International Journal of Economic Perspectives, 2017

International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111.

The Effects of Environmental Awareness and Corporate Social Responsibility on Earnings Quality: Testing the Moderating Role of Audit Committee Syahril DJADDANG Magister Akuntansi University of Pancasila, Jakarta, Indonesia.

Darmansyah DARMANSYAH Magister Akuntansi University of Pancasila, Jakarta, Indonesia.

Ronny Bagus WITJAKSONO Magister Akuntansi University of Pancasila, Jakarta, Indonesia.

Imam GHOZALI* Faculty of Economics and Business, Diponegoro University, Semarang Indonesia, Email: [email protected].

ABSTRACT The objective of this study is to analyze the influence of environmental awareness and Corporate Social Responsibility on the earnings quality with the audit committee as the moderating variable. The analysis method used is WarpPLS 5.0 program. The research result shows that there is no significant influence between the environmental awareness and the earnings quality of state owned company (SOC). There is a significant influence between Corporate Social Responsibility and the earnings quality of the SOC. Independent audit committee is not moderated the relationship between corporate social responsibility and earning quality. Audit committee is only responsible to do audit independently on the consolidation financial report based on auditing standards used and give opinion on the consolidation financial report audited. Based on the results, the role of audit in the activity of Corporate Social Responsibility (CSR) and the company earnings quality is just as the supervising on the implementation of Corporate Social Responsibility (CSR) only. JEL Classifications: H83; M42; Q56. Keywords: Environmental Awareness; CSR; Audit Committee; Earnings Quality. *Corresponding author. 1.

