Detecting the Likelihood of Fraudulent Financial Reporting: An Analysis of Fraud Diamond

This paper aims to analyze the likelihood of fraudulent financial reporting using the fraud diamond analysis. Fraud diamond is a concept explaining factors that cause someone to commit fraud, namely pressure, opportunity, rationalization, and capability. In this research, pressure factor was proxied by using financial stability, external pressure, and financial target. Opportunity factor was proxied by using the nature of industry and effectiveness of monitoring. Rationalization factor was proxied by rationalization and capability was proxied by capability. This research made use of earnings management to discover the likelihood of financial statement frauds. Earnings management was measured by using F-score indicator. The population in this research were manufacturing companies listed on the Indonesian Stock Exchange (IDX) from the year 2014 – 2016. From the population, 31 companies were selected as the research samples by using the purposive sampling method. This quantitative method-using research was analyzed using multiple regression analysis and T-tests for hypotheses testing. The research findings reveal that only the opportunity variable proxied by industrial nature is proven to have an influence in detecting the likelihood of fraudulent financial reporting. In the meantime, other variables have no influence in detecting the likelihood of fraudulent financial reporting. Keywords: fraud diamond, likelihood of fraudulent financial reporting, f-score

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FINANCIAL STATEMENT FRAUD DETECTION USING PERSPECTIVE OF FRAUD TRIANGLE ADOPTED BY SAS NO. 99

Asia Pacific Fraud Journal ◽

10.21532/apfj.001.16.01.02.24 ◽

2016 ◽

Vol 1 (2) ◽

pp. 317 ◽

Cited By ~ 1

Author(s):

Shabrina Prasmaulida

Keyword(s):

Financial Reporting ◽

Financial Stability ◽

Stock Exchange ◽

Cash Flows ◽

External Pressure ◽

Financial Statement ◽

Fraud Triangle ◽

Manufacturing Companies ◽

Financial Statement Fraud ◽

Financial Need

Financial statements generally aim to provide information about the company’s financial position, performance, and cash flows to the interested parties. The motivation to gain trust from the users, especially investors, shareholders and creditors, leads someone to commit fraud in the financial reporting. This study aims to detect and predict financial statement fraud based on the perspective of fraud triangle adopted by SAS No. 99. The dependent variable in this study is financial statement fraud which is proxied by earnings management, while the independent variables in this study are financial stability pressure, personal financial need, ineffective monitoring, effective monitoring, external pressure, and financial targets.Population of this research is manufacturing companies listed in Indonesia Stock Exchange period 2012 - 2014. Samples are selected using purposive sampling method and obtained 150 companies out of a total population of 162 companies. The results show that financial stability pressure and external pressurehave significant positive effect on financial statement fraud. Meanwhile, personal financial need, ineffective monitoring, effective monitoring, and financial targets do not have significant effect on financial statement fraud.

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FRAUD LAPORAN KEUANGAN DALAM PERSPEKTIF FRAUD TRIANGLE

Jurnal Riset Akuntansi dan Keuangan ◽

10.21460/jrak.2018.141.299 ◽

2018 ◽

Vol 14 (1) ◽

pp. 53

Author(s):

Rowland Bismark Fernando Pasaribu ◽

Angrit Kharisma

Keyword(s):

