Fraudulent financial reporting through the lens of the fraud pentagon theory

Abstract

Fraud causes trillions of rupiah in losses in the business world. With the fraud pentagon lens, this study aims to examine whether pressure, opportunity, rationalization, capability and arrogance affect fraudulent financial reporting. This study used 51 financial reports from fraud companies indicated by the Financial Services Authority and 51 financial reports from other companies in similar industry, listed on the Indonesian Stock Exchange from 2009 to 2018. The proxies of fraud pentagon were tested by using the logistic regression. The results showed that pressure, opportunity and rationalization had significant effects on fraudulent financial reporting. Meanwhile, capability and arrogance have no effect. These results indicate that the existence of pressure and rationalization can lead to financial fraud, but opportunity negatively affect fraudulent financial reporting. The results of this study contribute to the development of accounting science and to provide information on the prevention and detection of fraud in companies.

Determinants of Fraudulent Financial Reporting in Mining Companies: Pentagon Theory Fraud Perspective

“…Opportunity is (a condition caused by a weak control that creates an opportunity for an individual or group to commit fraud). According to Anggraini & Suryani (2021), the existence of fraud occurs karena pelaku berprinsip bahwa perilaku tersebut tidak akan diketahui. Companies that have weak internal controls and lack of management oversight, no procedures and sanctions that clearly create fraud.…”

“…Rationalization is (the thoughts of a person or group that seeks to justify their behavior and thoughts even though these actions tend to violate rules and procedures. In justifying their actions fraud perpetrators tend to look for rational reasons to cover up their actions Anggraini & Suryani (2021).…”

Determinan Fraudulent Financial Reporting Dengan Mekanisme Corporate Governance Sebagai Variabel Moderasi

“…Hal ini berlawanan dengan yang ditemukan oleh Pramono Sari et al, (2020) dan Pamungkas et al, (2018) yang menemukan bahwa tekanan (target keuangan) tidak berpengaruh secara signifikan terhadap kecurangan pelaporan keuangan. Kesempatan (pengawasan yang tidak efektif) dan Rasionalitas (pergantian auditor) memiliki pengaruh positif signifikan terhadap kecurangan pelaporan keuangan (Anggraini & Suryani, 2021;Zaki, 2017;Noble et al, 2019).…”

“…Agency theory memberikan dampak adanya asimetris informasi antara prinsipal atau pemilik (dalam hal ini yaitu pemegang saham) dengan manajer selaku agen dari perusahaan. Asimetris informasi timbul pada suatu kondisi dimana manajer lebih mengetahui informasi internal perusahaan dan peluang perusahaan dimasa mendatang dibandingkan pemegang saham dan stakeholder lainnya (Anggraini & Suryani, 2021). Jensen dan Meckling (1976), mencetuskan agency theory yang mendeskripsikan stakeholder sebagai prinsipal dan manajemen sebagai agen.…”

“…Sedangkan komite audit memperkuat pengaruh pergantian direksi terhadap kecurangan pelaporan keuangan, karena pengawasan yang semakin efektif dari komite audit dapat meminimalisir terjadinya kecurangan pelaporan keuangan. Sesuai dengan teori Agency, dimana komite audit merupakan salah satu bagian dari sistem yang dibuat oleh prinsipal untuk meminimalisir agency cost (suatu sistem yang dirancang oleh prinsipal untuk dapat melakukan monitor kepada agen (Anggraini & Suryani, 2021).…”