INTRODUCTION

Earnings quality is a central and important issue in accountancy field since the accountant profession takes the risk on earnings quality. One of the foundations of the decision making taken by the investor, creditor and other authority is financial report, so if the earnings quality presented is not reliable, they will no longer trust the accountant profession. Therefore, various studies and efforts are done in order to arrange the financial report with a high earnings quality. The public accountants audit with the belief on the audit standard and profession ethics to ensure that the financial report properly so that the earnings presented has a high quality. We provide insights into earnings quality from a survey of 169 CFOs of public companies and in-depth interviews of 12 CFOs and two standard setters. CFOs believe that (i) above all, high-quality earnings are sustainable and repeatable; specific characteristics include consistent reporting choices, backing by actual cash flows, and absence of one-time items and long-term estimates; (ii) about 50% of earnings quality is driven by non-discretionary factors such as industry and macro-economic conditions; (iii) in any given period, about 20% of firms manage earnings to misrepresent economic performance, and for such firms 10% of EPS is typically managed; (iv) earnings manipulation is hard to unravel from the outside but peer comparisons and lack of correspondence between earnings and cash flows provide helpful red flags (Dichev et al., 2013). Dechow & Schrand (2010) presented that there is not single conclusion on what earnings quality is because ‘‘quality’’ is contingent on the decision context. International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. They also point out that the ‘‘quality’’ of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work. Earnings quality starts from net earnings and the different earnings quality analysis will cause different consideration on the characteristics of an accountancy earnings. Characteristics in valuing earnings quality is the one suitable with the risk owned by the company. To measure the earnings quality, it can be done through the criterion of Earnings Quality Assessment (EQA) (Bellovary & Don E Akers, 2005). The criterion of EQA has independent measurement to hold an assessment to company earnings quality so the earnings quality can be found and it evaluates several periods of financial reports. Besides, EQA model can also be used to assess earnings stability that can get to the complete understanding toward the potential earnings in the future. Future earnings can be an indicator of the dividend payment in the future, To measure the earnings quality, other indicator is used such as earnings quality that is based on the relatively difference of accrual persistency to cash flow, error estimation in accrual process, the absence of earnings management and conservatism. The role of CSR has given an influence on the company value. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk (El Ghoul et al., 2011). It is because the company has not communicated about Corporate Social Responsibility correctly and most of the public companies only focus on the financial factor. This result also shows that the uncovering of CSR is not an important factor that is considered by the investor in investing in a company. For firms with low customer awareness, the relation is either negative or insignificant. In addition, we find that the effect of awareness on the value-CSR relation is reversed for firms with a poor prior reputation as corporate citizens. This evidence is consistent with the view that CSR activities can add value to the firm but only under certain conditions (Servaes 2013). They provide some interesting insights on these issues. Nelson & Douglas (2013) discussed that how environment awareness, corporate social responsibility and CFOs' incentives in the financial reporting process are likely to affect what we can learn from them about earnings quality (Nelson & Douglas, 2013). Francis & Olsson (2008) find that the disclosure effect on cost of capital is substantially reduced or disappears completely (depending on the cost of capital proxy) once we condition on earnings quality. Specifically, we find high quality disclosure to be primarily associated with larger firms and those in sectors most closely related to environmental concerns. In contrast to several recent contributions, the media exposure of companies plays no role in stimulating voluntary disclosures (Brammer, 2008). However, for investor, non financial factor also influences the company performance that affects the company value. For the investors, CSR is one of the non financial factors that need to be considered by the company in order to increase the earnings quality of the company. CSR held consistently in the long term will increase the people’s legitimating to company presence. The more responsibilities done by the company to its environment, the image of the company will increase and the mitigation of investor to invest indirectly will increase the company earnings in the future. Abbott et al., (2004) find that the independence and activity level (our proxy for audit committee diligence) of the audit committee exhibit a significant and negative association with the occurrence of restatement. They also document a significant negative association between an audit committee that includes at least one member with financial expertise and restatement. The results underscore the importance of the BRC's recommendations as a means of strengthening the monitoring and oversight role that the audit committee plays in the financial reporting process. DeFond & Xuesong (2005) find positive and significant CARs around the appointment of accounting financial experts to the audit committee but not around the appointment of non accounting financial experts or directors without financial expertise. In addition, the positive CARs are only found when the appointing firms have strong corporate governance before appointing the new directors. These findings suggest that although appointing financial experts to the audit committee may improve corporate governance, their ability to do so is contextual. Baxter (2009) examined differences in the associations between audit committee accounting expertise and the two earnings quality measures. Other audit committee characteristics examined are not significantly related to either earnings quality measure. The objective of this study is to analyze the influence of corporate social responsibility and environmental awareness to audit committee as the moderator in increasing the earnings quality of the state owned company (SOC). 2.

