Financial reporting quality during the Covid-19 pandemic: Evidence from transportation sector and tourism/recreation industry in Indonesia

Mangindaan, Joanne Valesca; Manossoh, Hendrik; Walangitan, Olivia Fransiske Christine Article Financial reporting quality during the Covid-19 pandemic: Evidence from transportation sector and tourism/ recreation industry in Indonesia Global Business & Finance Review (GBFR) Provided in Cooperation with: People & Global Business Association (P&GBA), Seoul Suggested Citation: Mangindaan, Joanne Valesca; Manossoh, Hendrik; Walangitan, Olivia Fransiske Christine (2024) : Financial reporting quality during the Covid-19 pandemic: Evidence from transportation sector and tourism/recreation industry in Indonesia, Global Business & Finance Review (GBFR), ISSN 2384-1648, People & Global Business Association (P&GBA), Seoul, Vol. 29, Iss. 6, pp. 86-97, https://doi.org/10.17549/gbfr.2024.29.6.86 This Version is available at: https://hdl.handle.net/10419/306015 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ Received: Feb. 23, 2024; Revised: Apr. 3, 2024; Accepted: May. 1, 2024 † Corresponding author: Joanne Valesca Mangindaan1 E-mail: [email protected] GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 6 (JULY 2024), 86-97 pISSN 1088-6931 / eISSN 2384-1648∣Https://doi.org/10.17549/gbfr.2024.29.6.86 ⓒ 2024 People and Global Business Association GLOBAL BUSINESS & FINANCE REVIEW www.gbfrjournal.org for financial sustainability and people-centered global business1) Financial Reporting Quality during the Covid-19 Pandemic: Evidenc e from Transportation Sector and Tourism/Recreation Industry i n Indonesia J oanne Valesca Mangindaan1a†, Hendrik Manossohb, Olivia Fransiske Christine Walangitanc aDepartment of Business Administration, Faculty of Social and Political Sciences, Sam Ratulangi University, Indonesia bDepartment of Accounting, Faculty of Business and Economics, Sam Ratulangi University, Indonesia cDepartment of Business Administration, Faculty of Social and Political Sciences, Sam Ratulangi University, Indonesia A B S T R A C T Purpose: The purpose of this research is to analyze the financial reporting quality during the Covid-19 pandemic. This study is focused on transportation sector companies, which comprised of the passenger land transportation and airlines industries and the companies in tourism and recreation industry. This is important since these companies experienced a severe impact during the COVID-19 Pandemic. Design/methodology/approach: To analyze the quality of financial reporting during the Covid-19 pandemic, this study occupies the parametric and non-parametric test of difference, namely t-test paired sample and Wilcoxon signed rank test to compare the financial reporting quality between the period prior and during the pandemic. The financial reporting quality is proxied by accrual earning management. Findings: This research finds that the financial reporting quality of companies in passenger land transportation, airlines, tourism and recreation industries is significantly lower during the Covid-19 pandemic. Companies in these industries attempt to conceal their poor financial performance during the pandemic by opportunistically manage their earnings. Research limitations/implications: This study highlights the importance of high-quality financial reporting to help investors to make better investment decisions. This study does not specifically examine the role of auditor in ensuring the high quality of financial reporting. Originality/value: This study contributes by providing new empirical evidence about the financial reporting quality by investigating the impact of Covid-19 on accrual earnings management practices. To the best knowledge, this is the first study that explores the issue of financial reporting quality during the Covid-19 for passenger land transportation, airlines, tourism and recreation industries in Indonesia. Keywords: Covid-19 pandemic, Financial reporting quality, Discretionary accrual, Transportation sector, Tourism industry ⓒ Copyright: The Author(s). This is an Open Access journal distributed under the terms of the Creative Commons Attribution Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution , and reproduction in any medium, provided the original work is properly cited. Joanne Valesca Mangindaan1, Hendrik Manossoh, Olivia Fransiske Christine Walangitan 87 I. Introduction The Covid-19 pandemic has caused the global