Earnings Management ◽

Financial Stability ◽

Stock Exchange ◽

External Pressure ◽

Financial Statement ◽

Fraud Triangle ◽

Manufacturing Companies ◽

Statistical Data Analysis ◽

Financial Statement Fraud ◽

Monitoring Change

This research aims to obtain empirical evidence of the effectiveness of the fraud triangle in detecting fraudulent financial statement. The variables of the fraud triangle are used a proxy external pressure with LEV, financial stability pressure by ACHANGE, nature of industry by RECEIVABLE effective monitoring by BDOUT proxy and change in auditor by CPA. Detecting of fraudulent financial statement in this research uses a proxy earnings management. The population of this research is the manufacturing companies listed on Indonesia Stock Exchange in 2008 - 2016. Statistical data analysis method used is linear regression. The result of this research indicate that the nature of indutry influence the financial statement fraud. Meanwhile, the external pressure, financila stability, ineffective monitoring and change in auditor has no significant impact on financial statement fraud.Keywords: Financial statement fraud, external pressure, nature of industry, financial stability, ineffective monitoring, change in auditor, earnings management. ABSTRAKPenelitian ini bertujuan untuk memperoleh bukti empiris mengenai efektivitas dari fraud triangle dalam mendeteksi kecurangan laporan keuangan. Variabel-variabel dari fraud triangle adalah external pressure yang diproksikan dengan LEV, financial stability yang diproksikan dengan ACHANGE, nature of industry yang diproksikan dengan RECEIVABLE, ineffective monitoring yang diproksikan dengan BDOUT dan chabnge in auditor yang diproksikan dengan CPA. Pendeteksian kecurangan laporan keuangan dalam penelitian ini menggunakan manajemen laba. Populasi dari penelitian ini adalah perusahaan manufaktur yang terdaftar pada Bursa Efek Indonesia tahun 2008-2016. Metode analisis data statistik yang digunakan adalah regresi berganda. Hasil penelitian ini menunjukkan bahwa hanya nature of industry yang berpengaruh signifikan terhadap kecurangan laporan keuangan. Sementara itu, external pressure, financial stabiliy, ineffective monitoring dan change in auditor tidak berpengaruh signifikan terhadap kecurangan laporan keuangan.Kata Kunci: Kecurangan laporan keuangan, tekanan eksternal, sifat industri, stabilitas keuangan, pemantauan tidak efektif, perubahan auditor, manajemen laba.

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Business Ethics in Providing Financial Statements: The Testing of Fraud Pentagon Theory on the Manufacturing Sector in Indonesia

Business Ethics and Leadership ◽

10.21272/bel.3(3).68-77.2019 ◽

2019 ◽

Vol 3 (3) ◽

pp. 68-77

Author(s):

Einde Evana ◽

Mega Metalia ◽

Edwin Mirfazli ◽

Daniela Ventsislavova Georgieva ◽

Istianingsih Sastrodiharjo

Keyword(s):

Financial Reporting ◽

Financial Stability ◽

Manufacturing Sector ◽

External Pressure ◽

Financial Statement ◽

Manufacturing Companies ◽

Fraudulent Financial Reporting ◽

Financial Statement Fraud ◽

Leverage Ratio ◽

Total Accrual

The article studies the causes and consequences of manipulating the financial statements of companies, identifies the most influential drivers of fraudulent reporting actions by employees and business owners. This research aimed to examine the effect of fraud indicators in fraud pentagon theory against the detection of fraudulent financial reporting on manufacturing companies. Independent variables in this research were variable pressure proxy by financial stability, external pressure, and financial target, opportunity proxy by nature of the industry, rationalization proxy by total accrual, capability proxy by the change of directors, and arrogance proxy by ownership by management. The dependent variable was the fraudulent financial reporting proxy by fraud score. The sample of this research used 57 manufacturing companies listed on the Indonesia Stock Exchange Effect in 2013-2015. It is found that the result of the determination coefficient test shows an adjusted R2 value of 0.068, it means that the ability of the independent variable in explaining the variants of the dependent variable is still limited, which is 6.8%. The ANOVA test, which shows the possibility of using the regression model to predict the Fraudulent Financial Report, serves as the methodological tool of the study. It is determined that pressure with proxies of financial stability (current), external pressure (Lev), and financial target (ROA), opportunity with the nature of industry (receivable) proxy, and arrogance with managerial ownership (OM) proxy do not affect fraudulent financial reporting. The result of this research showed that rationalization variables proxy by the total accrual ratio and capability proxy by the change of directors had an influence on the fraudulent financial reporting. While the pressure variable proxy by financial stability measured with the current ratio, external pressure measured with leverage ratio, financial target measured with ROA, opportunity variable proxy by nature of industry variable measured with the change in inventory ratio, and arrogance proxy by ownership by management had no influence on financial statement fraud. The results obtained can be useful both for the management of the company and for regulatory authorities in terms of understanding the growth indicators of the financial statement fraud frequency and tools to minimize their impact. Keywords: fraud, fraud pentagon, fraudulent financial reporting, financial statement fraud, leverage ratio, managerial ownership and manufacturing sector.