LITERATURE REVIEW

The success of an organization may well depend upon the compatibility between the performance measurement system in operation at subordinate organizational levels and the organization's global goals. International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. An increasing amount of research in operations management addresses the relationship between the operation's performance measurement system and its apparent incompatibility with global organizational goals. The performance measurement system associated with the theory of constraints (TOC) has been advocated by some researchers as a mechanism for linking operational objectives to the global goals of an organization. However, empirical research is lacking to determine and test the relevance of the proposed performance measurement system presented in TOC. This study examines the application of a TOC-based performance measurement system in an operating environment and reports on the results (Lockamy, 1998). Earnings quality can be defined as the earning ability in explaining information inside that can help the decision making by the decision makers (Dechow & Schrand, 2010). Earning is an accrual accountancy product and it is used as a tool to the earnings quality of a company management (Bissessur, 2008). The better earning in explaining, the more qualified the earnings will be. Earnings quality has many dimensions and can be measured by many measurements, one of them is by using accrual. Accrual is the difference between net earning with cash flow from the operational activity (Richardson, 2003). The main function of accrual is decreasing the time problem and unmatched of the cash flow (Schoemaker, 2013). Savitz (2012) revealed that qualified earning must at least have basic characteristics like reflecting the present earnings quality of the company operation and becoming a good indicator on the persistency of the future earnings quality of the company operation. Defines earnings quality as the ability of the earnings in reflecting the truth on the company earnings and helping to predict the earning in the future where there are 4 measurements to proxy the earnings quality that are, accrual persistence, estimation error in the accruals process, absence of earnings management, and conservatism (Givoly et al., 2010). Earnings Quality shows the level of earning closeness reported by hicksian income, the economic earning that is the number that can be consumed in one period by keeping the company ability in the beginning and ending period staying the same (Schipper and Vincent, 2003). The environmental awareness, interests and motivations of 150 visitors to the Mt. Coot-tha Botanic Gardens. Gardens visitors were found to be less interested in and committed to conservation issues, and less motivated to learn, than visitors to other free-choice learning settings such as museums, zoos, aquariums, heritage sites, natural areas and wildlife tourism activities (Ballantyne & Jan Hughes, 2008). However, it has been reported that despite business owner/managers having strong “green” attitudes, the level of implementation of environmental-friendly practices is low. In order to explore the connection between pressures for improved practices and the management actions taken, this article examines how influence from various stakeholders is related to awareness of environmental issues, and how this awareness relates to actions taken within the businesses to reduce the environmental impact of their operations (Gadenne & McKeiver, 2009). With the awareness of the people in taking care and keeping the environment like the effect felt because of the global warming that is caused by the environmental destruction, the need of information on the company responsibility for earning quality of the environment increases. Environmental quality and its outcomes have been linked to economic and financial factors in the relevant literature (Katircioglu & Katircioglu, 2017; Katircioglu & Taspinar, 2017; De Vita et al., 2016; Katircioglu, 2017a: 2017b). Explains the benefit in being responsible with the environment and social of the company in the strategy and business operation such as increase the sale and stock in the market, strengthen the brand position, increase the image and influence of the company, increase the ability to be attractive, maintain the employees and decrease the operational expenses, increase the ability to attract the investor and financial analysis (Kotler, 2005). Environmental awareness is a very abstract concept and measuring it in an absolute manner is not feasible. Attitude surveys provide many kinds of useful information and environmentally friendly behavior has often been studied successfully, but neither method truly reveals the level of environmental awareness. Although there is no absolute set of indicators, relative comparisons between countries or states can be performed. For instance a person in Maharashtra has an opinion about the level of environmental awareness in his or her state in relation to the situation in Gurajat, Goa, Karnataka and Madhya Pradesh. Similarly, by comparing individual’s own state to neighbouring states, it is possible to analyze the relative differences in environmental awareness throughout India.The system for international measurements of the levels of environmental awareness was created by the author in 1997 and first used manually in the study ‘Raising Environmental Awareness in the Baltic Sea’ (Chariri (2007) and Stonehouse & Jonathan (1999)). In that project a methodology for comparing countries’ levels of environmental awareness was tested for nine countries around the Baltic Sea. For the present study the methodology was further developed and a completely new information technology tool for efficient data gathering was created to be tested in a challenging study area. Corporate social responsibility (CSR) is one of the most prominent concepts in the literature and, in short, indicates the positive International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. impacts of businesses on their stakeholders. Despite the growing body of literature on this concept, the measurement of CSR is still problematic. Although the literature provides several methods for measuring corporate social activities, almost all of them have some limitations (Turker, 2009). There is a natural fit between the idea of corporate social responsibility and an organization's stakeholders. The word "social" in CSR has always been vague and lacking in specific direction as to whom the corporation is responsible. The concept of stakeholder personalizes social or societal responsibilities by delineating the specific groups or persons business should consider in its CSR orientation. Thus, the stakeholder