Fraud Risk Factors of Cressey’s Fraud Triangle Theory: Evidence From Korea

The financial statements will become more qualified in the presentation if the presentation is based on qualitative elements, among others: easy to understand, reliable, comparable (comparable), and relevant. The financial statements are presented to stakeholders, namely: management, employees, investors (shareholders), creditors, suppliers, customers, and government. Fraudulent financial reporting was a deliberate attempt by the company to deceive and mislead the users of financial statements, especially investors and creditors, to present and manipulate the material value of the financial statements. Manipulation gain profit (earnings manipulation) for the company's desire that the stock remains attractive to investors. Fraud triangle theory expressed by Cressey later developed by Wolfe and Hermanson (2009) with theory. Fraud diamond diamond fraud theory consisted of four fraud risk factors are pressure, opportunity, rationalization and capability. Diamond fraud theory can be used in predicting fraud in proksikan with earnings management.

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Fraud risk factors and tendency to commit fraud: analysis of employees’ perceptions

International Journal of Ethics and Systems ◽

10.1108/ijoes-03-2019-0057 ◽

2019 ◽

Vol 35 (4) ◽

pp. 545-557

Author(s):

Jesi Rizky Anindya ◽

Desi Adhariani

Keyword(s):

Risk Factors ◽

Sampling Method ◽

Small Samples ◽

Dominant Factor ◽

Fraud Triangle ◽

Fraud Prevention ◽

Content Type ◽

Unethical Conduct ◽

Fraud Risk ◽

Convenience Sampling

Purpose This study aims to determine the fraud risk factors perceived by employees to have the greatest influence on individuals committing fraud as an unethical conduct, as well as to analyze employees’ opinions on fraud prevention program. Design/methodology/approach The fraud risk factors in this study are based on the concept of the fraud triangle as developed by Donald Cressey, as well as examples of situations set out in SAS No. 99. The samples used in this study are company employees who have been selected using the convenience sampling method. Findings A survey of 109 employees reports that none of the three factors (pressure, opportunity and rationalization) has a significant influence on fraud. However, when comparing the factors, the pressure is considered to have the highest impact. In terms of fraud prevention, the employees suggest that it is extremely important to implement all prevention tools, especially with regard to the adequate segregation of duties. Research limitations/implications Limitations of this study in terms of method and small samples are expected to inform future studies to overcome the limitations by using other methods such as interview and by collecting more respondents to gather their perceptions and opinions. Originality/value This study contributed to the literature in confirming the pressure as the dominant factor and in confirming the importance of anti-fraud programs as suggested by the agency theory.

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Fraud Risk Factors of Fraud Triangle and the Likelihood of Fraud Occurrence: Evidence from Malaysia

Information Management and Business Review ◽

10.22610/imbr.v6i1.1095 ◽

2014 ◽

Vol 6 (1) ◽

pp. 1-7 ◽

Cited By ~ 9

Author(s):

Shabnam Fazli Aghghaleh ◽

Zakiah Muhammaddun Mohamed .

Keyword(s):

Risk Factors ◽

Risk Factor ◽

Logistic Model ◽

Audit Committee ◽

Financial Statement ◽

Fraud Triangle ◽

Financial Statement Fraud ◽

Fraud Risk ◽

Available Information ◽

Binary Logistic Model

The current research studies the usefulness of Cresseyâ€™s fraud risk factor framework adopted from SAS No. 99 to prevent fraud from occurring. In accordance with Cresseyâ€™s theory, pressure, opportunity and rationalization are existing when fraud occurs. The study suggests variables as proxy measures for pressure and opportunity, and test these variables using publicly available information relating to a set of fraud firms and a sample of no-fraud firms. Two pressure proxies and two opportunity proxies are identified and suggested to be significantly related to financial statement fraud. We find that leverage and sale to account receivable are positively related to the likelihood of fraud. Audit committee size and board of directorsâ€™ size are also linked to decrease the level of financial statement fraud. A binary logistic model based on examples of fraud risk factors of fraud triangle model measures the likelihood of financial statement fraud and can assist experts.

