in response to their performance incentive schemes. These studies included, for example, bonus schemes (Healy 1985), stockbased incentives (e.g., Coles, Hertzel and Kalpathy 2003;Bergstresser and Philippon 2006;Burns and Kedia 2006), and dividend payments (Kasanen, Kinnunen and Niskanen 1996;Daniel, Denis and Naveen 2008).
A third classification of earnings management literature considers whether corporate management manages reported earnings to meet certain earnings benchmarks. Burgstahler and Dichev (1997) propose that firms appear to manage earnings upwards to avoid reporting losses and reporting earnings decreases. They state that an unusually low frequency of firms have small negative and small declines in earnings and an unusually high incidence of firms report small positive and small increases in earnings. Additionally, Degeorge et al. (1999) argue that management face strong incentives to manage reported accounting earnings to: (1) report zero or positive earnings, (2) sustain recent financial performance, and (3) meet analysts' earnings forecasts. This position is supported by Burgstahler and Eames (2006) who found that U.S. firms' managers are more likely to report earnings that meet or beat analyst estimates.
This study adds to the second strand of literature and explores the impact of the culture value, auditor quality, and firm size on the earnings reporting quality of the sample companies.
Role of the Auditor? Watts and Zimmerman (1986) and DeAngelo (1981) argue that auditor quality depends on the relevance of the auditor's report in examining contractual relationships and reporting breaches. In other words, Bartov et al. (2000) suggest that higher quality auditors prefer to report errors and irregularities and are unwilling to accept questionable accounting practices. Therefore, it is posited that high quality auditors are expected to be more likely to detect the practice of earnings management . It is felt that Big 4 audit firms may provide higher quality than those non-Big 4 (DeAngelo 1981; Watts and Zimmerman 1986;Caneghem 2004). The Big 4 auditors have strong incentives to provide or maintain a high audit quality level due to the fact that they have: (1) a greater number of clients, (2) more opportunity to deploy significant resources to auditing (recruitment, training and technology), and (3) more to lose, for example termination of other clients, loss of reputation, when they do not report a discovered breach (Caneghem 2004;Chung, Firth and Kim 2005).
Findings reported in numerous studies clearly support that the Big 4 auditors serve as an earnings management constraint. Using U.S. data,  show that clients of Big 4 auditors report discretionary accruals relatively smaller than the discretionary accruals reported by clients of non-Big 4. Krishnan (2003) documents that Big 4 auditors are able to constrain aggressive and opportunistic reporting of discretionary accruals by their clients compared to non-Big 4 auditors. Francis et al. (1999) argue that even though clients of Big 4 firms report higher level of total accruals, they have lower amounts of discretionary accruals. Based on U.K. sample, Gore, Pope and Singh (2001) suggest that cases of high levels of non-audit services Big 4 firms are more able to constrain earnings management than their counterparts. Chen, Lin and Zhou (2005) note that Big 4 auditors associate with less earnings management for Taiwan IPO firms. However, using a sample of Belgian publicly listed firms, Bauwhede et al. (2003) report that the superior performance of Big 4 over non-Big 4 auditors is only in the case of income-increasing earnings management.
Taken together, the evidence presented from these studies strongly indicates that Big 4 auditors have more incentives to detect and constrain earnings management behavior than non-Big 4 auditors. Thus, the first hypothesis is: H 1 : Big 4 auditors have more incentive to constrain earnings management behavior in the transportation firms in the Asia region.
Role of the Culture Value?
Accounting theorists (Gray 1988) links cultural values to accounting values and practices, while Hofstede (1983) quantifies his cultural dimensions among countries. Based on data from more than 116,000 questionnaires answered by employees of a large multinational corporation in 72 countries, Hofstede's (1983) classifies four factors underlying differences in nations' cultural values; these are individualism, power distance, uncertainly avoidance, and masculinity. These factors provide information about cultural differences across nations. Hofstede (1991) also notes the role of a fifth dimension of culture, long-term versus short -term orientation in life. However, there are difficulties to test the effect of accounting values on earnings management due to measurement of accounting values and their relationship to cultural values. Therefore, to infer indirectly that accounting values affect earnings management, this study examines whether a meaningful and significant relationship between Hofstede's cultural values and earnings management exist. This study proposes that accounting values affect the choices of earnings management as different accounting practices result in different choices of accounting accruals. Among the most Hofstede's (1983) classification of the cultural values on earnings management, only Uncertainty Avoidance (UA) has a straightforward relationship with earnings management. By definition, when a nation avoids risk and creates security by emphasizing technology and buildings, laws and rules, and religion, it is considered high in UA. A weak UA society maintains a more relaxed atmosphere in which practice counts more than principles and deviance is more easily tolerated. In line with Guan and Pourjalali (2010), this study expects that company managers in high UA nations are less likely to manage their reported accounting earnings.
Therefore, this research examines the hypotheses in relation to the cultural values suggested by Hofstede (1983), as follow: H 2 : Higher degree of Uncertainty Avoidance in a nation has less incentive to practice earnings management.
Does Size matter?
Some scholars suggest that firm size may influence earnings management behavior. Specifically, they argue that large firms are subject to more public scrutiny (Moses 1987) and are more politically sensitive (Watts and Zimmerman 1986) than small firms. Thus, it is ex-pected that larger firms tend to manage income relative to smaller firms. Previous studies (e.g., Lilien and Pastena 1982;Sutton 1988) find that large firms are more likely to engage in income-decreasing accounting practices to avoid political actions of regulators. However, Wong (1988), Moyer (1990) and Scott (1991) report inconsistent results with the firm size hypothesis. In addition, Ashari, Koh, Tan and Wong (1994) advance an opposing view arguing that larger firms are more closely scrutinized by analysts and investors, therefore, more information is made available regarding those firms. Consequently, smoothed income signals from larger firms add little value to the firms; in other words, large firms have less incentive to smooth income figures. Based on mixed results to date, this study proposes a non-directional third hypothesis is: H 3 : Client firm size influences earnings management behavior of the transportation firms in the Asia region.