nomenclature puts "names and faces" on the societal members who are most urgent to business, and to whom it must be responsive (Carroll, 1991). Company must be able to manage its economy responsibility to the stakeholders. Ethical responsibilities that show the stakeholder wants the company to run the business with the ethically. Legal responsibilities that show the stakeholder wants the company to run the business fully with law responsibility by obeying the regulations valid; Discretionary responsibilities show that stakeholder wants the company existences can be beneficial for them. Then, the company who has CSR must perform those 4 components. The independence of an audit committee is considered a vital characteristic influencing the committee’s efficiency in managing the process of financial statements. The independence of an audit committee can serve as active to control the financial reporting. Therefore, audit committee independence has been found to be significantly associated with measures of earnings quality in prior studies of Baxter (2009) and Hamdan et al., (2013). They are authorized to ask for additional information and have explanation from the management and employee related. Audit committee also evaluates how far the rules have met the standard in accounting and the accountancy principal applied. Regulators and others highlight the importance of the interaction between the audit committee and internal audit. One of the roles of the audit committee is to review and monitor management's response to internal audit findings and recommendations. Alzeban (2015) provides empirical evidence of the association between audit committee characteristics and perceptions of implementation of internal audit recommendations. The audit committee is responsible for several issues relating to the audit and in particular the relationship of the organization with its auditors. As part of its responsibilities, it will review the internal control procedures and the risk management system. These areas fall under the remit of the internal audit function, which means that an effective working relationship between the two parts is a key to sound corporate governance (Davies, 2009). The environmental issue now has become important and been marked by the discussion in the political, economic, and social agenda, especially as far as pollution and life quality issues are concerned (Katircioglu et al., 2014; Katircioglu, 2014a; 2014b). The awareness of the wide effect of the other field. People awareness on the importance of the environment can be seen from the establishment of the institutions or the environmental awareness movement. While the government effort is by setting up various regulations and rules that deal with nature conservation, the precaution of the toxic waste effect from the industry operation, the restriction of the environment element company. One of the world’s responses is by holding a CSR activity. In the research of Sun et al., (2010), the relation between company environmental disclosure and earnings quality influences significantly and positively; however, the result of this research needs to have the corporate governance variable to increase those two variables. These include difficulty seeing hazardous but slow changes, seeing heretofore unimagined dangers, seeing past our delimited reference groups to the needs of our species, and use of massive psychological defense to avoid the discomfort of awareness. Creative persons may have an edge in addressing these limitations because of their sustained cognitive affective awareness, creative courage and resilience, and capacity for universal perspective taking. Yet these capabilities do not guarantee the motivation for moral responsibility, nor its underlying reasoning and sustaining passion (Richards, 1993). The government and society realize more on the importance of environment. The effort of the government is to apply some rules and regulations that control the nature preservation, the prevention of industry operation effects. Company has had proactive response to the awareness and regulations in environment so that it can stay in the long term. Regards to the literature, the first hypothesis is proposing below: H1: There is positive relationship between environmental awareness and earnings quality. CSR is a form of social responsibility on the business deals with economy, legal, ethics and discretionary that people wish from an organization at that time. CSR is a way held by the management to increase the reputation of the company and give positive image to the stakeholders that is by the implementation of CSR. CSR can decrease the possibility of pressure from the stakeholders that are not satisfied or the trust has decreased because of the International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. earning management. Kim et al., (2012) presented that socially responsible firms are less likely (1) to manage earnings through discretionary accruals, (2) to manipulate real operating activities, and (3) to be the subject of SEC investigations, as evidenced by Accounting and Auditing Enforcement Releases against top executives. The results robust to (1) controlling for various incentives for CSR and earnings management, (2) considering various CSR dimensions and components, and (3) using alternative proxies for CSR and accruals quality. Pyo & Young (2013) control for the potential effects of reputation and financial performance, findings suggest that ethical concerns are likely to drive managers to produce high-quality financial reports. The results of this study provide evidence that firms active in CSR are likely to report earnings of a higher quality. More specifically, after controlling for firm-specific factors, they found that firms with more corporate donations have lower discretionary accruals and greater accounting conservatism. The development of the people awareness on social responsibility of the management to the stakeholders makes the people have a high expectation to the company to be able to give transparent information related to the business done by the company. The disclosure of CSR done by the management has positive influence. On the other hand, by the disclosure of CSR the management can make a long term relationship with the stakeholders to give positive image related to the condition of the company. Based on the literature that mentioned above, the remaining research hypothese are presenting as follow: H2: There is a positive relationship between Corporate Social Responsibility and earnings quality. H3: There is a positive relationship between Corporate Social Responsibility and earnings quality when moderated by Audit Committee. In the following chapters, testing the hypothese are explaining by details. 3.

