Abstract
Accounting and financial reporting fraud has been happening lately. Failure in estimating the veracity of financial reports starts from many aspects of accruals in the preparation of financial reports. This study seeks to explain the flow of financial transactions as important information, considering that activities in the financial sector require quick and relevant decisions. The flow of transactions in the financial reports consists of cash flows and accruals. Finance in business is almost similar to direct current and alternating current. In fact, this is misleading because of the ignorance of the readers of financial reports in interpreting profit, even though the misinterpretation will have an impact on investing errors. This study tries to analyze the results of financial ratio investments using the approach to the ratio of factors in the form of cash and accruals. Hermenuetics qualitative approach is used with data sourced from the Indonesia Stock Exchange. This study uses a sample of manufacturing companies listed on the Indonesia Stock Exchange. Three forms of financial ratio analysis are used, namely the analysis of ROA (return of assets), ROI (return of investment), and ROE (return of equity). Researchers measure using a comparison of ROA, ROI, and ROE based on accruals and cash. The results of the comparison of the accuracy of the accrual ratio and the cash ratio in the financial reports are presented further in this article.
Highlights
Every company has financial reports that aim to provide information regarding the financial position, performance, and changes in the financial position of a company that is useful for a large number of users of financial reports in making economic decisions (Maidoki, 2013)
This study aims to determine the accuracy of cash and accrual-based financial ratios
The flow of transactions in financial reports consisting of cash flows and accruals will be compared with capital market returns to determine investor response in interpreting investments based on financial ratio analysis
Summary
Every company has financial reports that aim to provide information regarding the financial position, performance, and changes in the financial position of a company that is useful for a large number of users of financial reports in making economic decisions (Maidoki, 2013). Financial reports provide financial information of a company that can be used in making economic decisions and show the performance that has been carried out by management (stewardship) or management's responsibility for the use of the resources entrusted to it (Shakespeare, 2020). The phenomenon in the field shows an increase in fraud cases in recent times, as stated in a previous study (Xin et al, 2018). Incidents like this in the world of accounting involve accrual elements (recognition), where accrual elements are very easy to engineer.
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