RESEARCH METHODOLOGY
This study examines transportation companies in China, Hong Kong, India, Japan, Korea, Malaysia, and Singapore for fiscal years ending 2004 to 2009. All financial data is gathered from One Source database. The initial population comprised the entire population of all 395 firms or 2,370 firm year observations that are grouped into five transportation classifications (airlines, railroads, trucking, water and miscellaneous transportation). Full financial statements could not be collected for every year or every firm. This left a final useable sample of 328 companies or 1,640 firmyear observations for the statistical analysis.
The number of firm-year observations used in the tests was reduced to 1,094 because one extra year data is needed to compute discretionary accruals (a proxy for earnings management). Table 1 presents an overview of the number of firm-year observations and transportation firm classifications per each of the seven countries. This study employs unexpected or discretionary accruals as a proxy for earnings management. Consistent with contemporary studies in earnings management, this study focuses on the absolute (unsigned or nondirectional) value rather than the actual sign of discretionary accruals as a proxy for earnings management. The magnitude of unsigned discretionary accruals is the best measure to indicate the opportunistic behavior of management without any concern as to whether they manage earnings numbers upwards or downwards (Francis et al. 1999;Ferguson, Seow and Young 2004;Walker 2004). Prior to estimating discretionary accruals, total accruals (TAC) are calculated as: TAC jt = ( CA jt -Cash jt ) -( CL jt -LTD jt -ITP jt ) -DPA jt (1) Where: TAC jt = total accruals for firm j in time period t; CA jt = change current assets for firm j from time period t-1 to t; Cash jt = change cash balance for firm j from time period t-1 to t; CL jt = change current liabilities for firm j from time period t-1 to t; LTD jt = change long-term debt included in current liabilities for firm j from time period t-1 to t; ITP jt = change income tax payable for firm j from time period t-1 to t; and DPA jt = depreciation and amortization expense for firm j from time period to t. TAC is then decomposed into normal accruals (NAC) and discretionary accruals (DAC) using the cross-sectional modified Jones (1991) model defined formally as: TAC jk,t / TA jk,t-1 = jt [1/ TA jk, ] + jt [( REV jk,t -REC jk,t )/ TA jk,t-1 ] + j,t [PPE jk,t / TA jk,t-1 ] + jk,t (2) Where: TAC jk,t = total accruals for firm j in industry k in year t; TA jk,t-1 = are total assets for firm j in industry k at the end of year t-1; REV jk,t = change net sales for firm j in industry k between years t-1 and t; REC jk,t = change in receivables for firm j in industry k between years t-1 and t; PPE jk,t = gross property, plant and equipment for firm j in industry k in the year t; j , j , j = industry specific estimated coefficients; and j = error term. NAC is defined as the fitted values from Equation 2 whilst DAC is the residual (TAC minus NAC).
To control compounding influences of cross-sectional factors, this study incorporates control variables in the regression analysis. This study includes absolute value of total accruals (ABSTAccruals) to control for a firm's 'accrual-generating potential' . Firms with higher absolute values of total accruals are likely to have greater discretionary accruals (Krishnan 2003). Thus, the current study expects a significant positive coefficient on the ABSTAccruals variable. Leverage is included as prior studies show that firms have a propensity to smooth reported earnings to avoid violating debt covenants and to decrease the cost of debt (Carlson and B athala 1997). In addition, some scholars (e.g., Healy and Palepu 1990;DeFond and Jiambalvo 1994;Sweeney 1994) posit that firms with a higher likelihood of violating debt agreements are more likely to have an incentive to increase earnings. This study argues that firms with a higher level of debt have more incentive to manage reported earnings. The proxy variable for level of debt is the ratio of total debt to total equity of the previous year. Pre-vious studies (e.g., Dechow, Sloan and Sweeney 1995;Kothari, Leone and Wasley 2002) report discretionary accruals is dependent on a firm's financial performance. This is because financial performance may affect corporate management's opportunistically to manage earnings figures. Furthermore, financial performance may influence a firm's audit risk (e.g., Gul, Chen and Tsui 2003;Krishnan 2003). Thus, return on assets (ROA) is used to control for the possible compounding influences of a firm's financial performance. Tseng and Lai (2007) state that more profitable firms are associated with less earnings management. Thus, this study expects that the coefficient of this variable is significantly negative associated with the level of earnings management. ROA is defined as the ratio of earnings before extraordinary items to total assets of prior year. Furthermore, this study includes a variable of Invest measured by the level of investment in tangible fixed assets in current year scaled by total assets of previous year. This variable can result in smaller total accruals due to the associated increase in depreciation expense. This current study predicts a significant and negative coefficient on this variable.  and , amongst others, report cash flow from operations influence corporate management actions in managing earnings. Thus, this study includes CFO to control for discretionary accruals dependence on cash flow from operations and predict a negative association between CFO and the level of earnings management. Finally, this study includes a variable of legal origin as another variable that is considered will influence the practices of earnings management. Proxy measures for the dependent, independent and control variables are defined in Table 2.
To test the hypotheses on audit quality, culture value and size of firm, this study develops the following multivariate model:   Legend: See Table 2 for full definitions and descriptions for the study's dependent, independent and control variables. Table 3 shows that the mean and median absolute values of total accruals (Ab-sDAC) are 8.46% and 4.88% of total assets at the beginning of the year. The data reveals that number of firms that have positive and negative discretionary accruals is 537 and 557 firms respectively. This implies that more companies engage in income-decreasing compared to income-increasing earnings management. In regard to the uncertainty avoidance cultural dimension, on average, the index score is 64.65 ranging from the lowest 8 (Singapore) and the highest 92 (Japan). Return on assets (ROA) averages 0.76% ranging from -59.32% to 77.84%. Consistent with the low ROA, those firms generate, on average, negative amounts (-6.13% of the beginning total assets) of cash flow from operations. Ratio total debt to total equity (Leverage) has a mean of 120%. The average absolute value of total accruals (AbsTAC) is 8.41% of total assets at the beginning of the year. On average, amount of the increase in tangible fixed assets for scaled by last year's total assets is 8.89%. The sample firms have a mean total assets of USD2,982,587 thousand. Finally, around 52% of the sample firms use the services of Big 4 audit firms and 27% of the sample firms are from common law countries. Table 4 depicts a correlation matrix between the dependent, experimental and control variables. The upper half of each panel reports Pearson pairwise correlation coefficients (cr p ), the lower half shows Spearman correlation coefficients (cr s ). The correlation results do not provide comprehensive support for the study's hypotheses. AbsDAC is negatively and significantly (at p<0.01) correlated with Culture and Size both for Pearson and Spearman correlations. This infers that countries with higher uncertainty avoidance scores and large size firms are less likely involved in earnings management practices. In addition, Table 4 shows a positive but insignificant correlation between Audit Quality and AbsDAC. This evidence is not consistent with the hypothesis and previous studies that Big 4 auditors appear to constrain manager's discretions in adopting earnings management practices.

RESULTS AND DISCUSSION
Findings also show a significant correlation (both cr p and cr s ) amongst independent variables. The highest correlation is between Audit Quality and Size, with a coefficient of 0.235 and 0.225 (p<0.01 both cr p and c rs ). In respect to correlations between independent and control variables, and amongst control variables themselves, the highest correlations are between Culture and Legal, with a coefficient of 0.774 at p<0.01. This value is below the crit-  Table 2 for full definitions and descriptions for the dependent, independent and control variables.
ical limit of 0.80. Variance inflation factors calculated for all regressions reported in Table  5 for all independent and control variables provide further indications that multicollinearity is not a problem in the model estimations (Hair, Anderson, Tatham and Black, 1995;Greene 1999;Cooper and Schindler, 2003). The main results for testing the hypotheses are reported in Table 5. Regression model estimates reported in Table 5 is statistically significant (F-statistic p<0.01). The coefficient on Audit quality is positive but insignificantly associated with AbsDAC . Therefore, H 1 is not supported. Findings reported in numerous studies clearly support that the view Big 4 auditors serve as a barometer of higher levels of audit quality. Several studies have supported this surrogate measure (e.g., Dopuch and Simunic 1982;Francis et al. 1999;Gore et al. 2001;Bauwhede et al. 2003;Krishnan 2003;Chen et al. 2005;Kanagaretnem, Lim and Lobo 2010). This study fails to confirm that in Asia, Big 4 auditors function as a constraint on earnings management practices.
A consistent finding is that Culture is negatively and significantly at p-value of 0.001 associated with AbsDAC , thus H 2 is support ed. This result infers that firms in the countries scoring high on uncertainty avoidance (AU) tend to have lower levels of earnings management and therefore higher quality of reported earnings. Further analysis (see Table 6) reveals that countries with higher score of UA have significantly lower levels of earnings management compared with their counterpart. This finding is consistent with Guan and Pourjalali (2010). 1,094 Legend: *, **, and *** indicate significance at p<0.01, p<0.05 and p<0.10 respectively (based on two-tailed tests).
See Table 2 for full definitions and descriptions for the dependent, independent and control variables.  3 Finally, the finding of this study confirms that large size firms exhibit less aggressive earnings management behavior. Specifically, the coefficient on Size is negative and significant (at p-value of 0.000) associated with earnings management measure. Additional analysis (see Table 7) shows that large sample firms have significantly lower (0.0628 versus 0.0899) levels of earnings management than those small firms.
Apart from the independent variables, the coefficient of absolute value of total accruals (ABSTAccruals) is positively and significantly (p-value of 0.000) associated with the absolute value of discretionary accruals. This finding is consistent with prior works (e.g., Frankel, Johnson and Nelson 2002;Ashbaugh, LaFond and Mayhew 2003;Balsam, Krishnan and Yang 2003). Coefficient on ROA is negative but only significant at the bottom line level. This result confirms the argument that behavior in earnings management is adversely associated with company performance: the better the company's financial performance the lesser the tendency to manage reported earnings (Firth 1997;Frankel et al 2002;Ashbaugh et al 2003;Ferguson et al 2004). In addition coefficients on Invest and CFO are all negative and significant (at pvalues of 0.016 and 0.000 respectively) meaning that firms with a greater level of investment in fixed assets and larger cash flows from operations are less likely to manage income figures. These results directly conflict with several previous non-Asian studies (Dechow et al. 1995;Kaszni 1999;Bauwhede et al. 2003;Butler, Leone and Willenborg 2004) that document that firms with high perfor-This study partitions the full sample into small and large firm sub-samples using the mean of total assets (USD$2,982,587 thousands) as a basis for partitioning cut-off. mance and growth are more likely to relate to the amount of managed earnings.