METHODOLOGY

This research used survey method to get research data from the respondents chosen as the research sample. In survey method, researcher will use research instrument that is list of questions or questionnaire that will be given to the respondents. The questionnaire has statements with choices of answer that hopefully can catch things or condition in the field that are felt by the respondents. The kind of data achieved from survey method is qualitative data by using likert scale. In likert scale, the answers will be classified into chosen statements that each of them will have certain score. The scoring given in likert scale shows the level of perception given by the respondents. The population of this research is all data related to the earnings of SOC, while the sample year used is the period of 2013-2015, with assumption that the data provided is complete and is possible to be a research in that year. The number of SOC population in Indonesia is about 135 SOCs, while the target population of SOC construction and industrial areas is about 96 SOCs. The sample of this research is determined by using the purposive sampling technique. Purposive sampling technique is the sampling by plan with the sample conditions needed like only banking companies and construction services because both companies relatively care to the environmental awareness since they have personality, characteristics, type and sample criterion which are similar, as it can be seen in attachment 1. Based on the determination of sample formula above, it is known that the sample number is 49 SOC constructions and industrial areas that apply CSR. Sampling collection is done by the puposive sampling based on 5 judgments of the researcher on who meet the criterion to become the sample. There are 49 construction SOEs included in the inclusion criterion as follow: SOCs company that are in the property business sector, SOCs company registered in Kompas100 and Pefindo25 and company earnings quality data in the period of 2013-2015. The collecting data method used is especially by documentary study way from idx.co.id.. The data used is secondary data resulted from the financial report of the pharmaceutical industrial company. Data analysis using the descriptive statistical technique and hypotheses test in this study uses WarpPLS 5.0 program. This study uses analysis tool Structure Equation Modeling SEM-PLS with the Program WarpPLS 5.0 that is Variance or component based Structure Equation Modeling (WarpPLS) uses to test hypotheses. This tool is chosen because it has some strengths that are it is designed to be able to solve the problem like small sample numbers, data does not normally distributed multi variatively, there is missing value and there is multi coloniarity inter oxygen variables (Kock 2015) and (Latan & Ghozali, 2013). The diagram pattern is in the equation. Based on the hypotheses development above, it can be applied the study model as follow: Y = β 0 + β1 EA + β2 CSR + β3 CSR * AC + ε

(1)

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. Where, Y = Earnings Quality; β0 = Constanta; β1 – β3 = Coefficient and ε = error; X1 = Environmental Awareness; X2 = CSR and M = Audit Committee. 4.

RESULT AND DISCUSSION

This research is done with the population on SOE companies in IDX Indonesia. Company used as the sample in this research is the construction company in property sector and registered in Kompas100 in 2013-2015 according to the criterion of purposive sampling explained in the previous above. Based on the criterion, 25 companies from 60 construction companies are chosen . To give a description on the variables used in this research, the variables are Earnings Quality (Y), Environmental Awareness (X1), CSR (X2) and the Audit Committee as the moderator. Table 1. Description Statistics of Construction Company (in million)

Research variable Environmental Awareness (X1) CSR (X2) Audit Committee (M) Earnings Quality (Y)

Number of Sample (n)

