Determinants of Financial Statement Fraud Using the Fraud Hexagon Model

doi:10.7176/rjfa/12-23-03

Abstract

This study aims to obtain empirical evidence about the fraud hexagon theory. The research was conducted on manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange (IDX) for the 2015-2019 period. The sampling method used was non-probability sampling with purposive sampling technique. There are 42 companies as a population with a total of 35 companies as a sample. The data analysis technique used is multiple linear regression. Based on the results of the analysis, it is stated that financial stability and rationalization have a positive effect on indications of financial statement fraud, while ineffective monitoring, CEO education, political connectivity, and CEO duality have no effect on indications of financial statement fraud. The research has implications for the government as a regulator, or for those who use information in financial statements as a consideration in assessing the opportunities for fraudulent actions to occur on the company's financial statements. Keywords : financial statement fraud, fraud hexagon, financial stability, ineffective monitoring, CEO education, rationalization, political connectivity, CEO duality DOI: 10.7176/RJFA/12-23-03 Publication date: December 31 st 2021

Highlights

According to the Association of Certified Fraud Examiners (ACFE), fraud is an intentional act that violates the law by manipulating and presenting false reports to other parties for personal or group gain
Based on the ACFE survey, cases of financial statement fraud are the fewest cases, which are 13% compared to asset misappropriation and corruption, but financial statement fraud causes the largest loss with an average loss US$ 700,000
A survey conducted by the ACFE Chapter Indonesia in 2016 with primary data on the method of filling out questionnaires to members of the ACFE Chapter Indonesia and secondary data on corruptors in Indonesia obtained from the Supreme Court's website at the Directory of Corruption Crimes Decisions

Summary

Introduction

According to the Association of Certified Fraud Examiners (ACFE), fraud is an intentional act that violates the law by manipulating and presenting false reports to other parties for personal or group gain. The Asia-Pacific Association of Certified Fraud Examiners (ACFE) survey in 2018 stated that there were three main categories of fraud, namely asset misappropriations, corruption, and financial statement fraud. Based on the ACFE survey, cases of financial statement fraud (financial statement fraud) are the fewest cases, which are 13% compared to asset misappropriation and corruption, but financial statement fraud causes the largest loss with an average loss US$ 700,000. Financial statement fraud has a small percentage of 2%, the losses caused by financial statement fraud are quite large with an average loss of over 10 billion rupiah This small percentage is suspected because in Indonesia there are still many crimes stemming from financial statement fraud that have not been revealed, such as the crime of fraudulent tax information and the stock exchange. The role of management in preventing fraudulent financial statements that can be done is by applying correct accounting policies, adequate internal control and implementing good corporate governance

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