CONCLUSION
The purpose of this study is to identify factors that may impact earnings management, thus quality of reported earnings. Based on the literature review, this study infers three factors: audit quality, culture and the size of firms. This study does not find evidence that Big 4 auditors work as a constraint for earnings management practices by corporate managers. Hunt and Lulseged (2007) suggest that one possible explanation is that the Big 4 audit market has dramatically decreased, especially after the global influence of the Sarbanes-Oxley Act of 2002, as substantial numbers of audit clients of Big 4 auditors are switching to non-Big 4 audit firms. This phenomenon results in a smaller Big 4 audit market and thus larger economic dependence of the Big 4 auditors on their remaining audit clients. Another possibility that might explain the decline of Big 4 auditors' quality is that this study utilizes a dataset from the countries in which external auditors face lower litigation risks compared to countries like U.S. or U.K. The Big 4 auditors may have very little incentive to report conservatively due to the lack of auditor litigation in many Asian countries.
The multivariate regression analyses reveal that culture and firm's size influence earnings reporting quality corporate management. Countries with high score of uncertainty avoidance are more likely to have lower levels of earnings management and therefore higher quality of reported earnings. In addition, the result of this study strongly supports the political costs hypothesis which argues that in comparison to smaller firms, larger firms are subject to more public scrutiny and political actions (Watts and Zimmerman 1986;Moses 1987). In particular, larger firms have incentives to choose the accounting procedures that result in reducing reported earnings. Several previous studies provide confirmatory evidence. For example, Lilien and Pastena (1982) and Sutton (1988) report that large firms are more likely to engage in income-decreasing accounting practices to avoid political actions of regulators. Key (1997) notes downward earnings management in the U.S. cable television industry, while Han and Wang (1998) show similar behavior by U.S. oil companies due to high political costs. In addition, Boynton, Dobbins and Plesko (1992) find empirical evidence that U.S. firms directly affected by the enforcement of a tax change try to avoid its effects by implementing conservative accounting procedures. Another possible explanation why larger firms are not involved in earnings management is they may have more sophisticated internal control systems and more competent internal auditors than smaller firms. The result is a reduction in the likelihood of manipulating earnings by corporate management.
Sebagaimana lazimnya suatu penelitian empiris, hasil penelitian ini juga mengandung keterbatasan. Sampel yang digunakan dalam penelitian ini hanya terbatas pada perusahaan keuangan yang terdaftar di Bursa Efek Indonesia (BEI) periode 2007-2011 (5 Tahun) sehingga generalisasi ini hanya terbatas pada perusahaan yang ada. Penelitian selanjutnya disarankan untuk meneliti sektor lainnya seperti sektor manufaktur, sektor konstruksi, transportasi, dan lain-lain dengan menggunakan tahun yang lebih baru dan periode yang lebih lama untuk mendapatkan hasil yang lebih baik. Di samping itu penelitian ini terbatas pada proksi yang digunakan untuk mengukur financial performance yaitu ATO, ROA, ROE, dan GR, mengukur market performance proksi yang digunakan MBV, PER, PBV, dan Tobin, dan corporate governance hanya ukuran dewan komisaris, proposrsi komisaris independen, komite audit, kepemilikan manajerial, dan kepemilikan institusional. Penelitian selanjutnya agar dapat mempertimbangkan proksi corporate governance lainnya seperti komposisi dewan direksi dan kualitas audit, dan untuk proksi market performance lain seperti Annual Stock Return (ASR), market capitalization, dan earning per share (EPS,) dan proksi financial performance lainnya seperti employee productivity.  (2003) in describing such facility. The government of New Delhi in 2000 provided computer access in slum areas for city's street children. A project, known as Hole-in-the-Wall, allowed the street children to have 24-hour access to computer and internet. Beside the internet connection through dial up access, the computers were also equipped with some essential programs, such as Microsoft Office and Paint. Without any instructor whatsoever, the children may learn how to use computer and internet at their own pace and speed. However, the result indicated that the access to internet was so seldom and majority of the children used the computer to draw with paint programs or playing games. The failure of the project caused by no special education had been made available for those children. Some parents expressed their concern that the absence of instruction took away the project's value. Some other even raised negative feelings about the project, complaining that the computers distracted their children from their homework and schoolwork.
The story above represents the nature of incomplete policies by many governments to overcome digital divide based on underlying understanding that the main problem is inequality of access, especially physical access to ICT. Thus, scholars such as Dewan, Ganley, and Kraemer (2005) The main aim of this study is to examine the mediation effect of computer selfefficacy on the impact of access to ICT on egovernment use. In doing so, this study compares the t-values in PLS-graph between models, with and without the trust in e-government as a mediator, and the Sobel test. The research was conducted in Indonesia, involving 237 respondents of e-government users.
The structure of this paper is divided into six sections, in following manner: introduction and research objective; theoretical background and model development; research method and findings; and discussion, which is written in integration with implications and conclusion.

Social Cognitive Theory
This research relies on Social Cognitive Theory (Bandura 1977(Bandura , 2001 as the underlying theoretical foundation. The theory suggests that individuals possess a self-belief system that allows them to take control over their cognitive process. The key of the systems is self-efficacy, which refers to "the belief in one's capability to organize and execute the courses of action required managing prospective situations" (Bandura 1977, p. 2). The theory operates within a causal model of triadic reciprocity, where (a) personal factors in the form of cognition, affect, and biological events, (b) environmental factors, and (c) behavior interact one another (Bandura 2001). Contextualized in this research, personal factor is represented by computer self-efficacy, while the environmental factor by access to ICT and behavior factor include the use of ICT. Thus the central aim of this study is that the access to ICT influences behavior in using ICT directly as well as through the mediating role of computer self-efficacy ( Figure 1). Behavior in using ICT is represented by egovernment use in this study.

Access to ICT
There is a sizeable difference in internet access and home-computer ownership across and within countries. As reported by UN (2010), more than 50% residents in developed countries have internet access and own a personal computer. On the other hand, in some LDCs (least developing countries), the number is far below 5%. In terms of region, Europe is the most connected region whereas Africa is the least.
Previous studies concluded that the access to ICT was a substantial factor of ICT use (eg. Dewan, Ganley, and Kraemer 2005;Wei et al. 2010;Ynalvez and Shrum 2006;Hsieh, Rai, and Keil 2009). Even access divide is the focus of the most digital divide research (Rahman and Quaddus 2012). On the other hand, studies by Wei et al. (2010) and Dewan and Riggins (2005) found that access to ICT is a significant determinant for computer self-efficacy. In this study, the dimensions of access to ICT are presented in Table 1 below.

Computer Self-Efficacy
Self-efficacy can be defined as a belief of the individuals in their capability to execute a particular task. Self-efficacy may not reflect actual competence. Scholars in some fields including information systems have applied the concept widely, although originally Bandura (1977) developed the theory of self-efficacy for treating severely phobic. In information systems, computer self-efficacy has been investigated (eg. Marakas, Yi, and Johnson 1998;Compeau, Higgins, and Huff 1999;Wei et al. 2010). The results concluded that self-efficacy was a significant predictor of attitudes and behavior. The dimensions of computer self-efficacy in this research are described in Table 2.

E-Government Use
This research intends to investigate relationship among access to ICT, computer selfefficacy and the use of ICT in e-government context, based on the reason that this issue is fundamental for the government in order to develop e-government systems, which focus on citizen. The understanding of the digital divide might also the first step to improve egovernment readiness in Indonesia.
E-Government can be defined as ICT use to improve the access to government services and enhance the delivery of government services and operations. The main objective of e-government systems are for the advantage of business, citizens, and other stakeholders (Srivastava and Teo 2007). Because of its importance, UN encourages all countries to develop e-government systems. However, developing and applying e-government system is not just simply transferring the system from one country to another. In other words, implementing e-government system needs some additional efforts (Schuppan 2009). Government needs to adjust with the needs of its citizens, since they are the substantial stakeholder for government (Davison, Wagner, and Ma 2005). e-Government use by its citizens is substantial indicator for the success of egovernment systems. Table 3 presents the dimensions of e-government use.
Based on the discussion above, the following hypothesis is proposed: H1: Computer self-efficacy has a mediating role between access to ICT and e-government use.

RESEARCH METHODOLOGY
To verify the research model ( Figure 1) and hypothesis presented above, data was collected via a survey. In order to draw up adequate survey questions, the researcher carried out literature review and constructed the dimensions listed in Table 1-3. Each question was measured based on 6-point scale.
In conducting the empirical analysis, 354 copies of questionnaires were directly distributed targeting subjects who had used egovernment systems provided by local governments. As a result, 251 questionnaires were retrieved. To find out any errors in the form of invalid data, such as incomplete responses or missing values, a review was carried out. As a result, 14 questionnaires were found to be incomplete or, 237 questionnaires were usable in this research. Table 4 presents the demographic profile of the respondents.
To perform data analysis, the Partial Least Square (PLS) approach to Structural Equation Modeling (SEM) was used. PLS is a po-werful tool of analysis because of the minimum requirements on measurement scales, sample size and residual distributions (Wold 2006).

