Chapter II: THEORETICAL FRAMEWORKS

By:
Diandra Nadia Putri |1500003644
Donny Permana Putra | 1500004281
Feny Anggraini | 1412403570
Kevin Karipuy | 1500003865
Radistyo Mulyolaksono | 1500004445

Chapter II
THEORETICAL FRAMEWORK
2.1

Introduction
This chapter will discuss each construct that will be tested on this study. Researcher

user the knowledge received from other similar study to compose this chapter. In this chapter,
researcher will list down the hypothesis in which will be tested on this study. Furthermore
researcher would also give the ration behind the hypothesis that researcher suggested.
2.1.1 Financial Statements
Financial statement is a formal record of the financial activities and position of a
business, person, or other entity. Qualitative characteristics are the traits that make
information in financial statements to be useful to users of financial statements. There are
four basic characteristics of financial statement (IAI, 2007):
1. Understandably
Quality is important information that can be accommodated in the financial
statements is its simplicity to be readily understood by the user. For this purpose,
users are assumed to have the adequate knowledge of the business activities and
accounting, and a willingness to study the information with reasonable diligence.
However, complex information included in the financial statements shall be issued
only on the basis of that information is too difficult to be understood by certain users.
2. Relevant
To be useful, information must be relevant to meet the needs of users in the decision
making process. Information has the quality of relevant if it can influence economic
decisions users by helping them evaluate past events, present or future, help correct
their evaluations in the past.

3. Reability
To be useful, information must also be reliable (reliable). Information has the quality
to be reliable when free from the notion of misleading, material errors, and can be
relied on by the wearer as the presentation of genuine or honest (faithfull
representation) of which is supposed to be served or are reasonably expected to be
presented. Such information could potentially misleading. For example, if the validity
and amount of a claim for damages in a legal action is still disputed, it may not be
appropriate for the company to acknowledge the amount of all claims on its balance
sheet, although the right to disclose the amount and circumstances of the claim.
4. Can be Compared
Users should be able to compare the financial statements of the company between
periods to identify trends (trend) the company's financial position and performance.
Users also should be able to compare financial statements across companies to
evaluate the financial position, performance and changes in financial position relative
basis.
One of the obstacles relevant and reliable information that is timely, if there is undue
delay in reporting, the information generated will lose its relevance. Public financial reporting
in Indonesia has been regulated in Law No. 8 of 1995 on capital markets, which has been
refurbished with Bapepam Regulation No. X.K.6 2006, Attachment of Bapepam Chairman
Decree No. KEP-134 / BL / 2006 is valid from December 7, 2006 on periodic financial
reporting obligations (end of the year and semi-annual) compiled by the Financial Accounting
Standards (GAAP) of the Indonesian Institute of Accountants. Reporting and publication of
the annual audited financial statements and semi-annual reports are not audited are required,
submission of quarterly financial reports are voluntary.

2.1.2 Financial Reporting Regulations in Indonesia

In UU no 8 of 1995 on Capital Markets stated clearly that the public company is
obliged to submit periodic financial reports and other incidental report to Bapepam. Bapepam
issued a decision attachments chairman of Bapepam Number: Kep-40 / BL / 2007, which
requires for each issuer and public companies to deliver the company's annual financial
statements and independent auditors' report to the Capital Market Supervisory Agency and
Financial Institution no later than 3 months after the end of the fiscal year, as many as four
copies and at least one copy in original form.
Bapepam Regulation No. X.K.7 of 2007 states that the annual financial statements
must be accompanied by an auditor's report with unqualified opinion and submitted to
Bapepam no later than the end of the third month (90 days) after the date of annual financial
statements. In the regulation of Bapepam Number X.K.7 in 2007 stated that the financial
statements must be submitted to Bapepam consists of:
1. Balance Sheet
2. Financial Statement
3. Statement of change in equity
4. Cash flow statement
5. Other statements and explanatory material that are an integral part of the financial
statements as required by the relevant authority in accordance with the type of
industry
6. Notes to the financial statement
Relating to companies listed on the Indonesia Stock Exchange, the terms of the
timeliness is a must, because the company did not timely submit a report keuanganya will be
subject to administrative sanctions and fines in accordance with the provisions of section 63 e

