The Effect of Corruption on Accounting Information: An Institutional Theory Perspective

Abstract

Though corruption has been declared as an extra ordinary crime, little discussion and research is done on the effect of corruption to financial accounting information. This paper explains how corruption that had been taken for granted as acceptable practices by society in Indonesia during the New Order Government degraded the role of financial accounting information to become a symbolic rationality rather than reflected the managerial performance of an organization. Using institutional theory, this paper demonstrated that authoritarian and corrupt government that had been successfully brought Indonesia into economic success was seen by most Indonesians as an acceptable practices in doing business. Mimetic isomorphism was taking place in the case PBS Jakarta when head of the school intentionally adopted the New Order corrupt practices into the school as the practices were inline with the interest of the head himself. As a result, financial statements as a symbolic display were loosely - coupled with the daily working processes in the school.