Measurement Assessment
Composite reliability (CR) analysis was conducted to verify convergent validity and discriminant validity. Values greater than 0.70 in CR imply that the construct retains both its internal consistency and convergent validity (Hair, Ringle, and Sarstedt 2011). The factor loading and Average Variance Extracted (AVE) were also examined to determine the convergent validity. The criteria for the acceptable level of convergent validity is individual item factor loading greater than 0.60 and an AVE greater than 0.50 (Gefen, Straub, and Boudreau 2000). Table 6 and 7 summarize the factor loadings, CR and AVE of the group. All factor loading, CR and AVE in this measurement model turned out to be acceptable.     In this research, mediation hypotheses were tested using a statistical technique suggested by Baron and Kenny (1986). Baron and Kenny (1986) suggested that a given variable might function as a mediator (M), if the following conditions held: (1) a significant rela-tionship existed between the independent variable (X) and the dependent variable (Y); (2) a significant relationship existed between X and M; and (3) in the presence of a significant relationship between M and Y, the previous relationship between X and Y was no longer significant or the strength of the relationship was significantly decreased. From Table 7 we can learn that the t-value for the relationship of access to ICT (X) and e-government use (Y) with the mediation effect of computer self-efficacy (M) drops to 2.735 from 16.768 without mediation effect. The result indicates that computer self-efficacy has a partial mediation role in the relationship between access to ICT and e-government use.
The assessment of the significance of the reduction of the relationship between the independent and dependent variables cannot be assessed from the coefficient. Rather it has to be mathematically proven. The Sobel test (Sobel 1982) has been a traditional method of testing the significance of mediation effects. The Sobel test was used in this research because it was the most widely employed. The significance was measured by the following formula: The formula required the unstandardized regression coefficient (a) and the standard error (s a ) of the relationship between the independent variable and mediating variable, and the unstandardized regression coefficient (b) and standard error (s b ) of the path from the mediating to the dependent variable. Table 8 below describes the data and result of Sobel test. The z-value is 2.367 (significant in p<0.05).

CONCLUSION
The findings of this study show that meaningful access to ICT comprises more than merely providing computers and internet access. Access to ICT rather embedded in a complex array of factors not just physical resources, but also human and social resources. Literacy and capability must also be taken into account if meaningful access to new technologies is to be provided. In other words, overcoming the problem of digital divide is not only by providing physical access to computers and connectivity but also by access to the additional resources that allow people to use technology well. Warschauer (2003) states that the understanding of digital divide as a binary divide between those who have access to ICT and have-not is inaccurate because it fails to value the social resources that diverse groups bring to the table.
Overall, this research yields two theoretical as well as practical contributions. First, this research underlines the importance of CSE, which acts as a partial mediator. In addition to provide the access to e-government systems, it is also important to improve capability to utilize ICT by the citizens. The government should provide and facilitate education for its citizens in using the ICT in general and particularly e-government systems.
Second, this research is significant in the sense that it provides understanding on digital divide. The results provide a foundation to understand the relationships between the access to ICT and CSE, and their impact on e-government use as proposed in the research model. Government may use the findings as the foundation to establish a more comprehensive policy in resolving the issue of digital divide as well as the policy to enhance e-government readiness. More attention should be paid to females, citizens in the remote area, people in age groups of 40 and above, and those who have low educational attainment in opening the access as well as educating to use e-government systems. The e-Government Readiness Survey by United Nations showed that implementation of egovernment systems in Indonesia was in status quo. Therefore, comprehensive and strategic policies to improve e-government system are needed by the government Indonesia. Based on slippery slope theory, this study argues that severe sanctions (more than mild ones) can communicate that sanctioned behavior is morally unacceptable, this study argues that particularly authorities who enact the sanction procedures in a fair manner stimulate compliance with their decisions. This study examines the moderating role of procedural fairness of the tax office in the positive effect of sanction on voluntary compliance with tax authorities. This interactive effect of sanction size and procedural fairness on compliance should thus be mediated by trust of the authority. A field survey from 204 individual taxpayers in Semarang city revealed no empirical support for these hypotheses. This study concludes that trust in authorities forms an important mediating variable to the effectiveness of sanction and procedural fairness as tools to enhance tax compliance.
Keywords: voluntary tax compliance, sanctions, procedural fairness, trust in authorities.
Tabel 12: Goodness of Fit Model

INTRODUCTION
This paper discusses the effect of enterprise resource planning (ERP) implementation and audit committee on the accounting information quality. ERP system is an integrated in-formation system. This system consists of a set of structured and integrated modular software that includes and supports most of business processes (Hitt, Wu and Zhou 2002;Poston and Grabski 2001). Prior literature claim that the ERP implementation have many benefits, such as assisting the business process reengineering (O'Leary 2008;Bradford and Robert 2001;Winters 2004), increasing operational performance (Hayes, Hunton and Reck 2001;Hunton, Lippincott and Reck 2003), improving managers ability to process and analyze accounting information (Davenport 1998;Hitt et al. 2002), providing information that enable management to have a whole view of firm's financial condition (Dillon 1999), decreasing function barriers, and enabling managers to access accounting information quickly (O'leary 2008). However, ERP system implementation also raises new problems. Previous research shows that firms' external audit quality decreases when ERP system is implemented (Hunton, Wright and Wright 2004) and this problem may be caused by financial auditors who do not fully realize the exposure risks of ERP system. Additionally, there is a prior study that finds a decrease in internal control effectiveness after ERP implementation (Wright and Wright 2002). The study by Wright and Wright (2002) also shows that the ERP implementation process has an impact on the system reliability.
Many countries have implemented regulations that require firms to disclose the weaknesses of their internal control system. One of those countries is the United States with its Sarbanes-Oxley Act of 2002 (SOX 2002). Under the SOX 2002, the reliability of financial information should be increased due to the increase of internal control quality and audit quality conducted by the external auditors. Nevertheless, prior literature demonstrate that the audit quality and the internal control system decrease after the implementation of ERP system (Wright and Wright 2002;Hunton et al. 2004). Specifically, Brazel and Dang (2008) find the increase of absolute discretionary accrual after the implementation of ERP system. This implies that after the implementation of ERP system, the reliability of accounting information quality decreases even though it has an environment with powerful internal control rules. The increase of absolute discretionary accrual provides evidence of the increase of earning management.
The debatable benefit of ERP system implementation raises a question whether or not the ERP system implementation decrease the reliability of accounting information due to the decrease of audit quality and the decrease of the effectiveness of internal control, especially in Indonesia. Indonesia does not have a regulation like SOX 2002. However, it has similar regulations with the same purpose. Since 2004, Indonesia has implemented a regulation issued by Capital Market Supervisory Agency No. Kep-29/PM/2004 concerning the establishment and guidance of Audit Committee implementation. The objective of this regulation is to ensure a good quality of accounting information published by companies listed in the Indonesia Stock Exchange.
By implementing such regulation, it is argued that accounting information quality increases after implementing ERP system. Nevertheless, this argument needs to be further investigated in order to get empirical evidence. To our knowledge, there is a little (if any) empirical studies about the impact of ERP implementation and audit committee on accounting information quality, especially in Indonesia. This motivates us to conduct a research about the joint impact of ERP implementation and audit committee on the accounting information quality. Based on the description above, a research question can be formulated as follows: do ERP implementation and audit committee influence accounting information quality resulted by companies listed in the Indonesia Stock Exchange?
The remainder of the paper is structured as follows: section two discusses the literature review along with the hypotheses development. The research method and results discussion are presented in the third and fourth sections, respectively. Finally, the fifth section presents conclusions along with implication of this study, limitations and suggestions for further research.