of the Government Regulation No. 45 of 1995 concerning Penyelanggarakan Market

activities capital stating that:
Issuers that statement has become effective Registration, fined Rp 1,000,000 (one million
rupiah) for each day of delay in submitting the report to the provisions of the overall amount
of maximum fine of Rp 500,000,000 (five hundred million rupiah).
Indonesian capital market in view of the delay as a violation of the principle of
disclosure of information on capital markets. Timeliness also contribute to the performance of
the market is efficient and fast and reduce leaks and rumor-share market.
2.1.3 Timeliness
Based on Framework for the Preparation and Presentation of Financial Statements of
Financial Accounting Standards, the financial statements must meet four qualitative
characteristics that are the traits that make financial reporting information useful for the users.
The fourth characteristic that is understandable, relevant, reliable, comparable. To obtain
relevant information, there are several obstacles, one of which is a constraint timeliness.
Turel (2010) said Timeliness requires that information should be made available to
financial statement users as rapid as possible and it is a necessary condition to be satisfied if
financial statements are to be useful.
Timeliness does not guarantee the relevance, but relevance is not possible without the
timeliness of information. Information about the condition and position of the company must
quickly and on time to the users of financial statements. Timeliness is an important limitation
on the publication of the financial statements. Accumulation, summarizing, and subsequent
presentation of accounting information should be made as soon as possible to ensure the
availability of information in the user's hand.
In the Indonesian capital market, especially the Indonesian Stock Exchange (BEI), the
company's financial statements can be divided into three kinds, namely the annual financial
statements, annual reports and quarterly financial statements or also known as internal

financial statements. The annual financial report is published later than 120 days from the
date of expiry of the fiscal year, while the annual financial statements published at least 60
days or 90 days later without an accountant's report or 120 days but with the auditor's report.
Published quarterly financial statements no later than 60 days after the end of the company's
quarterly book without the auditor's report, the quarterly financial reports are usually only
voluntary. In accordance with the regulations issued XK6 CMFISA and supported by the
latest regulations CMFISA XK7 dated March 30, 2007, the submission of financial
statements audited annual, timely if submitted before or at the latest at the end of the third
month after the date of the financial statements the annual public company. The delay
occurred when the company reports its financial information after the date set.
The information in the financial statements will be digested by the wearer to decisionmaking, in this case what is needed is a timely information.
2.1.4 Factors Affecting the timeliness of submission of Financial Statements
There are several factors that affect the timeliness of submission of financial
statements, including company size, the sign of income, audit opinion, audit firm size,
liquidity, and the percentage change in earnings per share.
2.1.4.1

Company Size
One of the attributes that can be used with the timeliness of submission of financial

statements is company size. The size of the company can be assessed from several aspects.
The size of the size of the company can be based on the total value of assets, total sales,
market capitalization, employment and so on. The greater the value of these items, the greater
the size of the company.
According to the decision of Bapepam 9 1995, the definition of medium or small
company is a legal entity established in Indonesia are:
1. Having a net worth (total assets) of not more than Rp. 2,000,000,000 (two billion).
2. It is not affiliated or controlled by a small or medium-sized companies.

3. It is not a mutual fund

Large companies often argue for faster financial reports for several reasons. First,
large companies have more resources, more staff accounting and information systems are
sophisticated and have a strong internal control system. Second, large companies receive
more scrutiny from investors and regulators and more into the public spotlight. In detail, large
companies often followed by a number of analysts who are always expecting timely
information to strengthen and revise their expectations. Large companies are under pressure
to announce its financial report on time to avoid any speculation in the trading of company
stock (Owsu-Ansah, in Turel 2010).
2.1.4.2

