Caring for the Books: Financial Report Quality in Non-Profit Organizations
DOI:
https://doi.org/10.61656/pmar.v7i2.465Keywords:
ISAK 335 implementation, human resource competency, internal control, financial report quality, nonprofit organizationsAbstract
Purpose: Nonprofit-oriented entities, such as orphanages in Indonesia, are expected to present financial statements under a dedicated accounting interpretation, yet many still struggle to produce reports that donors, regulators, and boards can trust. This study examines whether accounting standards, the competency of the staff who prepare the reports, and the strength of internal control jointly explain the quality of financial reports produced by nonprofit orphanages.
Method: A quantitative, explanatory survey design was used. A structured questionnaire with five-point Likert-scale items was distributed to treasurers, secretaries, chairpersons, deputies, and staff responsible for financial record keeping across nonprofit orphanages, yielding 100 usable responses from 97 distinct organizations. Data were analyzed with partial least squares structural equation modeling, covering measurement model evaluation, discriminant validity assessment, and structural path testing.
Findings: Implementation of the nonprofit financial reporting interpretation and internal control each exerted a strong, statistically significant, positive influence on financial report quality and together shaped most of its variance. Human resource competency, in contrast, showed only a small and statistically insignificant association with report quality once the other two predictors were controlled for. Standard implementation and internal control were also found to overlap substantially with report quality as measured constructs, a pattern that qualifies how confidently the strong path estimates should be read.
Implication: For orphanage administrators and the foundations that oversee them, the results suggest that investing in disciplined adoption of the nonprofit reporting interpretation and in day-to-day control procedures, such as documented cash handling and periodic review of bookkeeping, may matter more for report quality than staff competency alone. Regulators and professional associations designing capacity-building programs for nonprofit organizations should therefore pair competency training with concrete implementation checklists and control tools rather than treating training as sufficient on its own.
Originality: Unlike prior studies that examine standard adoption, staff competency, or internal control separately, this study models all three simultaneously against financial report quality using partial least squares structural equation modeling in an understudied population of nonprofit orphanages, and it reports the discriminant validity limits of the constructs transparently rather than presenting an artificially clean result.
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