LITERATURE REVIEW AND HYPO-THESES DEVELOPMENT Enterprise Resource Planning (ERP) implementation and Reliability
One of the advantages of the ERP system implementation is the ability to improve internal management decision-making. This condition should enable the firms that implement ERP system to perform better than non-ERP firms (Hunton et al. 2003). The ERP system implementation also improves the ability of managers to manage financial information for external users. ERP system is able to improve information set of management and to increase the asymmetry information level between managers and external financial report users. Prior research has empirically shown that higher level of asymmetry information and the related agency cost increases the investor's attention toward quality of reported earnings (Chow 1982;Francis and Wilson 1988). Therefore, the higher level of asymmetry information between management and investor increase the moral hazard problem because management can use higher discretion in earning reporting. This happens because the management has more control over the internal information regarding the firm's financial conditions than investors.
The information time lag on legacy system often forces management to manage exte rnal accounting information by conducting more transparent adjustments at the year-end period. Such adjustment is easier to be identified and questioned by external auditors (Lanza and Gilbert 2007). On the other hand, the constant accounting information flow and the enterprisewide view that is the outcome of ERP system give management the opportunity to manage accounting information continuously at anytime.
Basically, earnings management is not a simple game. It requires multi-period planning because accrual manipulation in one year will affect subsequent years (Brazel and Dang 2008). ERP implementation facilitates multiperiod accrual planning. Therefore, ERP system helps management to conduct earnings management. If ERP implementation allow managers greater access and control over financial accounting data (Dillon 1999), the opportunity for management to interpret financial statement to meet incentives is increased. Therefore, ERP implementation should improve the ability of managers to respond to market and contractual incentives by managing earnings.
Financial statement audits and related internal controls are instruments that can reduce management opportunities to conduct financial statement management. Prior research found a positive relationship between discretionary levels and audit quality . When the opportunity to manage financial statement decrease, a company is able to produce more reliable financial statement for external users. The objective of the audit is to determine whether, in all material respects, the financial statements are prepared according to the GAAP (AICPA 1972). Hogan and Wilkins (2005) found that audit functions as a constraint in potential earnings management. Previous research also found that reported material weaknesses in internal control are associated with lower earnings quality (Doyle, Ge and McVay 2005;Chan, Farrel, and Lee 2008). E xtant research also indicates that s afeguards to reliability may be impaired in an ERP system setting. Hunton et al. (2004) and Brazel and Agoglia (2007) reported that auditor risk assessment and testing quality might be inadequate for clients that have implemented an ERP system. Wright and Wright (2002), through semi-structured interviews with IT audit specialists found that 31.8 percent of their participants had experiences in practice where their client's ERP system lacked adequate controls.
Following an ERP system implementation, the opportunity to manage financial accounting information may increase due to enhanced managerial information access and control and reductions in the safeguards of audit quality and internal control effectiveness. Policy makers (AICPA 2002) state that opportunity is an important component affecting whether managers actually do manage accounting information to report financial results that meet their objectives, but do not reflect the true financial condition of the firm. Thus, the reliability of accounting information may be damaged by implementation of ERP system. We therefore test the following hypothesis: H 1 : ERP system implementation decreases the reliability of accounting information.

Audit Committee and Reliability
Previous research investigated the effect of corporate governance on reliability of accounting information was conducted by Habbash (2010), who reported that the size and Board of Commisioner (BOC) independence, competence and independence of audit committee, independence of nomination committee, independence of head of BOC, amount of non-executive directors' remuneration, and independence and external auditor specialization negatively associated with earnings management significantly. Furthermore, other research conducted by Roodposhti and Chashmi (2010), Verriest and Gaeremynck (2008), Baxter and Cotter (2006), Bugshan (2005), and Li (2009) that employed earnings management proxy also found similar results. Previous research that used magnitude of abnormal accrual (discretionary accrual) and accrual quality found that the strong corporate governance negatively associated with abnormal accrual (discretionary accrual) or the strong corporate governance increased earnings reliability. These findings had been docummented by Lara, Osma, and Penalva (2007), Kiatapiwat (2010), Moradi and Nezami (2011), Nasr, Boubakri, dan Cosset (2009), Shivaramakrishnan and Yu (2008, Dhaliwal, Naiker, andNavissi (2007), Houqe, Zijl, Dunstan, andKarim (2010), Kent, Routledge, and Steward (2008), Mitra (2002), Hashim and Devi (2008). Garven (2009) found that audit committee and characteristics of BOC negatively associated with REM, whereas Ismail, Dunstan, and Zijl (2010) found that BOC and size of audit committee positively associated with earnings quality (reliability). Klein (2006) found that a non-linear negative relation is found between audit committee independence and earnings manipulation. Other research conducted by Beasley and Salterio (2001), McMullen andRaghunandan (1996), DeZoort and support the finding that the existence of audit committee increase financial reporting quality, whereas Dechow, Sloan, and Sweeney (1996) find that companies without audit committee are more likely to be involved in a financial fraud. Based on the previous research regarding the effect of audit committee on accounting information reliability or reliability, we state hypothesis as follows: H 2 : Audit committee positively affects reliability of accounting information

RESEARCH METHODOLOGY Sample Selection
The population of this study is all companies listed in the Indonesia Stock Exchange. The sampling method employed in this study is purposive sampling. The samples in this study are companies that fulfill criteria such as having complete financial and audit committee data. Data sources used in this study are the Indonesia Capital Market database and companies website.

Research Design
Reliability quality is measured with one of variables used by Barua (2006), which is abnormal accrual. Abnormal accrual is estimated with Modified-Jones Model developed by Dechow et al. (1996) in equation (1). Where: TA it = total accrual scaled by total asset for firm sample i at period t, A it-1 = lagged total asset, for firm sample i at period t-1, REV it = changes on net income for firm sample i at period t, REC it = changes on net receivable for firm sample i at period t, PPE it = gross fixed asset for firm sample i at period t, and it = error term.
Discretionary accrual for the year is residual value of equation (1). Absolute discretionary accruals (ABSDA) is a proxy of reliability. The greater magnitude of ABSDA, the lower is the quality of reliability. Audit committe is an independent variable and measured with audit committe score, based on decision of Capital Market Supervisory Agency (Kep-29/PM/2004) and several previous research done by Ramral (2011) andAnanchotikul (2007). Meanwhile, ERP is a dummy and independent variable. This variable is stated to 1 for a company which implements ERP system and 0 for a company which does not implement ERP system. Control variables used in this research are: Firm-size (Size) which is calculated with natural log of total assets, Market-to-book ratio (MTB) which is calculated by dividing market value of firm equity with book value of firm equity. Previous research done by Zhou and Elder (2001) found that firm's market-to-book-value (MTB) is a proxy for growth opportunities and may influence discretionary accruals. Leverage is another control variable and it is calculated by dividing total liabilities with total assets. Previous research concludes that leverage (Lev) correlated with discretionary accruals (DeFond and Jiambalvo, 1994;).

Model Specification
The main statistical method to test hypotheses is GLS regression. The GLS models to be estimated are as follow: ABSDA = 0 + 1 ERP+ 2 AC + ß 3 SIZE + ß 4 LEV + ß 5 MTB + .................. (2) Where: ABSDA = absolute discretionary accrual and the proxy of reliability quality, ERP = dummy variable which is stated to 1 for a company which implement ERP system and 0 for a company which does not implement ERP system. AC = audit committee, Size = log of total assets, Lev = total liabilities divided by total assets, MTB = market to book value equity, and = error term.

RESULTS AND DISCUSSION
Based on the sampling process described above, this study used 78 firms as samples to be included in this research. The samples consist of 39 ERP-adopted and 39 non-ERPadopted firms for two years. The total observation conducted is 156 firm-years. Moreover, in order to be comparable, both the ERP-adopted firms and non-ERP-adopted firms selected in this study ca me from a similar sector. The data sample is presented in Table 1 below. Table 2 shows descriptive statistics for the data sample. From Table 2, it can be seen that the mean of ABSDA is 0,068 with standard deviation of 0,060. The range between maximum (0,284) and minimum value (0,001) is 0,283. Since this variable is an inverse measure of predictive value quality, hence, the smaller the value, the better is the quality.
ERP has a mean value of 0,500 with standard deviation of 0,501. The range between maximum (1,000) and minimum value (0,000) is 1,000. AC score has mean value of 0,813 with standard deviation of 0,087. The maximum value of AC is 1,000 and minimum value of 0,590, so this variable has range of 0,410. The mean of MTB is 2,331 with standard deviation of 3,950. The maximum value of MTB is 38,970 and minimum value of 0,091, so this variable has a range of 38,869. Lev has a mean value of 0,483 with standard deviation of 0,198. The range between maximum (1,070) and minimum value (0,070) is 1,000. The mean of Size is 13,414 with standard deviation of 3,317. The maximum value of Size is 18,849 and minimum value of 4,768, so this variable has range of 14,081.

