Determinants of Financial Reporting Quality in IT organizations: A Structural Equation Modelling Approach with respect to IND AS 115

Abstract

Satisfactory financial reporting is critical in promoting transparency, accountability, and sound decision-making by the stakeholders especially in highly integrated industries like the information technology (IT) industry. Changes in the financial reporting practice triggered by the convergence of the Indian Accounting Standards (Ind AS) with International Financial Reporting Standards particularly with Ind AS 115 have made the financial reporting practices much more focused on the principles of revenue recognition and improved disclosures. This paper will focus on the factors that determine the financial reporting quality in organisations that deal with IT and the contribution of transparency, accountability, comparability and efficiency. The study took a quantitative, cross-sectional research design and primary data collected comprised of 127 employees of the finance department who work in IT companies. The research instrument was a structured questionnaire, and the data were analyzed with Structural Equation Modelling (SEM) with SPSS and AMOS. The reliability, validity, and model fit were evaluated stringently with the help of Exploratory and Confirmatory Factor Analysis. The findings indicate that the four determinants have a strong positive impact on financial reporting quality with accountability being the most influential factor, transparency, efficiency, and comparability coming next. The model was found to have good goodness-of-fit indices, which have confirmed that it is robust. The results are applicable to the current literature as they offer sector-specific empirical data that takes place in the Indian IT sector and includes practical implications to the policymakers, standard-setters, and practitioners to improve the quality of financial reporting in accordance with Ind AS 115.