Abstract
This study aims to examine the elements of fraud in the fraud diamond theory. Fraud is proxied by seven variables consisting of three pressure elements namely financial target, financial stability, external pressure, two variables of opportunity element, namely effective monitoring and nature of industry, one variable from the rationalization element, namely change in auditor, one variable from capability element namely change in directors, which is hypothesized to affect financial statements fraud. This study uses earnings management to see the potential for fraudulent financial statements. Earning management is measured using the F-Score indicator. The research sample was selected using a purposive sampling method from 30 manufacturing companies and a research period of 5 years to obtain the number of sample units of 155 data which is listed on the Indonesia Stock Exchange (IDX) for the period of 2013 to 2017. The hypothesis testing used a multiple regression analysis model using SPSS 23. The results of the study indicate that financial targets and changes in auditor financial stability have a significant positive effect on fraudulent financial statements. While external pressure, effective monitoring, nature of industry, financial stability, change of directors, have no effect on financial statements fraud.
Highlights
Every company has the main goal, which is to get profit in each period
The results prove that the potential for fraudulent financial statements is more common in companies that have fewer independent board members
This study aims to analyze the relationship between independent variables which are fraud diamond components with the dependent variable, namely the potential for fraudulent financial statements
Summary
Every company has the main goal, which is to get profit in each period. Sustainability to achieve profit according to the target in each period will attract investors to invest in the company. The company's financial statement is a communication tool that has the function to disclose financial information for a certain period to the users, both from internal and external parties. Financial information is used by users of financial statements for various things, for example for manager's decision making, management performance assessment, investment feasibility, debt feasibility assessment, tax calculation, and public accountability. The information contained in financial statements must reflect the entire accounting process within the company and meet existing information criteria. Management is playing an important role to meet these criteria. If these criteria have not been met, financial report users cannot use financial information fully. If these criteria have not been met, financial report users cannot use financial information fully. (IAI, 2015)
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