Hypothesis Testing
In order to test the hypotheses, this study used regression statistics analysis with software EVIEWS. The classic assumptions of regression model were tested before the regression statistics analysis was conducted. The assessment shows that the data were normally distributed and there were no problems with multicolinearity, heteroscedasticity, and autocorrelation in the data. The regression analysis results and reliability quality testing is presented in Table 3.
Regression results show that determination coefficient (Adj. R 2 ) is 0,098 or 9,8 percent. This number shows that all independent variables are only able to explain 9,8 percent effect of independent variables on dependent variable, and the rest are explained by other variables which are not taken into account in this research. Table 3 shows a significant (p = 0.031) and positive coefficient for ERP. Since ABS-DA is an inverse measure of reliability quality, this result indicates that reliability decrease in the firms that implement ERP systems. Therefore, this result supports H1 of this research. This result also provides evidence that after ERP implementation, the discretionary accrual number increase. The finding of this study is consistent with prior research by Brazel and Dang (2008), Brazel and Agoglia (2007); and Hunton et al. (2003) who find that ERP implementation reduces reliability quality of accounting information. For hypothesis 2, the result shows that the value of 2 equals to -0,228 and significant in the level = 0,01. It means that AC positively and significantly affects reliability. Therefore, there is empirical evidence to accept H 2 . It can be concluded that H 2 that states that audit committee have positive effect on reliability of accounting information is supported by empirical data of this study. This result is consistent with studies conducted by Beasely and Salterio (2001), DeZoort and Salterio (2001), and McMullen dan Raghunandan (1996 who found that the existence of audit committee increases the quality of financial reporting. This result is also in line with previous research by Garven (2009) who found that audit committee associated with REM,; Ismail, Dunstan, and Zijl (2010) who found that size of audit committee positively associated with earnings quality (reliability); and Klein (2006) who discovered that a non-linear negative relation is found between audit committee independence and earnings manipulation.

CONCLUSION
This research provides evidence that ERP implementation has negatively affect the reliability quality of accounting information produced by companies listed in the Indonesian Stock Exchange. These results show that the reliability of accounting information quality decrease for companies which implement ERP. These results support H 1 which states that ERP implementation negatively affect the reliability of accounting information quality. Therefore, it can be concluded that as a whole, ERP implementation negatively affects accounting information quality.
The data analysis conducted in this study also demonstrates that audit committee significantly and positively affect the reliability of accounting information produced by companies listed in the Indonesia Stock Exchange. This result demonstrates that the r eliability of accounting information increase post-ERP implementation. This result supports H 2 of this study which states that audit com-mittee positively affect the reliability of accounting information. Therefore, it can be concluded that as a whole, audit committee positively affects accounting information quality.
This research has several implications. Firstly, the results confirm the agency theory, which predicts that monitoring and controlling activities by independent parties such as audit committee ensure the agent acts on behalf of the principle interest, so the accounting information quality increase. Secondly, the results give an understanding that the expected benefit from ERP implementation, which is an increase of the accounting information quality, cannot be achieved. This should become one of the main concerns for the companies' management. As previously mentioned, there are several factors that contribute to the decrease of the reliability of accounting information quality such as the quality of auditors who do not have sufficient familiarity with ERP. This research has several limitations. Firstly, this study uses a small sample size. This limitation should be considered when making any conclusions and generalization of the results. Secondly, this study compares between companies that i mplement ERP and companies that do not implement ERP. The different characteristic between the two sample groups may limit the generalization of the results of this study. Thirdly, this study does not take into account the industry characteristic. Fourthly, this research does not use market data to measure the accounting information quality. However, these limitations offer avenues for further research in this area. Firstly, similar research can be done by using another accounting quality measurement that is more market-oriented such as earnings response coefficient (ERC). Secondly, further research can employ pre-and post-design, which aims to compare between period before and after ERP implementation. Thirdly, research can also be conducted by considering industry characteristics in order to distinguish one i ndustry from another.

Abstract
This study investigates the impact of client importance on auditor independence measured by accrual earnings management and going-concern opinion. Our research sample consists of 1,080 firm-years of observation from listed companies in the Indonesia Stock Exchange (IDX) with eight years of observation (2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011). With pooled OLS we found that client importance has a negative impact on accrual earnings management. We also found evidence that client importance has a positive impact on going-concern opinion. Collectively, our evidence suggests that although audit firms have economic dependence toward their clients, those audit firms can maintain their audit quality by keeping their independency toward their clients, reflected by the lower accrual earnings management and higher tendency of issuing going-concern opinion. Our results are robust by considering the results of our sensitivity tests that support the main results.

INTRODUCTION
The audit quality of public accounting firms has been criticized in the last decade, since they could not protect the interests of investors (Coffee 2002;Levitt 1998). This audit quality has been defined by various definitions. DeAngelo (1981), for example, defines audit quality as the joint probability that the auditor will find a breach in the client's accounting system, and report that violation. In this definition, audit quality covers the dimensions of competence and independence. Fitriany (2011) suggests that a higher degree of compentence from auditors is not always be accompanied by a higher degree of independence. In terms of independence, audit quality can be measured from different aspects, i.e., economic dependence toward clients, the influence of client practices toward the propensity to meet earnings targets, corporate governance practices, the propensity to issue going-concern opinions, the conducted peer review, or other measure of independence (Bamber and Bamber 2009).
Due to the auditor-client relationship, auditors may have incentives to compromise with their clients depending on the auditors' economic interests on their clients (DeAngelo 1981;. The proposition that the auditors will report favorably to retain important clients is known as the economic bonding (DeAngelo 1981). The independence of auditors can be reflected in the extent to which auditors will tole rate opport unistic earnings management, and how likely the auditors will issue going-concern opinion (Herusetya 2012; Francis and Yu, 2009).
Most of prior studies found that economic dependence does not encourage larger clients to perform greater discretions in accrual-based earnings management (e.g., Reynold and Francis 2001;Francis and Yu 2009;Herusetya 2012). Some previous studies found evidence that auditor independence impaired when clients pay for non-audit services is relatively higher compared to the total fee (Frankel, Johnson and Nelson 2002). They found evidence of a positive association between client importance (i.e., the ratio of non-audit services to total fee) and the amount of discretionary accruals. While Chung and Kallapur (2003) found no evidence on the association between client importance and abnormal accruals.
Past research also found the association between client importance and audit opinion issued by public accounting firms (e.g., Craswell, Stokes and Laughton 2002;Chen, Sun and Wu 2010).  found that Big 5 did not treat larger clients with more compro-mise than smaller clients based on the size of individual practice offices, i.e., by not reducing the propensity to issue going-concern opinions. Existing financial incentives were considered enough to motivate the auditors to be independent, despite the fact that the presence of economic dependence relationships was inherently in the auditor-client contract. Similarly, Craswell et al. (2002) found that fee dependence as a threat to auditor independence does not affect the likelihood of auditors to issue qualified audit opinions, both at national and local market levels.
The lack of evidence on the previous studies, which examined the associations between client importance, earnings management, and going-concern opinion are the main reasons of our study. T he lack of past research on auditor independence in Indonesia, as measured by the economic dependence of auditors toward their clients will make some contributions to this study. First, Marchesi (2000) for example, found that audit quality in ASEAN countries was so compromise. But as the climate of audit environment in the United States has started to change since the corporate failure in 2001, which also gave impact to the legal and audit environment around the world including Indonesia 1 (Fargler and Jiang 2008;Chen et al. 2010), we expect to provide evidence on these associations. Secondly, past researches on audit quality were more dominated by the measurement of the competence dimension, for example, using the size of accounting firms (Big 4, etc) (Fitriany 2011;Siregar 2006;Francis 2004). Audit quality of the Big 4 firms in Indonesia may differ from the Big 4 firms in the United States who are under the Sarbanes Oxley Acts (Gordon et al. 2013). Our study contributes to the measurement of independence of the audit firms in Indonesia using a proxy of client importance which includes a sample of the Big 4 firms. LITERATURE REVIEW AND HYPO-THESIS DEVELOPMENT Client Importance as a Measure of Auditor Independence It was long been a suspicion that the auditors' financial interest toward their clients can greatly affect the auditor independence (Mautz andSharaf 1961 in Chen et al. 2010). DeAngelo (1981) suggests that auditors' incentives to compromise their independence toward their client depends on the importance of a client to the auditor (client importance), i.e. the ratio of quasi rents specific to the client divided by the total number of quasi rents received by the auditor.
DeAngelo (1981) observed that if the percentage of the entire fee depends on one client used as a measure of audit quality (i.e., perceived independence with respect to that client) then the audit quality will decrease. The proposition that auditors will report favorably to retain important clients is known as economic bonding (DeAngelo 1981; Francis and Yu 2009), fee dependence, or economic dependence Chen et al. 2010). It is probable that the greater the size of the clients in auditor's portfolio, the greater the incentive for the auditor to retain his clients, in which audit quality is likely to be compromised (Chen et al. 2010).

