Digital Transformation and ESG Disclosure: Antecedents of Audit Quality and Its Consequences on Financial Reporting Quality

Abstract

Purpose: This study aims to analyze the effect of digital transformation and Environmental, Social, and Governance (ESG) disclosure on financial reporting quality, with audit quality as a mediating variable in manufacturing companies listed on the Indonesia Stock Exchange for the 2023-2025 period.

Design/methodology/approach: The study used a quantitative approach with panel data obtained from 72 manufacturing companies over three years of observation, resulting in 216 observations. Data analysis was conducted using EViews through panel data regression model selection, hypothesis testing, and Sobel mediation test.

Findings: The results of the analysis indicate that digital transformation and ESG disclosure have a positive and significant effect on audit quality. In addition, digital transformation, ESG disclosure, and audit quality also have a positive and significant effect on financial reporting quality. The mediation test shows that audit quality partially mediates the relationship between digital transformation and financial reporting quality and the relationship between ESG disclosure and financial reporting quality.

Practical Implications: These findings indicate that increased corporate digitalization and transparency of ESG disclosure, supported by good audit quality, can improve financial reporting quality.

Originality/value: This research provides practical implications that manufacturing companies need to strengthen investments in digital transformation, improve the quality of ESG disclosures, and maintain audit quality to produce higher-quality, transparent, and credible financial reporting.

Paper type: Empirical.