economy to experience the deepest downturn since the second world war and has been considered as the greatest disaster of global health of the century (Naseer et al., 2023; WorldBank, 2020). Restrictions of activity and even lockdowns imposed during the pandemic have a negative impact on production, operations, sales and revenue, which resulted in the decline in company profits (Alsamhi, Al-Ofairi, Farhan, Al-ahdal, & Siddiqui, 2022; Hu & Zhang, 2021; Shen, Fu, Pan, Yu, & Chen, 2020). In crisis situations during a pandemic, the quality of financial reporting becomes increasingly important and relevant. As organizations sustain revenue losses, prepare for recovery, and begin to embrace new business models, the correct disclosure of financial performance, changes in strategy, and management's perspectives become matters of concern (J. J. Tang, Karim, & Roy, 2023). Investors and other stakeholders need timely and transparent financial information that reveals information about the impact of the Covid-19 pandemic on the company's operational performance, financial position, liquidity and future prospects (IOSCO, 2020). The high quality of financial reporting will help stakeholders in making investment decisions or other business-related decisions. However, in a state of crisis during the Covid-19 pandemic, companies may manipulate financial statements to improve the appearance of their financial position. Research on the quality of financial reporting in times of crisis, including during the Covid-19 pandemic, is not yet conclusive (Saha, 2022). Some previous studies concluded that in times of crisis, the quality of financial reporting will increase because companies want to increase trust by reducing information asymmetry (Arthur, Tang, & Lin, 2015; Azizah, 2021; Firmansyah & Ardiansyah, 2020). However, there are also studies that document the low quality of financial reporting during the Covid-19 pandemic due to increased earnings management practices carried out by companies (Angelina & Lindrawati, 2022; Hsu & Yang, 2022). Other studies also highlight the inability of the auditors to detect irregularities in earning management practices that produce lower audit quality during restriction in the Covid-19 pandemic implying lower financial reporting quality (Chen, Chiang, & Voren, 2023; Gong, Ho, Jin, & Kanagaretnam, 2022) This study, then, attempts to fill the gap by analyzing the financial reporting quality during the Covid-19 pandemic in Indonesia. This study aims to provide answer to the question of whether the Covid-19 pandemic affects the quality of financial reporting in Indonesia. This study specifically offers several distinct characteristics with other researches. First, this study analyzes the impact of the Covid-19 pandemic on financial reporting quality in a single country setting, i.e. in Indonesia. Isidro, Nanda and Wysocki (2020) argue that study in a single setting allows a thorough insight and offers opportunities to explore distinct dataset that are often unavailable for a large number of countries. Second, as the largest economy in South East Asia (WorldBank, 2020), the economic consequences of the Covid-19 pandemic in Indonesia are immense and therefore may amplify the pandemic impact on the quality of financial reporting. Based on a survey by the Ministry of Workforce, there were around 88% of companies experiencing operational losses due to the pandemic (2020). Third, as some industries will experience different impact of the Covid-19 Pandemic from others, this study focuses on the impact of the Covid-19 on financial reporting quality of companies in the Passenger Land Transportation, the Airlines and the tourism and recreation industry. Among industries that faced hardship during the pandemic, companies in transportation sector and tourism and recreation industry are those that are most affected (Hamsal, Abdinagoro, Zulkarnain, Leonandri, & Ichsan, 2022; Jang, 2021; Suastini, Ni, Sihoming, & Wirautama, 2022). The transportation sector, which consists of the Passenger Land Transportation and Airlines industry, is one of the sectors that experienced severe impact of the pandemic, causing revenue and profit decline GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 6 (JULY 2024), 86-97 88 in companies, and some of the companies have even experienced huge losses (Aldin, 2021; He, Sun, Zhang, & Li, 2020; Puspa, 2021). Beside the transportation sector, companies in tourism and recreation