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Financial Statement Fraud Risk Factors of Fraud Triangle: Evidence From Indonesia

International Journal of Financial Research ◽

10.5430/ijfr.v11n4p36 ◽

2020 ◽

Vol 11 (4) ◽

pp. 36

Author(s):

Hasni Yusrianti ◽

Imam Ghozali ◽

Etna Yuyetta ◽

Aryanto Aryanto ◽

Eka Meirawati

Keyword(s):

Risk Factors ◽

Financial Stability ◽

Stock Exchange ◽

Secondary Data ◽

Financial Statement ◽

Company Size ◽

Fraud Triangle ◽

Financial Statement Fraud ◽

Fraud Risk ◽

Industry Risk

The purpose of this study is to examine the risk factors that influencing financial statement fraud. Especially, it examines the influence of rationalization, pressure, and opportunity on the fraudulent financial statements and also examines the interaction effect of industry risk and company size on the relationship between rationalization, pressure, and opportunity on financial statement fraud. Secondary data were collected from Bloemberg Data Base, IDX and OJK RI. The population in this study is companies listed on the Indonesia Stock Exchange in the moving year from 2011 to 2017 and the sample was selected by companies that indicated financial statement fraud and those that did not indicate financial statement fraud. The company indicated by Fraud was collected from Bapepam and OJK RI. Data were tested using logistic regression analysis and different T-tests of 28 committed fraud companies and 28 companies that did not commit fraud. The results showed that only some variables had a significant effect on financial statement fraud, namely financial stability (ACHANGE), Financial Target (ROA), and the Nature of Industry (ARCHANGE). The results also show that company size and industry risk do not moderate the fraud factors on financial statement fraud. These results support the fraud triangle theory in explaining the phenomena of financial statement fraud.

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The Disposition-Based Fraud Cycle

International Journal of Applied Behavioral Economics ◽

10.4018/ijabe.2013040104 ◽

2013 ◽

Vol 2 (2) ◽

pp. 56-76 ◽

Cited By ~ 1

Author(s):

Vasant Raval

Keyword(s):

Risk Factors ◽

Empirical Evidence ◽

Potential Role ◽

Chief Executive ◽

Financial Fraud ◽

Fraud Triangle ◽

Considerable Influence ◽

Fraud Risk ◽

The Past

This paper reviews the disposition-based fraud cycle (DFC) primarily from the perspective of financial frauds. It suggests that fraud as a human act represents an interaction between organism’s disposition and the circumstances he faces. The DFC model which maps financial fraud as a cycle driven by desire-belief connection is contrasted with the widely accepted paradigm called the Fraud Triangle (FT). A purpose of the analysis is to identify unique fraud-risk factors visible in the DFC model. Empirical evidence from the past studies is discussed to show relevance of the DFC model, and its potential role in preventing and detecting financial fraud. Although the model is applicable to all kinds of fraudulent acts, the focus of this study is on the powerful chief executive with considerable influence within the organization she leads.

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The risk of financial fraud: a management perspective

Journal of Financial Crime ◽

10.1108/jfc-04-2020-0062 ◽

2020 ◽

Vol 27 (4) ◽

pp. 1143-1159

Author(s):

Hafiza Aishah Hashim ◽

Zalailah Salleh ◽

Izzati Shuhaimi ◽

Nurul Ain Najwa Ismail

Keyword(s):

