The Impact of ESG, Auditor Selection and Audit Committee Size on the Financial Report Quality: A Study of Palm Oil Companies Listed on the Indonesia Stock Exchange in 2022–2023

Abstrak

To determine the extent to which palm oil plantation companies comply with environmental, social, and governance (ESG) aspects at a time when the public views the image of palm oil plantation companies negatively due to cases of environmental damage that have led to natural disasters on the island of Sumatra, which in turn affects the financial report quality. The research design utilised a correlational research method, collecting data from palm oil plantation companies listed on the Indonesia Stock Exchange (IDX) in 2022 and 2023, comprising a population of 31 companies, using purposive sampling, 15 companies were selected based on the criteria that they are palm oil plantation companies operating in Sumatra and publishing sustainability reports. The independent variables consist of ESG, auditor selection, and audit committee size, with the dependent variable being the financial report quality. Multiple linear regression analysis was conducted using the SmartPLS 4 software. The ESG variable was found to be statistically insignificant, indicating no influence on the financial report quality. The auditor selection variable was also statistically insignificant, indicating no influence on the financial report quality. The audit committee variable—specifically the size of the audit committee—was statistically insignificant, indicating no influence on the financial report quality. In practice, ESG is driven more by corporate image than by absolute rules that alter accounting recording methods. Auditors merely audit financial statements to determine whether they are fair in accordance with Generally Accepted Accounting Principles (GAAP); the level of financial report quality depends on company management. Furthermore, the existence of an audit committee in palm oil plantation companies is merely a formality to comply with mandatory regulations from the OJK in accordance with POJK No. 55/POJK.04/2015 and Law No. 40 of 2007 on Limited Liability Companies.

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