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Fraud Pentagon and Fraudulent Financial Reporting: Evidence from Manufacturing Companies in Indonesia and Malaysia

Journal of Accounting and Investment ◽

10.18196/jai.v22i3.12538 ◽

2021 ◽

Vol 22 (3) ◽

pp. 625-646

Author(s):

Erni Suryandari Fathmaningrum ◽

Gupita Anggarani

Keyword(s):

Financial Reporting ◽

Financial Stability ◽

Stock Exchange ◽

External Pressure ◽

Manufacturing Companies ◽

Fraudulent Financial Reporting ◽

Auditor Change ◽

External Auditor ◽

Financial Need

Research aims: This study aims to examine the influence of fraud pentagon concept on fraudulent financial reporting.Design/Methodology/Approach: This study’s population was manufacturingcompanies listed in Indonesia Stock Exchange and Malaysia Stock Exchange. 120 manufacturing companies in Indonesia and 118 manufacturing companies in Malaysia were involved as samples. The data analysis method used in this study is multiple linear regression.Research findings: The results showed that financial target, financial stability, quality of external auditor, external pressure, and nature of industry variables influenced fraudulent financial reporting. In contrast, personal financial need, ineffective monitoring, change in auditor, change in director, and frequent number of CEO’s pictures variables had no effect on fraudulent financial reporting. For Indonesia, it was found that financial target, financial stability, and the quality of external auditor influenced fraudulent financial reporting. While, in Malaysia, the results showed that financial stability, external pressure, and nature of industry variables influenced fraudulent financial reporting in Malaysia.Theoretical contribution/Originality: These results support the financial target and quality of external auditor hypothesis in Indonesia, financial stability hypothesis in Indonesia and Malaysia, external pressure and nature of industry hypotheses in Malaysia, stating that fraud pentagon factors affect fraudulent financial reporting. It is also proved that there are different levels of fraudulent financial reporting in Indonesia and Malaysia. Indonesia has fraudulent financial reporting cases higher than Malaysia.

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Financial Statement Fraud Detection With Beneish M-Score and Dechow F-Score Model: An Empirical Analysis of Fraud Pentagon Theory in Indonesia

International Journal of Financial Research ◽

10.5430/ijfr.v11n6p154 ◽

2020 ◽

Vol 11 (6) ◽

pp. 154

Author(s):

Dwi Ratmono ◽

Darsono Darsono ◽

Nur Cahyonowati

Keyword(s):

Empirical Evidence ◽

Financial Reporting ◽

Financial Stability ◽

External Pressure ◽

Financial Statement ◽

Manufacturing Companies ◽

Fraudulent Financial Reporting ◽

Financial Statement Fraud ◽

Score Model ◽

Ceo Narcissism

This research contributes to the Financial Statement Fraud (FSF) literature by examining the ability of the Beneish model and the F-Score model to detect FSF trends in the Indonesian context. This study also aims to provide empirical evidence on other issues that encourage fraud. The results of this study are empirical evidence that the financial target variables and CEO narcissism have a significant effect on financial statement fraud while financial stability, external pressure, supervision ineffectiveness, related party transactions, auditor turnover, and CEO dominance have no significant effect on financial statement fraud. Furthermore, when viewed in the table of the F-Score and M-Score models, there are several companies suspected or indicated of fraudulent financial reporting, including 284 companies out of 385 observation samples. The percentage of companies indicated to have financial statements fraud requires further examination to really prove that the company is cheating. The results of the fraudulent financial report analysis using the F-Score dan M-score for manufacturing companies in 2014 - 2018 successfully analyzed a total of 284 companies that indicated fraudulent financial reporting.