industry were also severely affected by the Covid-19 pandemic and had to operate in survival mode rather than making profit (Hamsal et al., 2022). The hotel sector losses amounted to IDR 30 trillion and restaurants IDR 40 trillion due to a significant reduction on the hotel room occupancy rate (Alsamhi et al., 2022; Amalia, Sulasno, & Sinaga, 2021; Deli, Sambodo, Suganda, & Pramana, 2022; Wahyudi, 2020). The uncertainties and disruption faced by companies in Passenger Land Transportation, the Airlines and the tourism and recreation industry during the Covid-19 Pandemic, affected data collection, estimation, revenue recognition, disclosure processes and even increased the risk of restatements (Crowe, 2020; Posner, 2021); and hence affecting the financial reporting quality. Therefore, studying the impact of the Covid-19 pandemic on the financial reporting quality of these companies is relevant and significant. Results from this research is expected to contribute as being the first study that provide new empirical evidence related to financial reporting quality that investigates the impact of Covid-19 on accrual earnings management practices on companies in transportation sector and tourism and recreation industry. The findings from this study indicate a reduction in the quality of financial reporting of companies in Passenger Land Transportation, Airlines, Tourism and Recreation industries during the Covid-19 pandemic, despite the fact that as listed companies, their financial reports have been audited by external auditors. Companies in these industries are indicated to alter their earnings and as shown by the significant income-increasing discretionary accruals, which lends support to the claim that the auditors are unable to detect irregularities in financial reports during the pandemic (Gong et al., 2022), hence lowering the financial reporting quality. During the pandemic, the top management attempts to dress up the company's financial performance by carrying out earnings management, which results in a decrease in the quality of financial reporting during the COVID-19 pandemic. The remainder of this study is organized as follow: prior studies surrounding financial reporting quality are reviewed in the next section, followed by the research methodology and the findings and discussion section. Conclusion is then presented in the final section. II. Literature Review Financial reports act as means of communicating between companies and external parties, which contain information as a basis for making investment and business decisions. Financial reports assume crucial role in enabling external capital suppliers to assess the performance of the management and in reducing information asymmetry to foster transparency (Mahdi Sahi, Mahdi Sahi, Abbas, & F. A. Khatib, 2022). Information in financial reports becomes useful if the information contains relevance and representational faithfulness characteristics, and meets the enhancing qualitative characteristics of comparability, verifiability, timeliness and understandability (IASB, 2023). Despite an extensive amount of study conducted over the past few decades, a precise and universally accepted definition of the quality of accounting information in financial reports remains elusive (Fuad, Juliarto, & Harto, 2019). Tang, Chen and Lin (2016) also argue that the quality of financial reporting could differ due to its complex interactions among many variables, thus it is inherently difficult to measure. Tang et al. (2016) refer financial reporting quality to as the degree to which the financial reports provide true and accurate information about the underlying financial condition and economic performance. In addition, financial reporting quality is defined by the precision of financial reports in conveying information about a firm's operations, in particular its cash flows, in order to inform equity investors (Biddle, Hilary, & Verdi, 2009). Jones and Blanchet (2000) also suggest Joanne Valesca Mangindaan1, Hendrik Manossoh, Olivia Fransiske Christine Walangitan 89 that financial reporting quality should also be able to meet the needs of the user and protect the investors. The quality of financial reporting is measured through the extent to which financial statements provide accurate and useful information for investors in their investment decisions (Schipper, 2003; Schipper & Vincent, 2003). In order to make sound investing decision, investors urge to obtain