The Moderating Role of Audit Quality on the Relationship between Political Connections and Earnings Management in Indonesian State-Owned Enterprises

This study examines the effect of political connections on earnings management and analyzes the moderating role of audit quality in Indonesian State-Owned Enterprises (SOEs). Using panel data from SOEs listed on the Indonesia Stock Exchange and included in the IDXBUMN20 index during 2022–2024, this study applies a quantitative approach with Moderated Regression Analysis (MRA). Earnings management is measured using discretionary accruals based on the Modified Jones Model, political connections are proxied by the proportion of politically affiliated board members, and audit quality is measured using auditor reputation. The results show that political connections have a positive and significant effect on earnings management. Furthermore, audit quality weakens the influence of political connections on earnings management. These findings highlight the importance of high-quality audits as an external governance mechanism in mitigating opportunistic financial reporting behavior in politically connected SOEs.