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ANALISIS DETERMINAN FRAUD DIAMOND TERHADAP DETEKSI FRAUDULENT FINANCIAL STATEMENT

JURNAL INFORMASI, PERPAJAKAN, AKUNTANSI, DAN KEUANGAN PUBLIK ◽

10.25105/jipak.v14i2.5195 ◽

2019 ◽

Vol 14 (2) ◽

pp. 125

Author(s):

Yudha Adnovaldi ◽

Wibowo Wibowo

Keyword(s):

Earnings Management ◽

Financial Stability ◽

Stock Exchange ◽

External Pressure ◽

Financial Statement ◽

Manufacturing Companies ◽

Financial Statement Fraud ◽

Leverage Ratio ◽

Pressure Variable ◽

Independent Variable

The study aims to obtain empirical evidence regarding financial statement fraud based on the theory of fraud diamond. In this study, the independent variable is financial stability, external pressure, financial target, nature of industry, ineffective monitoring, rationalization, and capability variable. The study uses earnings management to investigate the potential of financial statement fraud. Earnings management is measured by F-Score indicator. Sample are 32 manufacturing companies which are listed on the Indonesia Stock Exchange (IDX) in 2015-2017. The result shows that only external pressure variable which is proxied by leverage ratio and nature of the industry variable which is proxied by obsolete inventory account that has significantly influences to detect the potential of financial statement fraud. Meanwhile financial stability which is proxied by changes in total assets ratio, financial targets which is proxied by ROA ratio, ineffective monitoring which is proxied by number of independent commissioners ratio, rationalization variable which is proxied by change in auditor, and capability variable which is proxied by change in directors do not affect to detect the potential of financial statement fraud.

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DETEKSI FRAUDULENT FINANCIAL REPORTING MENGGUNAKAN FRAUD PENTAGON

Jurnal ULTIMA Accounting ◽

10.31937/akuntansi.v13i1.1857 ◽

2021 ◽

Vol 13 (1) ◽

pp. 125-142

Author(s):

Carla Carla ◽

Stevanus Pangestu

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Financial Stability ◽

Fixed Effects ◽

External Pressure ◽

Manufacturing Companies ◽

Fraudulent Financial Reporting ◽

Ceo Duality ◽

Fixed Effects Panel Regression ◽

Financial Need

Abstract— The purpose of this research is to analyze the effects of variables, which were derived from the Fraud Pentagon framework, on earnings management. Beneish M-Score was used to measure earnings management, which serves as a proxy fraudulent financial reporting. The independent variables consist of financial target, financial stability, external pressure, personal financial need, nature of industry, effective monitoring, change in auditor, change in director, and CEO duality. One hundred and sixteen publicly traded manufacturing companies were examined for the period 2016-2018 (n=348). Our balanced dataset was analyzed using fixed-effects panel regression. Our investigation finds that financial target, external pressure, personal financial need, nature of industry, change in auditor, and CEO duality significantly affect fraudulent financial reporting. Meanwhile, financial stability, ineffective monitoring, and change in director do not significantly affect fraudulent financial reporting. Keywords: Earnings Management; Fraud, Fraud Pentagon; Fraudulent Financial Reporting

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DETECTION ANALYSIS ON FRAUDULENT FINANCIAL REPORTING USING FRAUD SCORE MODEL

SAR (Soedirman Accounting Review) Journal of Accounting and Business ◽

10.20884/1.sar.2019.4.2.2467 ◽

2019 ◽

Vol 4 (2) ◽

pp. 161

Author(s):

Puput Ade Irawan ◽

Dewi Susilowati ◽

Novita Puspasari

Keyword(s):

