Determinant Analysis of the Quality of MSME Financial Statements (Case Study on MSMEs in North Sumatra Province)

Abstract

The research aims to analyze empirically and obtain evidence whether educational background, information and socialization, business size, and use of information technology affect the quality of MSME financial reports. The main issue in this research is the lack of awareness of the importance of financial reporting and the motivation of business actors to keep books properly. In addition, the lack of resources, lack of information and outreach, limited knowledge of accounting and the complexity of the accounting process, and the assumption that preparing financial reports is a hassle and requires experts or sophisticated technology so that it incurs large costs for its implementation. In practice, the quality of MSME financial reports is still low, this is evidenced by the MSME financial reports that do not show correct accounting information. Most MSMEs have not fully adopted the application of SAK EMKM into their financial reporting. MSMEs only keep simple records such as cash in and cash out, there are no journal entries and do not carry out accounting practices in accordance with generally accepted accounting principles (SAK EMKM). This research is a quantitative-qualitative research with primary data. Data collection techniques using questionnaires and interviews. The data analysis technique used is statistical analysis based on partial least squares (PLS). The results of the study found that educational background had a positive effect on the quality of financial reports, information and socialization had a positive effect on the quality of financial reports, business size also showed a positive effect on the quality of MSME financial reports, and as well as information technology on the quality of financial reports.