high quality of financial reporting as reflected by the quality of earnings (Fuad et al., 2019; Herath & Albarqi, 2017). Dechow et al. (2010) suggest that magnitude of accruals is one proxy for earnings quality. Companies with large accruals have lower quality of earnings because extreme accruals represent a less persistent component of earnings (Abdullaev, 2019; Dechow et al., 2010). Accruals are considered as a crucial element in financial reports, reflecting the discrepancies between reported earnings and cash flows due to the timing differences in payment receipts and the delivery of goods and services (Fuad et al., 2019). Accrual quality is widely utilized to measure financial reporting quality because companies often manipulate earnings through discretionary accruals, resulting in poor financial reporting quality (Dimitropoulos & Asteriou, 2010). The ability to accurately measure accruals quality is increasingly vital as it mirrors the quality of financial reporting (Fuad et al., 2019; Nwaobia, Kwarbai, Olajumoke, & Ajibade, 2013). Herath and Albarqi (2017) further suggest earnings quality is influenced by managerial incentives, where the greater the extent to which a company engage in earnings management, the lower the company's financial reporting quality. Therefore, the absence of earnings management practices is also termed as financial reporting quality (Cohen, Krishnamoorthy, & Wright, 2004). Earnings management is a critical corporate practice that impacts the figures reported in financial statements and influences the decisionmaking of financial report users (Lee & Chun, 2023). The earning management practice exploits the managerial discretion established in the accounting standard and distorts the earnings usefulness attribute to its potential users (Hasan, Aly, & Hussainey, 2022), which in turn lower the quality of financial reporting. Prior to the pandemic, financial reporting quality research examined the quality of financial reporting in the context of accounting scandals and harmonization of accounting standards in ensuring transparency and comparability in accounting transactions (Camfferman & Wielhouwer, 2019; Gajevszky, 2015; Herath & Albarqi, 2017; Mbir, Agyemang, Tackie, & Abeka, 2020). Other study analyzes quality of disclosure in financial report in the context of corporate governance mechanisms such as board size, board meetings, and audit committee size and conclude that these corporate governance aspects have a positive impact on disclosure quality (Eriqat & Al-Khazaleh, 2023) During the Covid-19 pandemic, good financial reporting quality has become increasingly important. Although there are standards in the preparation of financial statements, in reality, the preparation of financial statements using principal-based accounting is merely based on estimates and judgments from management, which gives management freedom in the choice of accounting methods (Angelina & Lindrawati, 2022; Mbir et al., 2020). Based on agency theory, during a crisis like the Covid-19 pandemic, the management of the companies can manipulate financial statements in order to continue to achieve their target profit (Firmansyah & Ardiansyah, 2020). Previous literatures documented the increase in earning management practices during the Covid-19 pandemic (Angelina & Lindrawati, 2022; Hsu & Yang, 2022). For example, using company data in the UK, Hsu and Young (2022) concluded that during the Covid-19 pandemic, the quality of financial reporting decreased, nonetheless the negative impact of the pandemic was mitigated by the existence of corporate governance mechanisms proxied by the size of the board of commissioners. Another study that investigated the impact of pandemic on earnings management practices in Europe suggested that during the pandemic financial reporting quality became less reliable as the firms engage in income-increasing earnings management, which resulted in low quality of financial reporting since the information presented in the reports did GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 6 (JULY 2024), 86-97 90 not truly represent the actual performance (Lassoued & Khanchel, 2021). Similar result also discovered by Ryu and Chae (2022) and Chen et al. (2023) that suggested positive and significant discretionary accruals were reported by service and distribution companies in Korea and companies listed the Taiwan Stock Exchange (TSE) during the period of the Covid-19 pandemic, indicating