<![CDATA[The digital transformation of Micro, Small, and Medium Enterprises (MSMEs) has increasingly influenced how business transactions and financial information are managed. However, the utilization of digital technology for financial reporting remains uneven, particularly among MSMEs at the local level. This study aims to examine the effects of digital transformation and embedded finance on the financial reporting quality of MSMEs and to analyze the moderating role of financial literacy. The study employed a quantitative explanatory approach involving 88 MSMEs in Menganti District, Gresik Regency, Indonesia, selected from a population of 684 MSMEs. Data were collected through questionnaires using a five-point Likert scale and analyzed using Structural Equation Modeling–Partial Least Squares (SEM-PLS) with SmartPLS 4. The results demonstrate that digital transformation has a positive and significant effect on financial reporting quality, with a path coefficient of 0.429, while embedded finance has a stronger positive and significant effect, with a coefficient of 0.652. Financial literacy also has a positive and significant direct effect on financial reporting quality. Furthermore, financial literacy significantly moderates the relationship between digital transformation and financial reporting quality with a positive interaction coefficient of 0.542. In contrast, its interaction with embedded finance is significant but negative, with a coefficient of −0.462, indicating that higher financial literacy weakens the marginal effect of embedded finance on financial reporting quality. The findings highlight that digital technology and integrated financial services can improve MSME financial reporting, while the effectiveness of these technologies depends on the financial capabilities of business owners.]]>
