The Whole Government Financial Reporting Quality of Local Authorities in China

Abstract

High-quality financial reporting enhances government accountability. Previous studies have shown that government financial reports in China are not prepared in accordance with reporting standards, resulting in poor reporting quality. This paper aims to clarify the quality of the whole government financial reporting after the implementation of the new accounting system starting from 2019, and examines the factors that influence the quality. This empirical study employs annual financial reports for quantitative analysis. The research sample is the whole financial reports of 31 provincial local governments in China from 2020 to 2022. The reporting quality is tested using the revised 26 indicators. Consequently, six factors which are size, wealth, timeliness, internal audit findings, educational background, and regional work unit, are tested to examine their influence on the whole government financial reporting (WGFR) quality. The research data were statistically analyzed using IBM SPSS. The findings revealed that after the new accounting system was fully implemented, the quality of all financial reporting of the 31 provincial local governments has improved. The average values for 2020-2022 were 77.39, 78.61, and 78.65 respectively with the increasing trend. The average score is 78.22 for 3 years. Three factors are significantly proven to have an influence towards WGFR quality, which are the number of regional work units, the educational background of accountants and the timeliness of financial reporting. However, three other factors which are size, wealth and internal audit findings of local authority are found to be insignificant. The results from this research are useful for the local authorities in China to identify their position and make necessary improvements in their financial reporting for the benefit of the interested parties. Secondly, the results on factors that contribute to the WGFR may be significant to public policymakers to determine the appropriate approach in enhancing the WGFR among local authorities in China. Finally, it has enriched the reference basis for related research.