lower financial reporting quality to the engagement of earning management practices. Some past studies, on the contrary, argued that the quality of financial reporting will be better because companies want to increase trust by reducing information asymmetry (Arthur et al., 2015; Azizah, 2021; Firmansyah & Ardiansyah, 2020). Lee and Chun (2023) suggested that financially constrained companies, like those in the transportation sector and tourism/recreation industry, may use discretionary accruals strategically to signal positive outlook for external capital providers, allowing them to generate capital required for investment. These financially constrained companies do not depend on real activities management, which sacrifices long-term cash flows and firm value (Lee & Chun, 2023). Ramdani, Pratomo and Zuliansya (2022) also concluded that there were no differences in accrual earnings management and real earnings management during the Covid-19 pandemic compared to the period before the Covid-19 pandemic in companies in the hotel, tourism, restaurant and retail sub-sectors. III. Methods This study investigates the financial reporting quality during the Covid-19 pandemic and focuses Indonesia because it is the largest economy in South East Asia and rank tenth in the world by purchasing power of parity (World Bank, 2020). As the purpose of this study is to examine companies in transportation, tourism and recreation industry, the financial data of these companies were obtained from the Environmental, Social, and Corporate Governance Intelligence (ESGI) database. Some data that were unavailable in the database were manually handcollected from the companies' financial report. List of the companies included in the sample can be found in Appendix 1. The sample period spanned from 2018 to 2021 to allow the comparison between the pre-pandemic (i.e., 2018-2019) and pandemic periods (i.e., 20202021). After excluding observations with missing data, the final sample consists of 180 firm-year observations. The sample selection process is displayed in Table 1. The quality of financial reporting is proxied by the accrual earnings management (AM) variable. Accrual earnings management is measured by discretionary accruals based on the Kothari et al (2005) model, the same model used by previous studies (Angelina & Lindrawati, 2022; Firmansyah & Ardiansyah, 2020). The model is presented in the equation below: Sample Selection Total Observation (firm-year) Indonesia listed companies in Land Passenger Transportation industry 32 Add: Indonesia listed companies in Airlines industry 12 Add: Indonesia listed companies in Tourism and Recreation industry 180 Less: missing data 44 Final Sample 180 (Sources: Data processed, 2023) Table 1. Sample selection process Joanne Valesca Mangindaan1, Hendrik Manossoh, Olivia Fransiske Christine Walangitan 91              ⊳ ⊳         (1) Where Accruals = income after tax - cash from operation ; TA t-1 = total asset at t-1; ∆ REV = changes in revenue (REV t - REV t-1 ); ∆ REC = changes in receivable (REC t - REC t-1 ); PPE = plant, property, dan equipment; ROA = return on asset (net income/total asset); 𝜀 = regression residual, which is the estimation of discretionary accruals. Discretionary accruals indicate earnings management, which is the opportunistic management actions that manipulate financial statements (earnings) to hide their poor financial performance by increasing their profit, i.e. income-increasing discretionary accruals (positive value of discretionary accruals) or by reducing accounting profits to delay earnings reporting, i.e. income-decreasing discretionary accruals (negative value of discretionary accruals). A high (absolute value) discretionary accrual value means low quality of the company's financial reporting. The aim of this study is to analyze the quality of financial reporting. In order to do so, this study compares accrual earnings management variables between preCovid-19 (2018 and 2019) and postCovid-19 (2020 and 2021). To test the different of accrual earnings management between before and during Covid-19, this study then occupies both parametric and non-parametric test of difference, namely paired-sample t-test and Wilcoxon signed rank test. A high discretionary accrual absolute value means low quality of the company's financial reporting. IV. Results and Discussion A. Descriptive Statistic Table 2 presents descriptive statistics of the components used to calculate