Sign of Income
In business, Income also called bottom line. Income is income minus expenses entity

during the accounting period and has also been defined as the net increase in equity resulting
from the company's operations.
Income has been used by some researchers as variables describing timeliness of
submission of financial statements (e.g., Dyer and McHugh, 1975; Carslaw and Kaplan, 1991
and Courti, 1967, in Hossain and Taylor, 1998). From some researchers Courtis (1976) and
Dyer and McHugh (1975) found a positive relationship between the income of companies
with timeliness of financial reporting. In contrast to Carslaw and Kaplan in Turel, (2010)
found a negative association between income Companies with timeliness of financial
reporting.
There are several reasons why the income is used as variables that negatively affect
the timeliness of financial reporting. Income may be one indication of whether the company
within one year running the company has good news or bad news (Turel, 2010). If the
company suffers a loss, the management of the company would expect to experience delays
in the collection of the company's financial statements, it is done with the hope that it would

avoid the news is not good in public because it would be bad news for the company. It all has
been stated that 'a company with a loss may request the auditor to schedule the start of the
audit later than usual' (Carslaw and Kaplan, 1991 Hossain and Taylor, 1998). On the other
hand, companies that have substantial revenue and has the advantage of a great hope to be
able to submit its financial statements more quickly in order to create a good news for the
public. For the companies included into Profitable Companies, if the net profit margin or rate
of return on their investment is greater than the average of other companies in the market
(Hossain and Taylor, 1998).
Based on these studies previous researchers (Turel, 2010) describes the relationship
between income many companies as a 'sign of income', which the company has a positive
income or experiencing profit will minimize the delay in submission of financial statements.
2.1.4.3

Audit Opinion
According to Audit Standard Requirements (PSA) 29 SA section 508 in the standard

Public Accountant Professional accountants there are five types of the opinion, namely:
1. unqualified opinion (unqualified opinion)
2. unqualified opinion with an explanation language (unqualified opinion with an
explanatory)
3. Opinion of the fair with the exception of (qualified opinion)
4. Opinion unnatural (adverse opinion)
5. The statement did not give an opinion (disclaimer opinion)
Turel (2010) states that the audit opinion affect the timeliness of financial reporting.
Then the companies that received unqualified opinion from the auditor for the financial
statements tend to be more punctual in submitting their financial statements as unqualified
opinion is good news for the company and will likely not be the right time when the financial
statements to get opinion other than unqualified opinion which is bad news for the company.
2.1.4.4

Audit Firm Size

The public spotlight in recent years have focused on the accounting profession,
particularly public accountants. The birth of this is because the big four public accounting
profession slipping to pay attention to kink the independence of the profession in the short
term to achieve its goals. The collapse was triggered by the Enron scandal in the US a few
years ago when many clients are increasingly aware that there is no guarantee of a good
reputation of public accountants always have good quality as well.
Research Rachmawati (2008) states that public accounting firms affect the timeliness
of financial reporting. Public accounting firms belonging to the big four would tend timely
and vice versa public accounting firms that do not belong in the big four is likely to be
delayed in financial reporting.
2.1.4.5

Liquidity
Liquidity is the availability of resources (ability) company to meet its short term

obligations that have matured, with a look at current assets relative to current debt.
Companies that have a high level of liquidity indicates that the company has a high ability to
repay short-term liabilities. It is good news that companies tend to be punctual in delivering
its financial reporting. The liquidity ratio is often used to measure the level of liquidity of a
company is the current ratio, the ratio of current assets to current liabilities.
Research Lie (2012) to produce empirical evidence that liquidity affects the timeliness
of the delivery of the company's financial statements.
2.1.4.6

Percentage Change in Earning per Share

Earning Per Share (EPS) is the net profit level for each share that can be achieved

when the company runs its operations. Earnings per share or earning per share (EPS) were
obtained from profits available for shareholders divided by average number of shares
outstanding. So, Earning Per Share (EPS) is used as an analytical tool to determine the level

of profitability of a company. Earning Per Share (EPS) can give a sign that a company will
contain good news or bad news.
According to Al-Ghanem and Hegazy (2008), an increase Earning Per Share (EPS)
will contain good news for a company and good news for a company expected to create
delays in the submission of financial statements decreased. Conversely, if the Earning Per
Share (EPS) of a company decreases, it will load the bad news for the company and can cause
delays submission of financial reports is increasing.
2.2