Client Importance and Earnings Management
Since the corporate scandals involving auditors in the United States by the end of 2001 that gave birth to the Sarbanes-Oxley Act (SOX) of 2002, the change of audit environment is also felt through over the world, including Indonesia. The Indonesian Government issued various regulations concerning the audit services provided by audit firms. These regulations were expected to increase the competence and the independence of the auditors (Herusetya 2012).
Auditor independence can be reflected in the extent to which the auditor became more tolerant to the earnings management done by the clients. The higher the quality of the independence of the auditors, the lower the earnings management behavior was reflected. Previous research has examined the association between client importance and earnings management (e.g., Herusetya 2012;Frankel et al. 2002;Chung and Kallapur 2003;Francis and Yu 2009).  examined the association between client importance and audit outcome, i.e. total accruals and total discretionary accruals as measures of earnings quality. They suspect that the client importance (INFLUENCE variable) at the level of individual practice office can reduce auditor independence, but they found that Big 5 auditors did not treat larger clients more compromisingly compared to smaller clients.
With a sample of 6,568 U.S. firmsyears observations for the period 2003 to 2005, Francis and Yu (2009) examined whether the larger offices of Big 4 auditors have higher audit quality. Using an INFLU-ENCE variable as a measure of the auditor's incentives with respect to a fee-dependence and used as a control variable, they found that larger Big 4 practice offices have a negative association with absolute abnormal accruals. Herusetya (2012) in his study used a composite measure of audit quality that covered the dimension of competence and independence, and client importance (CI) was one of the proxies used in the dimension of independence. By using a single proxy of CI, he found that CI has a negative association with the absolute discretionary accruals.
In summary these findings conclude that even though the auditors have economic dependence on their clients, but the auditors do not encourage greater discretion in accrualbased earnings management 2 . In other words, the auditors do not provide greater tolerance to earnings management behavior for their important clients 3 . Based on the arguments given above, the hypothesis to be tested is: H 1 : Client importance is negatively associated with earnings management.

Client Importance and Going-Concern Opinion
Auditor's independence can be reflected in the propensity to issue going-concern opinion. Auditor independence will decline if the auditor compromise not to report the financial condition of the clients related to going-concern problems, because the auditor has economic dependence to the client (DeAngelo 1981;Reynold and Francis 2001). Previous research found evidence on the association of client importance and audit opinion issued by public accounting firms Craswell et al. 2002;Chen et al. 2010) 4 .  found that Big 5 did not treat large clients with more compromise than the smaller clients.  found the size of individual practice offices of the Big 5 did not reduce the propensity to issue goingconcern opinion. Existing financial incentives were considered enough to motivate the auditor to be independent, despite the fact that the presence of economic dependence relationships was inherently in the auditor and client contract. Similarly, Craswell et al. (2002) found that the fee dependence as a threat to auditor independence does not affect the likelihood of auditors to issue a qualified audit opinion, both at the national and local market levels.
Chen et al. (2010) conducted a study in China, and found that the level of auditor independence increase in line with the improvement of legal and regulatory environment. Chen et al. (2010) found that after 2001, when the legal and regulatory environment began to grow well in China, the tendency for clients to receive modified audit opinion (MAO) is higher compared to the period before 2001 (i.e., 1995-2000) for client importance measured by individual auditors. Similarly,  found that after the period of SOX in the United States, higher audit fees and total audit fee ratio have a positive associ-ation with the auditor's propensity to issue going-concern opinion. The findings of Chen et al. (2010) provide additional evidence that in line with the improvement of the institutional and regulatory climate, the tendency of auditors to compromise in audit quality seems to decrease, given the risks of litigations and penalties for auditors are higher than the economic incentives they earned. Based on the above arguments, the hypothesis will be tested is: H 2 : Client importance is positively associated with the propensity to issue going-concern Opinion RESEARCH METHODOLOGY Population and Sample  (Balsam, Krishnan &Yang, 2003;Francis & Yu, 2009;Hermawan, 2009;Herusetya, 2012). Based on the sample criteria, we obtained 135 final samples of company per year for 8 year-period (2004-2011), or 1,080 firmyears of observation 5 of pooled OLS data. Hypothesis H 1 of this research can be formulated in statistical form as follows: H 1 : 1 < 0; the expectation for each variable control is: 2 0, 3 < 0, 4 > 0, 5 < 0, 6 > 0, 7 > 0. All variables are defined as in Table 2.
The main variable in Model 1 is CI, and the coefficient 1 is predicted negative and significant toward the absolute discretionary accruals (ABSDAC), which indicates that client importance has a negative association with accrual earnings management. = Absolute discretionary accruals scaled by lagged total assets, using Kothari et al. (2005) estimated model, computed cross sectionally each year for each industry GCO = Dummy variable for going-concern opinion, equal to 1 if the company receive going-concern opinion in the current year; and 0 otherwise CI = Client importance, as the ratio of audit firm's economic dependence toward its client SIZE = Natural logarithm of total assets CFO = Cash flow from operation of client i in year t scale by lagged total assets LEV = Leverage ratio, defined as total liabilities divided by total assets at year end t LOSS = Dummy variable for loss firm, 1 if firm i at year t report net loss; 0 otherwise ABSTACC = Absolute value of total accruals of client i in year t SGRW = Sales growth, defined as (sales t -sales t-1)/sales t-1 PRIORGC = Dummy variable, 1 if firm i receives going-concern opinion in the last year financial statements; 0 otherwise CASH = Cash and cash equivalent LLOSS = Dummy variable for prior year loss, 1 if firm i report net loss in t-1; 0 otherwise Equation (1) To control other factors that affect absolute discretionary accruals, we include several variables in Model 1. Clients with larger size (SIZE) has less discretionary accruals, due to larger clients have more resources to maintain the sustainability of the entity (Becker, Balsam et al. 2003). However, large companies have also higher market pressure to meet analysts' expectations (Barton and Simko 2002), thus having greater opportunities to perform earnings management (Tresnaningsih 2008). Therefore we do not predict the sign of SIZE coefficient. Higher level of sales would increase accruals but will reduce operating cash flows (Dechow, Sloan and Sweeney 1995), thus we expect a negative sign for CFO coefficient. Companies with the higher level of liabilities (LEV) have more incentives to deal with earnings management compared to the lower level of liabilities Balsam et al. 2003), therefore leverage (LEV) is predicted to be positively related to ABSDAC. Dechow and Schrand (2004), and Francis and Yu (2009) found a negative association of the company with net loss toward its accruals quality, therefore LOSS coefficient is predicted negative. ABSTACC, the absolute value of total accruals scaled by total asets t-1 is used to control the propensity to generate accruals, and is predicted to have positive relationship with ABSDAC (Balsam et al. 2003;Francis andYu 2009). McNichols (2000), and Menon and William (2004) found evidence that sales growth has a positive association with abnormal accruals, due to high growth companies have higher discretionary accruals adjustment. We predict SGRW has a positive association with ABSDAC. Client Importance and Going-Concern Opinion Most prior research examined the propensity to issue going-concern opinion (e.g., Geiger, Raghunandan and Rama 2005;Craswell et al. 2002;Francis and Yu 2009;Geiger and Rama 2006;Francis 2004). To test hypothesis H 2 , we use logistic regression of Model 2 to identify the effect of client importance toward going-concern opinion: GCO it = 0 + 1 CI it + 2 SIZE it + 3 PRIORG-C it-1 + 4 CASH it + 5 LEV it + 6 LOSS it + 7 LLOSS it +∈ .... Model 2 The statistical form of the hypothesis H 2 of this research is as follows: H 2 : 1 > 0; the expectation for each control variable is: 2 > 0, 3 > 0, 4 < 0, 5 > 0, 6 > 0, 7 > 0. All variables are defined as in Table 2.
The main variable in Model 2 is CI, and we estimate the coefficient 1 is positive and significant toward going-concern opinion (GCO), which indicates that client importance has a positive association with the propensity to issue going-concern opinion. Several control variables included in the Model 2 to control other factors that may affect audit firms to issue going-concern reports. Companies with larger size (SIZE) have greater resources and are more likely to survive compared to smaller companies (Francis and Yu 2009), therefore we predict variable SIZE has a negative association with GCO. Companies that received going-concern opinion on the previous year (PRIORGC) are more likely to receive goingconcern opinion in the current year . CASH is a liquidity measure that is the sum of cash and cash equivalent, scaled by total assets. Companies with more liquid assets have more resources to deal with financial difficulties, therefore we expect CASH coefficient is negative. Companies with high debt levels (LEV) and experience net loss in the current year (LOSS) are more likely to fail and more likely to receive going-concern reports, therefore, we predict LEV and LOSS coefficients have positive associations with GCO (Francis and Yu 2009). Operational Variables Absolute Discretionary Accruals (ABSDAC) We use accrual model from Kothari, Leone and Wasley (2005) to measure the discretionary accrual which is as follows: TACC it /A it-1 = 0 + 1 (1/A it-1 ) + 1i REV it -AR it /A it-1 ) + 2i (PP&E it /A it-1 ) + 1 ROA it-1 +∈ 1 ....................... (1) Discretionary accruals equal the value of residual errors ( ) or the difference between total accruals and the fitted value of normal accruals, defined as DA it = (TACC it ) -NDA it (Cohen, Dey and Lys 2008) 6 . The absolute value of discretionary accrual (ABSDAC) is used as a proxy of accrual earnings management by considering the possibility of positive and negative accrual earnings management (Myers, Myers and Omer 2003;Barton and Simko 2002;Cohen et al. 2008). All variables are defined as in Table 2.
Going-Concern Opinion (GCO) GCO is a dummy variable (1; 0), equal to 1 if the auditor assumes that the company cannot survive within 12 months after the balance sheet date, and receive going-concern opinion; and 0 if otherwise (Geiger et al. 2005).
Client Importance (CI) Client importance (CI) examines the tendency of auditors having economic dependence that may reduce the auditor independence (e.g., Frankel et al. 2002;Craswell et al. 2002;Chung and Kallapur 2003;Chen et al.  Where: CI it = client importance, as a measure of audit firm's economic dependence toward the client. SIZE it = natural logarithm of client's assets. = the sum of total assets (in natural logaritm) from n clients of certain audit firm.

