Abstract
A fraudulent financial statement is an issue that continues to be discussed as a form of deviation from corporate governance. Covid-19 pandemic has also demanded management to uphold the company's performance to have a good public image. Thus, the present study sets out to scrutinize the fraud pentagon theory on fraudulent financial statements. Each element is not able to be tested directly. However, there are proxies. The pressure element is proxied as a personal financial need. The opportunity is becoming the nature of industry. Each of the qualities of the external auditors as well as the change of directors propose rationalization and competence. The frequent number of CEO’s appearances in photos is a proxy of arrogance. The testing was carried out on the registered pharmaceutical companies of the Indonesian stock exchange in the span of the 2015-2019 period. The samples were selected by the means of sampling technique which is purposive. Data are scrutinized by the means of panel data regression. The analysis results show that the characteristics of the industry positively affects financial reports which are fraudulent. Changing top management positions such as directors can be an indication of financial reports which are fraudulent. The personal financial need variables, the caliber of external auditors and the quantity of CEO’s appearance in photos pose no effects on the fraudulent financial statements of the Indonesian's pharmaceutical companies.
Highlights
This manipulation has even occurred in a sector that was experiencing a surge in sales during a pandemic, namely the pharmaceutical industry
Some companies that apply for share ownership by company insiders only provide a percentage of less than 2 percent of the total outstanding shares for company insiders so that the personal financial condition of executives is not affected by the company's financial condition
Given the results of the analysis, it can be summarized that personal financial needs, the quality of the independent auditors and the display of the CEO's photo have no effects on the occurrence of fraudulent financial statements
Summary
The pandemic of COVID 19 causes a slowdown in various sectors of the economy (Donthu & Gustafsson, 2020; Hadiwardoyo, 2020; Sigala, 2020). Seetharaman (2020) stated that the pandemic impacts caused widespread business stoppages and a temporary decline in the aggregate supply of consumption and investment reduced demand for goods and services. These caused the company to take steps to maintain the company's performance. Financial statement manipulation has occurred in several companies before the pandemic took place (Vivianita & Indudewi, 2019; Yateno & Sari, 2016). This manipulation has even occurred in a sector that was experiencing a surge in sales during a pandemic, namely the pharmaceutical industry. The manipulation occurred in some units; namely, the raw material industry that experienced Rp 2.7 billion worth of overstated sales, there was Rp 23.9 billion worth of overstated inventory in the central logistics unit, Rp 8.1 billion worth of overstated inventory and Rp 10.7 billion worth of overstated sale in the pharmaceutical
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