Literature Review
Research on the factors, affecting the timeliness of financial reporting of public

companies, has a lot to do and grow both in Indonesia and in other countries. Turel (2010)
examined the timeliness of financial reporting at manufacturing and non-manufacturing based
classification ISE, with the variables: company's size, the auditor, sign of income, the audit
opinion, and industry. The results showed that the sign of income, auditors, industry, and the
audit opinion significantly influence the timeliness of financial reporting.
Al-Ghanem and Hegazy (2008) conducted a study on the timeliness of financial
reporting on companies listed in the Kuwait Stock Exchange in 2006-2007. The research
variables: company size, percentage change in earnings per share, industry classification,
audit firm size, liquidity, and debt to total assets. The results showed that company size,
liquidity, debt to total assets, and audit firm size has a significant impact on the timeliness of
financial reporting.
Meanwhile Suryati (2011) examines the timeliness of financial reporting and proprety
Real Estate company listed in Indonesia Stock Exchange 2008-2010 period. The research
variables: profitability, solvency, reputation KAP, public ownership, firm size, firm age, and
the auditor's opinion. The results showed profitability, solvency, and firm size affect the
timeliness of submission of financial statements significantly.

Sari (2011) examined the timeliness of submission of financial statements of property

companies listed on the Indonesia Stock Exchange 2008-2010 period. The research variables:
profitability, solvency, liquidity, firm size, firm age and structure of public ownership. The
results showed that the profitability and firm size affect the timeliness of financial reporting.
Table 2.1
Literature Review
Researchers
present,
Years of
No
Research
and
Research
Tittle
1. Asli Turel
(2010)
Timeliness of
Financial
Reporting in
Emerging
Capital
Markets:
Evidence
from Turkey

2.

Saeed
Pahlevan
Sharif dan
Amir
Ranjbar
(2008)
An
Examination
of The
Factors
Affecting the
Timeliness of
Interim

Variable

Dependent
Variable:
Timeliness
Independent
Variable:
Companys Size
Auditor
Sign of Income
Audit Opinion
Industry

Research
method

Sample:
Manufacturing
dan nonmanufacturing
Company based
classification
ISE

Result

Limitation

Sign of
income,
auditor,
industry, and
audit opinion
affecting
timeliness.

Did not consider

other factors
that may affect
the timeliness.

Transparancy,
capital
structure,
income, dan
profitability
has an
influence on
timeliness.

The variables
used to measure
the timeliness
used in this
study is
relatively small.

Data:
Secondary

Analysis:
Cross-sectional
regression
model
Dependent
Sample:
Variable:
Companies
Timeliness of
listed in the
the interim
FTSE Bursa
financial report
Malaysia Large
30 Index and
Independent
FTSE Bursa
Variable:
Malaysia Mid
Transparency
70 Index
Capital
(Except Banks
Structure
and Financial
Companys
Institutions)
Agency Problem Data:

3.

4.

Financial
Reporting:
The Case of
Malaysian
Listed
Company

Companys
Performance
Income
Profitability

Secondary

Wafa AlGhanem dan

Mohamed
Hegazy
(2008)
An Empirical
Analysis of
Audit Delays
and
Timeliness of
Corporate
Financial
Reporting in
Kuwait

Dependent
Variable:
Audit Delay
Timeliness

Sample:
Companies
listed on the
Kuwait Stock
Exchange
during the years
2006-2007

Sistya
Rachmawati
(2008)
Pengaruh
Fakktor
Internal dan
Eksternal
Perusahaan
Terhadap
Audit Delay
dan
Timeliness

Independent
Variable:
Company size
Percentage
Change in
Earning Per
Share
Industry
Classification
Audit Firm Size
Liquidity
Debt to Total
Asset
Dependent
Variable:
Audit Delay
Timeliness
Independent
Variable:
Profitability
Solvency
Internal Auditor
Companies Size
KAP Size

Analysis:
Regression

Company size,
liquidity, debt
to total asset,
audit firm size,
affecting
timeliness.

