Unqualified Audit Opinion and Corruption Practices in Indonesia's Public Sector: A Governance Paradox

Abstract

Research aims:

The phenomenon of granting Unqualified Audit Opinions (WTP) to government entities that are subsequently found to have engaged in corrupt practices raises fundamental questions regarding the quality of public sector auditing in Indonesia. This study aims to identify the factors that undermine the predictive validity of WTP opinions with respect to the financial integrity of local governments.

Design/Methodology/Approach:

A quantitative research design employing a causal-verificative approach was adopted, utilizing panel data comprising 342 observations from 114 local governments in Indonesia over the period 2019–2022, analyzed using binary logistic regression.

Research findings:

The quality of the Government Internal Supervisory Apparatus (APIP), auditor rotation, and the capacity of accounting human resources significantly influence the relationship between WTP opinions and corruption levels. WTP opinions do not inherently reflect the absence of irregularities when internal oversight is weak.

Theoretical contribution/Originality:

This study introduces a governance paradox framework within the context of Indonesian public sector auditing, by integratively bridging agency theory, institutional theory, and the audit expectation gap.

Practitioner/Policy implication:

The findings advocate for the reform of BPK audit standards, the strengthening of APIP, and the recalibration of public perception regarding the meaning of WTP opinions.

Research limitation/Implication:

The study relies on secondary data with corruption proxies limited to cases detected by the KPK; future research should incorporate complaint data and perception surveys.