Accruals Earning Management based on the Kothari et al (2005) model. Panel A reports descriptive statistics for all samples (2018 - 2021) with a total of 180 observations. Descriptive statistics for the years before the COVID-19 pandemic and during the COVID-19 pandemic are presented in Panels B and C. Based on Table 1 panel A, the mean AM in the pooled sample is 0.457. Furthermore, when compared to this value, the mean of AM before the COVID-19 pandemic (in 2018 and 2019) reported in panel B, i.e. 0.405, is smaller than the value of AM in the pooled sample. During the COVID-19 pandemic (in 2020 and 2021), however, the mean of AM (reported in Panel C) is much larger, i.e. 0.509, than both the pooled sample and the period preCovid-19. This positive AM may indicate the occurrence of income increasing earning management in the entire sample; and this value is increasing during the COVID-19 pandemic. When AM is decomposed by each variable that are used to calculate it, the only variable that was higher in the pandemic period was the total asset (TA). Before the pandemic, the total assets of companies in the passenger land transportation, the airline and the tourism/recreation industries amounted to IDR 3.7 trillion (TAb) and increased to IDR 4.9 trillion during the pandemic (TAa). The performance of sales and cash flow from operating activities of the companies, on the other hand, decreased considerably during the pandemic (Reva and CFOa) compared to before the pandemic (Revb and CFOb). Furthermore, prior to the pandemic, the average sales and operating cash flows of the companies amounted to IDR 2.3 trillion and IDR 154 billion; nonetheless these figures decreased drastically to IDR 790 billion and IDR 43 billion during the COVID-19 pandemic. The earning after tax before the pandemic had exhibited a loss of IDR 9.5 billion. During the pandemic, the losses of companies in these industries became much greater, reaching IDR 1.1 trillion. Among the financial variables that are used to measure AM, only the value total assets that increased from IDR Rp. 3.7 trillion during the period before the pandemic to IDR 4.9 trillion in the period of the pandemic. GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 6 (JULY 2024), 86-97 92 B. Empirical Results The empirical results to test the differences in the quality of financial reporting as proxied by AM before and during the COVID-19 are presented in Table 3. Panel A of Table 3 presents the results of paired sample t-test, whereas Panel B of the table the displays results of the Wilcoxon Signed Rank Test. The results from the t-test paired sample (Table 3 Panel A) show that the value of AM is higher during the COVID-19 pandemic (AMa) when compared to before the COVID-19 Pandemic (AMb). The difference between the AM before and after is 0.1041 and the value is significant at the 5% level (t-statistic = 2.595 and p-value of 0.011). The positive and increasing value of AMa indicates that an incomeincreasing earning management. The companies in the passenger land transportation industry, the airline industry and the tourism and recreation industry, which suffered big loss due to the restrictions and lock down in during the pandemic, attempt to dress up their earnings performance by increasing the profits. Panel B of Table 3 shows the results from the Wilcoxon Signed Rank Test. The non-parametric test results confirm the findings of from the parametric testing with a higher significance level of 1%. Specifically, the results in Panel B show that there are 54 observations with larger AM values (positive VAR N Mean Std Dev Min Max Panel A: Pooled (2018-2021) AM 180 0.457 0.292 0.012 1.481 TA 180 4,423,077,301,641 15,949,228,793,744 52,239,377,000 152,192,781,540,539 Rev 180 1,562,631,546,522 6,975,341,992,355 658,372,000 64,488,745,205,000 EAT 180 -589,912,462,151 5,184,280,055,827 -59,558,915,774,640 619,842,764,000 ROA 180 -0.028 0.203 -0.659 2.071 CFO 180 98,657,234,077 548,585,977,666 -1,182,956,753,647 5,329,401,276,981 Panel B: Before COVID (2018 dan 2019) AMb 90 0.405 0.246 0.012 1.457 TAb 90 3,778,417,827,434 10,388,350,752,645 52,239,377,000 61,938,393,491,132 Revb 90 2,317,857,296,033 9,472,712,872,609 1,943,955,000 64,488,745,205,000 EATb 90 -9,534,200,642 339,665,932,051 -2,643,105,939,000 619,842,764,000 ROAb 90 -0.011 0.118 -0.659 0.115 CFOb 90 154,332,162,737 750,212,864,329 -1,182,956,753,647 5,329,401,276,981 Panel C: During COVID (2020 dan 2021) AMa 