Min

Max

Range

Mean

Deviation Standard

25

0.00075

0.04029

0.03954

0.01831

0.01179

25 25 25

1.238 0.25 61.893

57.998 0.52 2.899.942

56.760 0.27 2.838.048

21.285 0.376 1.064.298

13.347 0.082 667.384

Corporate Social Responsibility has approximate value of Rp.1.238.000.000-Rp.57.998.000.000 with the average value of Rp.21.285.000.000 and deviation standard of Rp.13.347.000.000. It indicates that Construction Company tends to think that Corporate Social Responsibility (CSR) is important. The environmental awareness variable has approximate value of 0.00075 – 0.04 with the average value of 0.018 and deviation standard of 0.0118. It indicates that Construction Company tends to think the environmental awareness is important. Audit Committee has approximate value of 0.25 – 0.52 committee with average value of 0.376 committee and deviation standard of 0.082 committee. It indicates that the construction company has independent committee of 0.25 to 0.5 from all number of committee. On the earnings quality variable, the scoring to earning quality has approximate value of Rp.61.893.000.000 - Rp.2.899.942.000.000 with average value of Rp.1.064.298.000.000 and deviation standard Rp.667.384.000.000. It indicates that a quality achievement of a profit construction company is good. Construction company has net income the minimum is Rp.61.893.000.000 and the maximum is Rp.2.899.942.000.000 while the average construction companies’ net income is Rp.1.064.298.000.000. The analysis done is to know the relation of exogen variable (Environmental Awareness and CSR) with the endogen variable (earnings quality). There is a relation hypothesis that will be evaluated whether there is an influence between Environmental awareness (X1) and CSR (X2) with the Earnings Quality (Y). To test it, WarpPLS 5.0. Program is used. The processing result of this program can be seen in the figure below.

Figure 1. Relation of Exogen Variable International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. Path coefficient and P value on every direct relation of exogen and endogen in the research model. Environmental awareness path to earnings quality (EA  CAR) shows coefficient value of 0.000 (0%) and it is not significant with P value=0.500. While Corporate Social Responsibility path to earnings quality (CSR  CAR) shows coefficient value of 1.000 (100%) and significant with P value=< 0.001. Audit committee path that moderates the relation of Corporate Social Responsibility to earnings quality (AC * CSR  CAR) shows the coefficient value -0.000 and it is not significant with the value of P=0.500, it can be seen in the table below: Table 2. Model Fit and Quality Indices Model Fit and Quality Indices Average path coefficient (APC)=0.333, P0.001 Average adjusted R-squared (AARS)=1.000, P>0.001 Average block VIF (AVIF)=3.684, acceptable if 0 shows the model has predictive relevance while the value of Q2 0,10, then Ha Ha is rejected which mean the path analysis coefficient is not significant. So the Environmental awareness is not related to Earnings Quality. The Partial test is achieved based on the value of Sig CSR to the Earnings Quality. The research hypotheses that will be tested is formulated in form of statistics hypotheses as follow: International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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R2= 0.98

CSR (X2)

CAR (Y)

β=1.000 P Value < 0.001

Figure 3. Test of Corporate Social Responsibility to Earnings Quality The individual test result of CSR that contributes significantly to Earnings Quality has the value of Sig 0,001. Because the probability value 0,01 is lower than the probability value of Sig or 0,001 < 0.01, then Ha is accepted which mean the path analysis coefficient is significant. so, CSR contributes significantly to the SOE Earnings Quality. Moderation model test is achieved based on the value of Sig CSR to Earnings Quality when moderated by Audit Committee. The research hypotheses tested is formulated as follow:

CSR (X2)

β=1.000 P Value < 0.001

R2= 0.98 CAR (Y)

β= -0.000 P Value =0.500 CSR (M)

Figure 4. Moderation Model Test The test result of moderation model CSR contributes insignificantly to the Earnings Quality that has the value of Sig 0,500. Since the probability value 0,10 is higher than the probability value of Sig or 0,500 > 0,10, then Ha is rejected which mean the path analysis coefficient is not significant. So the role of audit committee does not moderate the relatuionship between CSR and Earnings Quality. Based on the hypotheses test result and moderation model, results are presenting in Table 4. Table 4. Summary of the Test Result of Hypotheses and Moderation Model Inter Variable Relation Hypotheses 1 : Environmental Awareness to Earnings Quality (EA  CAR) Hypotheses 2 : CSR to Earnings Quality (CSR  CAR) Hypotheses 3 : CSR to Earnings Quality that moderated by audit committee (KA*CSR  CAR)

