89 Jurnal Akuntansi dan Keuangan, Vol. 20, No. 2, November 2018, 89- 98 DOI: 10.9744/jak.20.2.89- 98 ISSN 1411-0288 print / ISSN 2338-8137 online Potential Factors to Enhance the Level of Disclosure within Financial Statements of Indonesian Provincial Governments Johan Arifin Accounting Department of Universitas Islam Indonesia Email: johan.arifin@uii.ac.id ABSTRACT Using Agency theory, this research aims to examine the factors that potentially influence the level of disclosure within financial statements in Indonesian provincial governments including Human Development Index (HDI), Liabilities, General Allocated Fund (GAF), and Provincial Original Revenue (POR). This research is very important because Indonesia has recently undergone major governmental financial reform and is seeking to greatly enforce its financial accounting transparency. The objects of this research are 99 financial statements from 33 Indonesian provinces in the period of 2014 to 2016. The level of disclosure is measured using a 34 item index derived from Indonesian Government Accounting Standards. Regression analysis shows that Human Development Index (HDI) and General Allocated Fund (GAF) are positive and significant predictors of the level of disclosure within financial statements of Indonesian provincial govern- ments. These results can be used by Indonesian government as a potential information in making government policy related to financial transparency at provincial level. Keywords: Level of disclosure; human development index; liabilities; general allocated fund; provincial original revenue INTRODUCTION Indonesia is an Asian developing country with a recent financial reformation to bring about good public governance. To attain the ultimate goal of good governance, the government persistently strives to boost transparency and accountability of financial management constituted of many aspects such as issuance of regulations, revamping the institutional system, and enhancing human re- source quality. Indonesian Law on State Finance (Act No. 17 of 2003) requires the President, Gover- nors, Regents and Mayors to submit accountability reports of the implementation of State/Regional Budget (APBN/APBD) in the form of financial statements covering at least Realization Report of APBN/APBD, Balance Sheet, Cash Flow State- ment, and Notes on Financial Statements. Various problems related to the existence of the financial statements are often the case, includ- ing those pinpointed by [34] as misstatement, manipulation, fraud, or misunderstanding. For this reason, there is an urge to standardize financial statements in an attempt to reduce those problems and to facilitate the inspection process. Therefore, in 2005, the Indonesian government issued Government Regulation No. 24 of 2005 on the Government Accounting Standards. Furthermore, in line with the current developments, the regulation has been completed with the issuance of [36]. In fact, there are different implementations of Government Accounting Standards by the provin- cial government in Indonesia. The difference can be seen from the opinions given by Indonesian Su- preme Audit Board (BPK) in the Summary of Inves- tigation Result (IHPS) on the first semester of 2017. The inspection results are presented in Table 1. Table 1 pinpoints several things to improve. The potential occurrence of corruption is still high [24] as is evident from the actions of the Corruption Eradication Commission (KPK) which escorted the budget execution process of the six provinces in Indonesia [25] owing to their susceptibility for corruption. Additionally, the Audit Board of the Republic of Indonesia (BPK) stated that the gover- nance of provincial financial statements still retain many problems. The prevailing problems highlight the signifi- cance of transparency and accountability in finan- cial management of the provincial government. Good transparency elucidates wide ranges of peo- ple about the government's financial statements. The more people know about this, the least the occurrence of various frauds since there are more parties taking a hard look on it. Disclosure of financial statements is one form of transparency and accountability of government organizations [12] [31] [43] [47]. Knowing the potential factors affecting the level of disclosure of government financial statements will lead the information to be taken into consideration in