Fraud Diamond Model for Fraudulent Financial Statement Detection

Abstract

Many cases of fraud that occur and are revealed. something happened in the realm of employee fraud and fraud management. One of the frauds that causes substantial losses is fraudulent financial reporting. Fraudulent financial statement becomes one of the fraud schemes that growth simultaneously within the current years. Many of this fraud scheme cause large sum amount of loss to investor, creditors and other financial statement user. The purpose of this research is to gain empirical evidence about financial statements fraud detection using fraud diamond elements. This research is conducted on listed banking companies in Indonesia Stock Exchange year 2014-2018. There is a total of 190 samples companies used in this research which further analyzed by using Logistic Regression Analysis. Statistical test is conducted to test the hypothesis. The test included: determination of coefficient, logistic regression and partial hypothesis testing. Fraudulent financial statement is proxies by Beneish M-score. The research concluded that Pressure proxies by Changes in Total Assets affects significantly to fraudulent financial statements detection. Meanwhile, Pressure proxies by Return on Assets, Opportunity proxies by Ratio of Independent Board of Commissioners, Rationalization proxies by Changes of External Auditor and Capability proxies by Changes in Board of Director do not affect significantly towards fraudulent financial statements detection. Determination of coefficient test result indicates that 20% of fraudulent financial reporting was able to be explained by pressure, opportunity, rationalization and capabilities.

Fraud Detection Using Fraud Hexagon Model in Top Index Shares of KOMPAS 100

“…This is because monitoring, which is part of internal control at the KOMPAS 100 index company, has been effective on average. This result in line with previous study by [7], [9] with got the same result.…”

“…Change of directors can be used as a measure of the element of Capability [2]. The change of directors can be a sign of fraud where the previous director is considered to know about the company's fraud and company is likely to get rid of the director [9]. Research conducted by [10] shows that change in director has an influence in detecting financial statement fraud, meanwhile research conducted by [7] indicates that change in director has no effect in detecting financial statement fraud.…”

Fraud Hexagon and Fraudulent Financial Statement: Comparison Between OMI and Beneish Model

“…The occurrence of audit failures and litigation increases after the change of auditors because they can occur as an effort to eliminate traces of fraud found by previous auditors [9]. This finding means accepting H4 [17], [33], [41]. Change of auditors is seen as a way for directors to eliminate traces of their manipulation where auditors take longer to detect FFS, which means the more often the company changes auditors, the greater the indications that the company is doing FFS.…”

“…Still, when its performance does not meet expectations and is unable to show its capability to manage the company, its position will be replaced. The change of directors does not necessarily mean that the company is trying to hide its fraudulent scheme because one of the common reasons for the change of directors is to improve the company's performance by having more competent personnel [41], [33]. Directors who change every year can also be used to maintain the quality of the company's performance.…”

Financial Fraud Identification Based on Stacking Ensemble Learning Algorithm: Introducing MD&A Text Information

“…Early on, some scholars used the M-Score [17][18][19], F-Score [20], and Z-Score [21] models to evaluate the possibility of financial fraud. Some scholars have also applied Benford's law to the identification of financial fraud in the accounting field based on the distribution law of the first digit in the dataset and verified its applicability [22].…”