Coefficient Value (β)

Value of P (≤ 0.05)

Ha

0.000

0.500

Rejected

1.000

0.001

Accepted

-0.000

0.500

Rejected

Source: Data Processed, (2016)

The test result to parameter coefficient between the environmental awareness to Earnings Quality shows that there is no influence on the value of P about 0.500 and significant on α=5%. The value of T-Statistic is far above the International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. critical value (0.05). it is different with what happen to the relation of CSR variable and Car variable, showing the probability value (Pvalue) far below the critical value (0.05) so that only CSR that influences positively and significantly to the Earnings Quality. The test result to parameter coefficient between environmental awareness to earnings quality of SOE in Indonesia shows that there is a direct influence of 0%. Coefficient achieved is 0.000 with the Pvalue 0.5, which means there is no significant influence between the environmental awareness to SOE earnings quality. Since there is a tendency of the average construction company presenting the environmental awareness not too detail from the accountancy aspect and financial factor, environmental ligation, prevention of pollution and other aspects is just a lipstick and shows that the company has done a social activity related to environment. Environmental awareness is a kind of voluntary disclosure of environmental awareness information from the point of view the external function of environmental accountancy. The average construction industry presents the disclosure of environmental accountancy in not too detailed information from the accountancy aspect and financial factor, environmental litigation, prevention of pollution and other aspects. The disclosure is still in general and rarely shown in monetary or quantitative form. It shows that the average construction industry in revealing the environmental awareness just shows that the company has done social activity related to environment. The test result to parameter coefficient between Corporate social responsibility to the SOE earnings quality in Indonesia shows that there is a direct influence of 100%. The Pvalue is far below the alpha value comparator. The coefficient achieved is 1.000 with the Pvalue 0.001, which means there is a significant influence between Corporate Social Responsibilities to the SOE earnings quality. The higher CSR index, then the higher earnings quality of the Construction Company and banking and vice versa and it is a kind of mandatory disclosure to the company that is go public in Indonesia. Corporate social responsibility is as the commitment in business industry in contributing in the sustainable economy. Cooperation with the employees and their representatives, their family, local community or public is to increase the life quality by using beneficial way to their own business or to the development. Now, business world must be able to balance the earnings in the economic achievement, social performance (people), and environmental performance (planet) or called triple bottom-line performance. The orientation of business practice that maximizing the profit needs to be reconsidered. The orientation to get as much profit as you can in the short term will show success; however for the long term it can create problem to the company because there is a resistance from the society and other stakeholders. The test result on parameter coefficient between corporate social responsibilities to the SOE earnings quality moderated by the audit committee shows no influence of independent audit committee and weakens the influence of Corporate Social Responsibility to Earnings Quality. The influence of audit committee does not have positive role in increasing earning quality. However, the role of audit committee in the future will be needed more in increasing the quality of Good Corporate Government and Corporate Social Responsibility (CSR). Corporate Social Responsibility (CSR) itself is one of the roles in increasing the environment prosperity. Therefore, the audit committee needs to support and answer the problem to perform the activity of Corporate Social Responsibility (CSR) according to the regulations. The result of study shows the contrary that audit committee does not have role in supporting the implementation of Corporate Social Responsibility (CSR). For audit committee, the implementation of Corporate Social Responsibility (CSR) is just based on the positive profit. If it is profitable for the company, the CSR can be done well. Vice versa, if the earnings quality is negative, the CSR has not been able to contribute on the environmental needs. The role and duty of the audit committee is responsible of the preparation, presentation, and integrity of the financial report; implementation on the accountancy and financial report principals; internal control and organization standards that match the financial accountancy standard and also rules and regulation valid. Audit committee is only responsible to do audit independently on the consolidation financial report based on auditing standards used and give opinion on the consolidation financial report audited. So, the role of audit in the activity of Corporate Social Responsibility (CSR) and the company earnings quality is just as the supervising on the implementation of Corporate Social Responsibility (CSR) only. 5.

