Factors Influencing the Presentation of Fraudulent Financial Reporting in Indonesia

Abstract

This study examines the factors that influence the preparation and presentation of fraudulent financial statements basing on the fraud triangle theory. The purpose of this research is to examine and analyze the influences of financial stability (asset change), external pressure, personal financial need (insider ownership), financial targets, ineffective monitoring (by audit committee), and rationalization (auditor’s opinion) on making fraudulent financial statements. The population in this study is a manufacturing company listed on the Indonesia Stock Exchange in 2013 to2015. Sample selection is by purposive sampling. Data used in the analysis was of 147 companies. The data analysis technique for hypothesis testing was by logistic regression analysis. Results of this research indicate that financial stability, external pressure, personal financial need, and rationalization have no significant effect on making fraudulent financial statements. Although the results of this study can not prove the factors that affect fraud in the presentation of financial statements, but companies need to be vigilant to prevent fraud in the presentation of financial statements. Companies must be able to perform early detection of the occurrence of fraudulent financial statements for the survival of the entity.

Factors that affect Fraudulent Financial Reporting

“…Opportunity is the situation that makes the fraud to happen possible, it could happen because of the organization's weak internal control, abuse of authority. Rationalization is the reasoning or when the perpetrators will try to make justifications for their action (Rizani and Respati 2018). Wolfe and Hermanson (2004) adds a new factor called capability which is a qualitative element.…”

“…Fraud that occurs of fraudulent statements usually involving the top management (Rizani and Respati 2018). Fraudulent financial reporting would harm many parties.…”

“…Fraudulent financial statements by management usually have a scheme that was well-crafted and sometimes very difficult to trace while also very detrimental to the company. Hence, knowing the cause of fraudulent financial reporting is very important (Rizani and Respati 2018). According to Kartikasari and Irianto (2010), big companies that suffer from collapse are usually because of financial report manipulation.…”

Testing the fraud triangle: a systematic review

“…The one study that did not show any support for elements of the fraud triangle, Rizani and Respati (2018), may have methodological weaknesses affecting the results of the study. For example, the empirical definition used for opportunity was the "number of audit committee meetings" conducted by a corporation in a three year period, with more audit committee meetings meaning more oversight.…”

Target Keuangan, Kondisi Industri, Perubahan Auditor, Dan Perubahan Direksi Terhadap Salah Saji Material Pada Laporan Keuangan

“…Direksi baru memiliki motivasi untuk dapat memperlihat kinerja yang lebih baik dari Direksi sebelumnya. Dengan peluang berada pada posisi yang tinggi dalam manajemen melalui otoritas yang luas serta kepiawaiannya untuk mengambil keuntungan dengan kelemahan pengendalian internal, serta kemampuan penguasaan atas proses penyusunan laporan keuangan yang sangat memadai (Simaremare et al, 2019) dan (Rizani & Respati, 2018) justru membuat Direksi yang baru yang terkadang berujung pada tindakan untuk menyajikan laporan keuangan yang mengandung salah saji material. Oleh karena itu, penelitan ini menduga seperti dalam hipotesis berikut.…”