Relatively short
study period,
there are many
other variables
that are not
included,
changing
standards into
IFRS resulted in
a different
outcome in
2007.

Company size
and firm size
affect audit
delay.
Company size,
solvency, and
firm size affect
the timeliness.
Profitabilitas,
solvabilitas,
internal
auditor,
company size,
and with the
same firm size
has a
significant
effect both on
audit delay and

The time period

is relatively
short and
relatively
narrow samples

Data:
Secondary
Analysis:
Multiple
Regression
Analysis

Sample:
Companies
listed on the
Stock Exchange
Data:
Secondary
Analysis:
Multiple
Regression

5.

6.

7.

Emi Suriyati
(2011)
Analisis
FaktorFaktor yang
Mempengaru
hi Ketepatan
Waktu
Pelaporan
Keuangan
Pada
Perusahaan
Real Estate
Property
Tahun 20082010

Dependent
Variable:
Timeliness

Abdul Kadir
(2008)
FaktorFaktor yang
Berpengaruh
Terhadap
Ketepatan
Waktu
Pelaporan
Keuangan
Studi
Empiris Pada
Perusahaan
Manufaktur
Di Bursa
Efek Jakarta

Dependent
Variable:
Timeliness

Popies
Enggar Sari
(2011)
FaktorFaktor yang
Mempengaru
hi Ketepatan
Waktu
Pelaporan

Dependent
Variable:
Timeliness

Independent
Variables:
profitability
Solvency
reputation KAP
Public
ownership
Company size
age Company
opinion Auditor

Independent
Variable:
Company size
profitability
Gearing ratio
Extraordinary
posts
age Company
Managerial
ownership
Institutional
ownership

Independent
Variable:
profitability
Solvency
Liquidity

Sample:
Real Estate and
Property
Company listed
on the Stock
Exchange the
period 20082010

timeliness.
Profitability,
solvency and
size of the
company has a
significant
impact on the
timeliness of
financial
reporting.

Data:
Secondary
Analisis:
LogisticRegression

Sampel:
Companies
listed on the
Stock Exchange
in 2005 and
2006
Data:
Secondary

Managerial
ownership and
institutional
ownership
statistically
significant
effect on
timeliness.

The sample used

is relatively
small and the
observation
period was only
2 years old, and
there are five
hypotheses
unacceptable
which might be
due to sample
size and the
observation
period were
relatively few.

Profitability
and firm size
affect the
timeliness of
financial
reporting.

Samples are
relatively
narrow,
relatively short
study period,
and the
variables that
are still little.

Analysis:
Logistic
Regression

Sample:
Property
companies listed
on the Stock
Exchange in
2008-2010
Data:
Secondary

Lack of
information
variables used
and the
company's
financial
statements listed
in the Indonesia
Stock Exchange
not everything
can be accessed
quickly and
easily, as well as
presented
complete.

8.

2.3

Keuangan
Pada
Perusahaan
Property
Yang
Terdaftar di
Bursa Efek
Indonesia

Company size
age Company
Public
Ownership
Structure

Nella Yovita
Sari Lie
(2012)
FaktorFaktor yang
Mempengaru
hi Ketepatan
Waktu
Penyampaian
Laporan
Keuangan
Pada
Perusahaan
Pertambanga
n Di BEI
Periode
2008-2010

Dependent
Variable:
Timeliness
Independent
Variable:
Liquidity
profitability
Company size
reputation KAP
Opinion Public
Accountants
Managerial
ownership
Public
ownership

Analysis:
Multiple
regression

Sample:
The mining
company listed
on the Stock
Exchange in
2008-2010
Data:
Secondary
Analysis:
Logistic
regression

Liquidity, the
size of the
company,
managerial
ownership and
public
ownership
affect the
timeliness of
financial
reporting.