CONCLUSION

Based on the result of the research and the hypotheses test, it can be concluded that; there is no significant influence between environmental awareness to SOE earnings quality. Because there is a tendency the average construction industry is not in details in presenting the environmental awareness from the accountancy aspect and also financial report, environmental litigation, pollution prevention and other aspects, just shows that the company has done social activity related to the environment and the volunteer disclosure. There is a significant influence between International Journal of Economic Perspectives ISSN 1307-1637 © International Economic Society http://www.econ-society.org

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International Journal of Economic Perspectives, 2017, Volume 11, Issue 3, 100-111. CSR to Earnings Quality of SOE. The higher CSR index, the higher earnings quality of the construction company, vice versa and also as the important disclosure. There is no influence of the Independent Audit Committee to the relation of Corporate Social Responsibility to earnings quality because the role of audit committee is still for the condition from the Financial Services Authority (OJK) in the company listed in Indonesia Stock exchange. However, the role of audit committee in the future will be needed more to perform Good Corporate Government and Corporate Social Responsibility (CSR). Suggestion This research has some limitations which are the use of one moderating variable that is audit committee and the time period in this study is just three years. Therefore, based on those limitations, this study is recommending some suggestions for the further research: (1) Based on the results, the average of SOE construction industry presents environmental accountancy voluntarily, even some of the SOEs of construction industry do not present anything. It is supported by the result of environmental awareness that does not influence significantly to the earnings quality. In fact, environmental awareness is very important as one of the forms of legitimating between company and the society. (2) adding the additional variable as proxy for audit committee variable that can influence the earnings quality. (3) Increase the time period that can be generalized in a wider scope or the using of intervening variable in further research models. REFERENCES Abbott, L. J. P., Peters, S. & Gary, F. (2004), Audit committee characteristics and restatements, Auditing: A Journal of Practice & Theory, 23 (1), pp. 69-87. Alzeban, A. S. N. (2015), The impact of audit committee characteristics on the implementation of internal audit recommendations. Journal of International Accounting, Auditing and Taxation, No. 24, pp. 61-71. Ballantyne, R. P., & Jan Hughes, K. (2008), Environmental awareness, interests and motives of botanic gardens visitors: Implications for interpretive practice. Tourism management, 29 (3), pp. 439-444. Baxter, P. C., J. (2009), Audit committees and earnings quality. Accounting & Finance, 49 (2), pp. 267-290. Bellovary, J. L. G., & Don E Akers, M. D. (2005), Earnings quality: It's time to measure and report, The CPA Journal 75 (11), pp. 32. Bissessur, S. W. (2008), Earnings quality and earnings management, Vol. 418, Rozenberg Publishers. Brammer, S. P., S. (2008), Factors influencing the quality of corporate environmental disclosure. Business Strategy and the Environment, 17 (2), pp. 120-136. Carroll, A. B. (1991), The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders, Business horizons, 34 (4), pp. 39-48. Chariri, A. (2007), The Relevance of Forensic Accounting in Detecting Financial Frauds, Jurnal Organisasi dan Manajemen, 3 (2), pp. 81-88. Davies, M. (2009), Effective working relationships between audit committees and internal audit—the cornerstone of corporate governance in local authorities, a Welsh perspective, Journal of Management & Governance, 13(12), pp. 41-73. Dechow, P. G., & Schrand, C. W. (2010), Understanding earnings quality: A review of the proxies, their determinants and their consequences, Journal of Accounting and Economics, 50 (2), pp. 344-401. DeFond, M. L. H., & Xuesong, R. N. Hu. (2005), Does the market value financial expertise on audit committees of boards of directors? Journal of accounting research, 43 (2), pp. 153-193.


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