The Effect of Total Quality Management Application on Internal Audit Function and Its Impact on the Financial Reporting Quality (A Survey on the Bandung Municipal Government, West Java Province)

Abstract

This study is aimed to determine the effect of Total Quality Management (TQM), which consists of Customer Focused, Continuous Improvement and Employee Empowerment, as well as the Internal Audit Function on the Financial Reporting Quality on SKPD (Regional Working Units) that have obtained ISO 9001:2008 certification in Bandung Municipal Government. Data were collected using a questionnaire instrument distributed to the relevant head of SKPD. The study was conducted by an explanatory research method. The collected data were tested for validity and reliability. The analytical method used was path analysis. Based on findings, it is found that Total Quality Management, which consists of Customer Focused, Continuous Improvement and Employee Empowerment, simultaneously affect the Internal Audit Function. The effect of each variable is significant between: (a) Customer Focused on Internal Audit Function; (b) Continuous Improvement on the Internal Audit Function, and (c) Employee Empowerment on Internal Audit Function. Furthermore, it is also found that Total Quality Management and the Internal Audit function directly and indirectly affect the Financial Reporting Quality. The effect of each variable is significant between: (a) Customer Focused Internal through Audit Function affects the Quality Financial Reporting, (b) Continuous Improvement through the Internal Audit Function affects the Financial Reporting Quality, (c) Employee Empowerment through Internal Audit function affects the Financial Reporting Quality, and (d) Internal Audit function directly affects the Quality Financial Reporting.

Keywords: Total Quality Management (TQM), Customer Focused, Continues Improvement, Employee Empowerment, Internal Audit Function, Financial Reporting Quality