Fraudulent Financial Statements Detection Using Fraud Triangle Analysis: Institutional Ownership as A Moderating Variable

Abstract

Purpose : The study investigates the empirical evidence of financial targets, financial stability, external pressure, the nature of the industry, and rationalization’s influence on financial statement fraud, with institutional ownership as a moderating variable.
 Method : The population’s study included 58 publicly listed companies on the Indonesia Stock Exchange and formed the LQ45 in 2016–2018. Purposive sampling was used on 29 companies, and descriptive and regression analyses were performed using SPSS.
 Findings : The results showed that financial targets have a positive effect on financial statement fraud, and the industry’s nature has a negative effect on financial statement fraud. In contrast, financial stability, external pressure, and rationalization do not implicate financial statement fraud. In addition, institutional ownership could undermine the effect of financial targets on financial statement fraud. Still, it could affect financial stability, external pressure, industry nature, or rationalization of financial statement fraud. Users of financial statements concentrate on the level of corporate profit because the extent of manipulation indicates that.
 Novelty : The research initiates an initial study that examines the engagement of institutional ownership as a moderating variable because it not only increases but also risks the possibility of fraud in the financial statements, which reflect financial performance.
 Keywords : Fraud Financial Statement; Fraud Triangle; Institutional Ownership

The Role of Institutional Ownership in Detecting Fraudulent Financial Reporting: Fraud Heptagon Model Analysis

“…The relationship between support for the situation faced by managers and their well-being and response to the situation was unrelated to arousal. The results of this research doesn't accept the results of the studies by Anisykurlillah et al (2022) that institutional ownership can consider the influence of financial stability on FFR.…”

“…The optimal role of institutional ownership cannot influence managers' tendencies to take advantage of opportunities to detect FFR. These results do not align with the research (Anisykurlillah et al, 2022).…”

“…The greater the pressure on a company's finances or supervisors, the higher the likelihood of fraud. Anisykurlillah et al (2022) prove institutional ownership can influence the relationship between Pressure and FFR. The research hypothesis: H1a : Pressure has a positive and significant effect on FFR.…”

“…The selfish nature identified in the assumption that performance is based on obtaining rewards makes individuals do various things to improve performance. Institutional ownership reduces problems by contributing to external monitoring (Anisykurlillah et al, 2022). The research hypothesis: H3a : Rationalization has a positive and significant effect on FFR.…”

Impact of Whistleblowing System Between the Vousinas Fraud Hexagon Theory and Financial Statement Fraud

“…The motivation that drives fraudulent actions can be pressure (Fitriyah et al, 2021). Pressure can encourage positive growth in firm performance by management every year (Anisykurlillah et al, 2023). However, fraud can also grow due to the pressure received (Yusrianti et al, 2020).…”