Information technology capability and financial reporting quality in local governments: the mediating role of accounting information system quality

This study examines how information technology (IT) capability influences Accounting Information System (AIS) quality and Financial Reporting Quality (FRQ) in Indonesian local governments. Using survey data from 735 public sector employees and Partial Least Squares Structural Equation Modeling (PLS-SEM), the results show that IT capability, reflected in government commitment as well as individual IT competence, knowledge and experience, significantly improves both AIS quality and FRQ. Notably, AIS quality emerges as the most critical driver of financial reporting quality and serves as a key mediating mechanism linking IT capability to reporting outcomes. The findings highlight that improvements in financial reporting are not driven solely by technology or human resources independently, but by their integration through effective accounting systems. This study contributes to the literature by providing an integrated framework that connects the Resource-Based View, Dynamic Capability Theory and the Information System Success Model in a public sector context. The results offer practical insights for policymakers to strengthen digital capacity and enhance accountability in local government financial management.