Control Variables
We use control variables which have been used in the prior research as follows: company size (SIZE), cash flow from operation (CFO), leverage (LEV), net loss (LOSS), absolute value of total accruals (ABSTACC), prior year going-concern opinion (PRIORGC), cash and cash equivalents (CASH), sales growth (SGRW), prior year loss (LLOSS). See Table  2 for variable definitions.

RESULTS AND DISCUSSION Descriptive Statistics and Correlations
The descriptive statistic of all operational variables can be seen on Table 3 7 . The mean of ABSDAC in Table 3, Panel A is 0.110 or 11.0% of the total assets, indicating the magnitude of accrual earnings management. The mean of GCO (Panel B) is 0.230 indicating that the average firm-years observation to receive going-concern opinion is 23.0%. The mean of CI is 0.239, indicating that the average proportion of audit firms' revenue per client is 23.9%. In Table 4, CI variable has a positive correlation with CGO at a significance level of 0.01, consistent with our prediction.    LLOSS 0.413*** 0.150*** -0.231*** 0.360*** -0.147*** 0.216*** 0.543*** 1.000 ***, **, * significant at 0.01, 0.05, and 0.10 respectively. All variables are defined as in Table 2.

Test of Hypothesis 1 (H 1 )
Hypothesis H 1 predicts a negative association between client importance (CI) and accrualbased earnings management (ABSDAC). Empirical result of Model 1 in Table 5 has adjusted R-square of 85.68% with F-stat 923.766 (prob < 0.01) 8 . The coefficient of CI ( 1 ) is -0.011 (t-stat = -1.303), negative but not significant at 0.10 with two-tailed test. However, the coefficient of CI is negative and significant at 0.10 with one-tailed test (critical value of t-stat = 1.28), consistent with our prediction. 0.000 n =1,080 ***, **, * significant at 0.01, 0.05, and 0.10, respectively in two-tailed tests; tstatistics are calculated using the Huber-White procedure to correct heteroscedasticity. All variables are defined as in Table 2.
This result implies that the bigger the proportion of the economic dependence of audit firms toward their clients, the smaller the magnitude level of accrual earnings management. Our result gives interpretation that audit firms in Indonesia that have larger clients and bigger economic dependence to their clients, are less likely to allow earnings management behavior. This result is also consistent with previous research that found larger offices of Big 4 provides higher audit quality and have clients with less earnings management behavior (Francis and Yu, 2009).
Four control variables are significant in the expected direction (CFO, LOSS, AB-STACC, SIZE), and the other control variable is not significant at the 0.10 (LEV), or is significant in the opposite direction (SGRW).

Test of Hypothesis 2 (H 2 )
Hypothesis H 2 predicts a positive association between client importance (CI) and going-concern opinion (GCO). Logistic regression in Model 2 (Table 6) has Cox and Snell R-square 53.70%, and Nagelkerke R-square 80.90% with the value of -2Log Likelihood 336.233 9 . The result of the test in Model 2 indicates that the coefficient of CI ( 1 ) is 1.218 (Wald test = 5.923), positive and significant at 0.05 with two-tailed test. This result implies that although the proportion of audit fee in audit firm's portfolio is bigger, audit firms can still maintain their independence, measured by the issuance of going-concern opinion. Our result is consistent with previous studies, which document that larger offices of public accounting firms are more likely to issue going-concern opinion, and give better prediction for financial distress in the upcoming period (e.g., Francis and Yu, 2009).
Five control variables are significant in the expected direction (SIZE, PRIORGC, LEV, LOSS, LLOSS) and the other control variable is not significant at the 0.10 (CASH). 80.9 n =1,053 ***, **, * significant at 0.01, 0.05, and 0.10, respectively in two-tailed tests. All variables are defined as in Table 2.

Sensitivity and Robustness Tests
We use alternate measure of client importance (CI), i.e., client's sales instead of total assets to test the robustness of our main results. Conversely to the hypothesis result of H 1 , we find no evidence of the association between client importance (CI) and accrual-based earnings management (ABSDAC) at 0.10 (not tabulated). The usage of client importance model using total sales as a proxy becomes sensitive and do es not support the main result.
Sensitivity test for hypothesis H 2 using the same measure of client importance (CI) finds similar result as in the main test ( Table  6) (not tabulated). Our result indicates that client importance (CI) has a positive association with going-concern opinion (GCO) at 0.05. The usage of the different measure of client importance (CI) in Model 2 is robust to all alternative test and support the main result. This result strengthens our main result and previous study (e.g., Francis and Yu 2009), which suggest that larger offices of audit firms are more likely to issue going-concern opinion rather than smaller offices.

CONCLUSION
Our study investigates the independence of auditors measured by the client importance, and reflected in the accrual-based earnings management and going-concern opinion. The main result of our study finds a negative association between client importance and accrualbased earnings management. Our evidence implies that audit firms with larger clients and with more economic dependence to their clients are less likely to allow earnings management behavior. This result is consistent with previous studies that suggest that larger audit firms, like Big 4 with more expertise and ability to detect earnings management behavior are less likely to allow earnings management rather than smaller audit firms (Francis and Yu 2009;. Our second main test finds that client importance has a positive association with going-concern opinion. This evidence implies that although the proportion of client dependence is bigger, public accounting firms can maintain their independence measured by the issuance of going-concern opinion. Our result is consistent with the previous studies (e.g., ) and robust to other sensitivity tests that support the main test result. The combine results indicate that client importance as a measure of auditor independence has a negative association with earnings management and has a positive association with going-concern opinion. This research has some limitations: (i) the conclusions drawn in this study should be conducted with caution, because we use only single measure of auditor independence, i.e., the client importance. There are some other measurements, such as the influence of client practices toward the propensity to meet earnings targets, and corporate governance practices (Bamber and Bamber 2009); (ii) accrualbased earnings management is the only measure of earnings management used in this study. Previous research documented several other earnings management techniques, such as real earnings management, and classification shifting (e.g., Cohen and Zarowin 2010;Fan et al. 2010).
We recommend for further study to use the composite measure of independence. Herusetya (2012) for example, the use composite measures of audit quality from the dimension of competency and independence. In order to reflect the different aspect of earnings management, we also recommend to examine the other tools of earnings management, such as real earnings management and classification shifting (Cohen and Zarowin 2010;.