Financial Reporting ◽

Small Businesses ◽

Fraud Triangle ◽

Fraudulent Financial Reporting ◽

Content Type ◽

Face To Face ◽

Fraud Risk ◽

Management Perspective ◽

Apparent Reason ◽

Triangle Theory

Purpose A number of highly publicised scandals such as Enron, Lehman Brothers, Parmalat, Satyam, Toshiba and 1MDB (to name a few) have heightened the awareness of the effects of fraudulent financial reporting. While enormous measures have been taken to curb the fraudulent activities among large and small businesses, the issues are still alarming worldwide. Thus, this study aims to explore the extent to which the prevalence of fraud risk in state-controlled companies and to enhance understanding of the underlying reasons of the fraudulent activities. Design/methodology/approach As this study is a descriptive and exploratory in nature, an exploratory case study method was used in four state-controlled companies. Using the fraud triangle theory to underpin this study, the qualitative face-to-face interviews were carried out with top management of the companies. Findings The study reveals a high risk of fraud occurrence at state-controlled companies that involve dealing with various suppliers, governments, customers and shareholders, even when standard operating procedures and rules and regulation are in place. The apparent reason for this phenomenon is attributed to not only opportunities but also incentives and rationalisations in engaging fraudulent activities. Originality/value As there are relatively few qualitative studies conducted in this area specifically among Malaysian state-controlled companies, this study extends the fraud literature by examining risk exposure and reasons underlying the fraudulent activities. The findings demonstrate that to a certain extent, the fraud triangle theory explains the motivations behind the fraudulent activities. The finding from this study is relevant to regulators, investors, companies and academicians in understanding, preventing and combating fraud.

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Fraud Risk Factor Of The Fraud Triangle Assessing The Likelihood Of Fraudulent Financial Reporting

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v7i2.2262 ◽

2011 ◽

Vol 7 (2) ◽

Cited By ~ 11

Author(s):

Yung-I Lou ◽

Ming-Long Wang

Keyword(s):

Risk Factors ◽

Financial Reporting ◽

Forecast Error ◽

Fraud Triangle ◽

Font Size ◽

Fraudulent Financial Reporting ◽

Fraud Risk ◽

Related Party Transaction ◽

Financial Pressure ◽

Simple Logistic

This research examines risk factors of the fraud triangle, core of all fraud auditing standards, for assessing likelihood of fraudulent financial reporting. Significant variables, including analyst’s forecast error, debt ratio, directors’ and supervisors’ stock pledged ratio, percentage of sales related party transaction, number of historical restatements, and number of auditor switch, belong to pressure/incentive, opportunity and attitude/rationalization. Results indicate fraudulent reporting positively correlated to one of the following conditions: more financial pressure of a firm or supervisor of a firm, higher percentage of complex transactions of a firm, more questionable integrity of a firm’s managers, or more deterioration in relation between a firm and its auditor. A simple logistic model based on examples of fraud risk factors of ISA 240 and SAS 99 gauges the likelihood of fraudulent financial reporting and can benefit practitioners.

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Integrating Religiosity into Fraud Triangle Theory: Empirical Findings from Enforcement Officers

10.31235/osf.io/wcyg4 ◽

2019 ◽

Author(s):

Jamaliah Said ◽

Salsabila Asry ◽

Marhamah Rafidi ◽

Rawia Rida Obaid ◽

Md. Mahmudul Alam

Keyword(s):

Internal Control ◽

Local Authority ◽

Fraud Triangle ◽

Public Officials ◽

Huge Amount ◽

New Model ◽

Fraud Risk ◽

Financial Pressure ◽

Triangle Theory ◽

Employee Fraud

Recently, employee-fraud has drawn extensive attention due to huge amount of losses of various organizations. This study developed a new model of fraud risk by integrating new elements into a fraud triangle theory. This study simultaneously analyzed religiosity and the three elements of fraud risk factors of employee fraud committed by low and mid-level public officials. The data collected from 120 enforcement officers indicated that religiosity is negatively related to employee fraud. By contrast, all the three elements of fraud triangle theory, namely, pressure, opportunity, and rationalization, are positively related to employee fraud. These results imply that strong religiosity is crucial to mitigate employee fraud. To minimize employee fraud, the opportunity to commit such fraud should be reduced through strong internal control, reduction of negative rationalization, and employee financial pressure. This study contributes to the literature by introducing a new model on employee-fraud occurrence that is not extensively discussed, particularly in the context of local authority in developing countries.