Financial Reporting ◽

Financial Stability ◽

Stock Exchange ◽

Financial Statements ◽

External Pressure ◽

Manufacturing Companies ◽

Fraudulent Financial Reporting ◽

Analysis Model ◽

Detection Analysis ◽

Fraudulent Financial Statements

This study aims to examine the elements of fraud in the fraud diamond theory. Fraud is proxied by seven variables consisting of three pressure elements namely financial target, financial stability, external pressure, two variables of opportunity element, namely effective monitoring and nature of industry, one variable from the rationalization element, namely change in auditor, one variable from capability element namely change in directors, which is hypothesized to affect financial statements fraud. This study uses earnings management to see the potential for fraudulent financial statements. Earning management is measured using the F-Score indicator. The research sample was selected using a purposive sampling method from 30 manufacturing companies and a research period of 5 years to obtain the number of sample units of 155 data which is listed on the Indonesia Stock Exchange (IDX) for the period of 2013 to 2017. The hypothesis testing used a multiple regression analysis model using SPSS 23. The results of the study indicate that financial targets and changes in auditor financial stability have a significant positive effect on fraudulent financial statements. While external pressure, effective monitoring, nature of industry, financial stability, change of directors, have no effect on financial statements fraud.

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Faktor-Faktor Yang Mempengaruhi Fraudulent Financial Reporting

Akuntabilitas ◽

10.15408/akt.v14i2.22557 ◽

2021 ◽

Vol 14 (2) ◽

pp. 139-152

Author(s):

Wulanda Maya Sari ◽

Anik Irawati

Keyword(s):

Logistic Regression ◽

Data Analysis ◽

Financial Reporting ◽

Financial Stability ◽

Stock Exchange ◽

External Pressure ◽

Analysis Method ◽

Fraudulent Financial Reporting ◽

Spss Software ◽

Score Model

This study aims to empirically prove the influence of financial stability, external pressure, and ineffective monitoring on fraudulent financial reporting. Financial stability was measured using a comparison of total assets. External pressure was measured using leverage. Meanwhile, ineffective monitoring was measured using the ratio of independent commissioners’ number. The dependent variable in this study was fraudulent financial reporting. It was measured using the F-Score Model. The sample in this study were 21 State Owned Enterprises (BUMN) listed on Indonesia Stock Exchange in period of 2017-2019. The data analysis method used in this study was Logistic Regression using SPSS software version 20. The results of this study indicate that financial stability has no influence on fraudulent financial reporting. Meanwhile, external pressure and ineffective monitoring influence fraudulent financial reporting.How to cite:Sari, W. M., & Irawati, A. (2021). Faktor-faktor yang Mempengaruhi Fraudulent Financial Reporting. Akuntabilitas: Jurnal Ilmu Akuntansi, 14(2), 139-152.

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DETERMINAN FINANCIAL STATEMENT FRAUD DENGAN MENGGUNAKAN PENDEKATAN FRAUD TRIANGLE

AKUNTABILITAS ◽

10.29259/ja.v12i2.9339 ◽

2019 ◽

Vol 13 (1) ◽

pp. 1-18

Author(s):

Yeasy Darmayanti ◽

Ilham Setiawan ◽

Ethika Ethika

Keyword(s):

Regression Analysis ◽

Financial Stability ◽

Stock Exchange ◽

External Pressure ◽

The Other ◽

Financial Statement ◽

Fraud Triangle ◽

Manufacturing Companies ◽

Financial Statement Fraud ◽

Financial Need

The aim of this study is to examine the effects of financial stability, external pressure, personal financial needs, financial targets, nature of industry, ineffective monitoring, and rationalization of financial statement fraud on manufacturing companies listed on the Indonesia Stock Exchange from 2012 to 2016 .From a population of 159 listed manufacturing companies, 72 samples were obtained that met the criteria. Testing using SPSS version 23 for logistic regression analysis. The results of this study indicate that external pressure and nature of industry have a significant influence on financial statement fraud. On the other hand, financial stability, personal financial need, financial targets, ineffective monitoring and rationalization have no effect on financial statement fraud.

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