In the study only

4 variables
influencing the
timeliness of
financial
reporting.
Therefore, there
may be other
variables that
may affect the
timeliness of
financial
reporting

Frameworks and Hypothesis

Based on the problems and research objectives of the factors that affect the timeliness

of financial reporting, then the hypothesis can be formulated as follows:

2.3.1

Company Size Effect Against timeliness of submission of Financial Statements

The total value of assets, total sales, market capitalization, and the amount of labor are

some of the items of measurement of the companies, the greater the value of these items, the
greater the size of the company. The bigger a company then will have a good internal control
system so as to reduce the error rate in the company's financial statement presentation and
will facilitate the auditor in performing audits of financial statements. Furthermore, in

Suriyati (2011), the size of the company can be a positive influence on timeliness of financial
reporting, which means that the timeliness of financial reporting will be longer if the size of
the company to be audited even greater. This is related to the increasing number of samples to
be taken and the growing extent of audit procedures performed.
From the explanation above, the hypothesis can be formulated in:
H1: Company Size affects the timeliness of submission of financial statements

2.3.2

Sign of Income Effect Against timeliness of submission of Financial Statements

Companies that get favorable income, there is no reason to delay the issuance of the

audited financial statements because it is good news, namely the achievement of a company
is quite encouraging. Courtis (1976) and Dyer and McHugh (1975) found a positive
relationship between the income of companies with timeliness of financial reporting. In
contrast to the Turel Carslaw and Kaplan (2010) found a negative association between
income Companies with timeliness of financial reporting.
From the explanation above, the hypothesis can be formulated in:
H2: Sign of Income affects the timeliness of submission of financial statements
2.3.3

Audit Opinion Effect Against the timeliness of submission of Financial

Statements
Turel (2010) states that the audit opinion affect the timeliness of financial reporting.
Then the companies that received unqualified opinion from the auditor for the financial
statements tend to be more punctual in submitting their financial statements as unqualified
opinion is good news for the company. And will likely not be the right time when the
financial statements in addition to getting opinion unqualified opinion which is bad news for
the company.

From the explanation above, the hypothesis can be formulated in:

H3: Audit Opinion affects the timeliness of submission of financial statements
2.3.4

Audit Firm Size Effect Against timeliness of submission of Financial Statements

Public Accountant's Office entered the top four (Big Four) will have employees in

large numbers, can audit more efficient and effective to have a flexible schedule that allows
completing the audit more timely, and have a stronger incentive to finish the audits more
quickly for the sake of maintain its reputation. In Rachmawati (2008) states that public
accounting firms affect the timeliness of financial reporting. Public accounting firms
belonging to the big four would tend timely and vice versa public accounting firms that do
not belong in the big four is likely to be delayed in financial reporting.
From the explanation above, the hypothesis can be formulated in:
H4: Audit Firm Size affects the timeliness of submission of financial statements
2.3.5

Liquidity Effect Against timeliness of submission of Financial Statements

Research Lie (2012) to produce empirical evidence that liquidity affects the timeliness

of the delivery of the company's financial statements. As we all know companies that have
demonstrated high levels of liquidity that the company has a high ability to repay short-term
liabilities, so it will be easier for the auditor to not expand the sample to control short-term
liabilities.
From the explanation above, the hypothesis can be formulated in:
H5: Liquidity affects the timeliness of submission of financial statements
2.3.6

Percentage Change in Earnings per Share Effect Against the Timeliness of

Submission of Financial Statements

According to Al-Ghanem and Hegazy (2008), an increase Earning Per Share (EPS)
will contain good news for a company and good news for a company expected to create
delays in the submission of financial statements decreased. It all arises because the Earning

Per Share (EPS) is an analytical tool to determine the level of profitability of a company, if
the company has a level of profitability that is good then it will be good news for the
company in the public markets, so the financial reporting will be published as short as
possible.
From the explanation above, the hypothesis can be formulated in:
H6: Percentage Change in Earnings per Share affects the timeliness of submission of financial
statements
The framework is helpful in understanding the picture in a study. This study was
conducted to determine whether the company size, the sign of income, audit opinion, audit
firm size, liquidity, and the percentage change in eraning per share affect the timeliness of
financial reporting. To be more clear about the picture the writer to the formulation of the
problem, then the rationale is shown through a framework.

Figure 2.1: Variable Frameworks

2.4

Chapter Conclusion

This chapter bla bla bla