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Dysfunctional Behavior in Organizations: Insights from the Management Control Literature

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-51914 ◽

2017 ◽

Vol 37 (4) ◽

pp. 117-141 ◽

Cited By ~ 2

Author(s):

Krista Fiolleau ◽

Theresa Libby ◽

Linda Thorne

Keyword(s):

Risk Factors ◽

Internal Control ◽

Management Control ◽

Future Research ◽

Fraud Triangle ◽

Audit Risk ◽

Research Opportunities ◽

Dysfunctional Behavior ◽

Research Questions ◽

Published Research

SUMMARY As the scope of the audit continues to broaden (Cohen, Krishnamoorthy, and Wright 2017), research questions in management control and internal control are beginning to overlap. Even so, there is little overlap between these fields in terms of published research to date. The purpose of this paper is to take a step in bridging the gap between the management control and the internal control literatures. We survey relevant findings from the extant management control literature published between 2003 and 2016 on dysfunctional behavior and the ways in which it might be mitigated. We then use the fraud triangle as an organizing framework to consider how the management control literature might help to address audit risk factors identified in SAS 99/AU SEC 316 (AICPA 2002). The outcome of our analysis is meant to identify and classify the extant management control literature of relevance to research on internal control in a manner that researchers new to the management control literature will find accessible. We conclude with a set of future research opportunities that can help to broaden the scope of current research in internal control.

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Understanding the fraud theories and advancing with integrity model

Journal of Financial Crime ◽

10.1108/jfc-07-2021-0163 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Shefali Saluja ◽

Arun Aggarwal ◽

Amit Mittal

Keyword(s):

Theoretical Background ◽

Traditional Theory ◽

Second Phase ◽

Fraud Triangle ◽

Mice Model ◽

Corporate Fraud ◽

Content Type ◽

Fraud Theory ◽

Triangle Theory ◽

Major Factors

Purpose The fraud landscape talks about the existence of fraudulent activities and can be assessed with the help of fraud literature. Taking this into consideration, this paper qualitatively revisits the famous fraud triangle theory developed by Donald R. Cressey (1950) which is the most traditional theory to detect a fraud. This paper aims to discuss various fraud models that have been extensions to fraud triangle theory and reviews the factors that drive a corporate fraud. This study is divided into two phases. The first phases discuss the various theories which have been developed to detect and prevent corporate frauds in organisations, and in the second phase the authors recognize “integrity” as a new extension to the basic fraud theory. The integrity model has been introduced as “fraud square” contributing to the development of fraud theory. Integrity plays a very important role in detecting corporate frauds, and this paper will act as a theoretical benchmark for future references. The implication of this study would help future researchers, academicians and practitioners to understand the fourth element of the fraud theory and would help improve the professional standards of organisations and regulators. Design/methodology/approach This paper revisits the literature in detail and reviews the most acknowledged models to explain “why people commit frauds” – the fraud triangle, fraud scale, the fraud diamond, the ABC model, the MICE model and the SCORE model. The authors contend that the traditional models need to be modernized to acclimate to the current developments in the rapidly increasing fraud incidents, both in occurrence and seriousness. Additionally, this paper builds on theoretical background to generate new model so as to improve the understanding behind the major factors which lead to commitment of frauds. Findings The authors identify a major element – integrity – in the research. As per ACFE 2020, “There are more than 3.3 billion people in the global workforce, half of them takes illegal use of gains from the organisation and some are discipled with integrity who does not cause any harm to the organisation.” To prevent fraud, integrity plays a very important role in organisations (Bakri et al., 2017). It has been found that individuals with less integrity are basically specified to a greater level of mismanagement. The organisations that have worked with integrity will improve performance at work and will always promote the best employees to work with less supervision. Originality/value This paper develops the integrity model to contribute to the development of fraud theory by identifying the key factors that play a major role in whether fraud will actually occur and acting as a theoretical benchmark for all future reference.

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