90 0.509 0.325 0.045 1.481 TAa 90 4,967,456,413,192 19,493,663,650,106 61,585,045,937 152,192,781,540,539 Reva 90 790,241,575,432 2,449,486,961,979 658,372,000 21,049,336,922,000 EATa 90 -1,150,944,781,610 7,238,128,205,721 -59,558,915,774,640 258,812,539,573 ROAa 90 -0.041 0.253 -0.580 2.071 CFOa 90 43,614,975,061 198,440,984,402 -160,078,398,107 1,578,270,145,797 (Sources: Data processed, 2023) Where: AM = Discretionary Accrual, AMb = Discretionary Accrual before the pandemic, AMa = Discretionary Accrual after the pandemic, TA = Total Asset, TAb = Total Asset before the pandemic, TAa = Total Asset after the pandemic, Rev = Sales, Revb = Sales before the pandemic, Reva = Sales after the pandemic, EAT = Earning After Tax, EATb = Earning After Tax before the pandemic, EATa = Earning After Tax after the pandemic, ROA = Return on Asset, ROAb = Return on Asset before the pandemic, ROAa = Return on Asset after the pandemic, and CFO = Cash Flow from Operating Activities, CFOb = Cash Flow from Operating Activities before the pandemic, CFOa = Cash Flow from Operating Activities after the pandemic Table 2. Descriptive statistic Joanne Valesca Mangindaan1, Hendrik Manossoh, Olivia Fransiske Christine Walangitan 93 ranks) during the COVID-19 pandemic (AMa) compared to before the pandemic (AMb) and 36 observations with smaller AM values (negative ranks) when compared between the pandemic (AMa) and before the COVID-19 pandemic (AMb). Results are significant at the 1% level of significance. The empirical results in Table 3 above show that an increase in the AM value as a proxy for financial reporting quality indicates a decrease in financial reporting quality during the COVID-19 pandemic. This result confirms the results of previous studies, which concluded that the quality of financial reporting during the COVID-19 pandemic has decreased (Angelina & Lindrawati, 2022; Chen et al., 2023; Hsu & Yang, 2022; Lassoued & Khanchel, 2021; Ryu & Chae, 2022). During the Covid-19 Pandemic, companies in passenger land transportation, airlines, tourism and recreation industries face some systematic challenges. First, as a result of the disruption of their business operations, the companies are challenged with the issue of going concern assessment due to the uncertainties about these companies' ability to continue operating because of travel restrictions and social distancing. Second, companies in these industries experienced decline in revenue because they have to halt of operations and needed to record fair value losses or impairment losses on their investments due to market volatility and economic uncertainty during the pandemic (Crowe, 2020; Posner, 2021). Third, various social and physical distancing policies, specifically work from home policy, may hinder the activities of the auditors to perform its audit process and collect complete audit evidence due to limited access and travel constraints, and thus limit the ability of the auditors to detect irregularities in financial reports (Badawy, 2021; Chen et al., 2023; Gong et al., 2022). These challenges may create the incentive for the management to act opportunistically to manipulate their reported earnings and engage in income-increasing earnings management. In accordance with agency theory, company management has made income-increasing discretionary accruals as an effort to continue to achieve their target profit and hinder their poor performance during the Covid-19 pandemic. V. Conclusion This study documents a significant difference in the quality of financial reporting in companies in passenger land transportation, the airline, and tourism/recreation industries between the period before and during the COVID-19 pandemic. This Panel A: T-Test Paired Sample Pair N Mean Std. Dev Std. Error Mean t-statistic AMa - Amb 90 0.1041 0.3805 0.0401 2.595** Panel B: Wilcoxon Signed Rank Test Pair Ranks N Mean Rank Sum Rank z-statistic AMa - AMb Negative ranks 36a38.7222 1394 -2.629*** Positive Ranks 54b50.0185 2701 Ties 0c Total 90 (Sources: Data processed, 2023) a accrual earning management during pandemic (AMa) < accrual earning management before the pandemic (AMb); b accrual earning management during pandemic (AMa) > accrual earning management before (AMb); c accrual earning management during (AMa) = accrual earning management before (AMb) > *** significant at level 1%, ** significant at l 5% Table 3. Empirical results: Test of difference AM between preCovid-19 and post Covid-19