Abstract
This study aims to empirically examine the factors that can be used to detect the risk of Fraudulent financial statements. Fraudulent financial statement is an interesting topic to study, because it has a huge impact on business sustainability and the country's economy may become a crisis. The research population is the financial sector companies listed on the Indonesia Stock Exchange in 2018-2021. The sampling technique uses purposive sampling. The number of companies that meet the sample criteria is 76 companies, so there are 228 observations. Data analysis used Moderated Regression Analysis for hypothesis testing. The results show that companies which provide shares for managers and streamline the role of the whistleblowing system and audit committee will prevent companies from committing fraud, because they act as internal controls. Auditor switching and management arrogance are early indicators that can be used for fraud detection, because the strategy of management is to hide crimes. Financial ratios are certainly the easiest indicator to detect fraudulent financial statements risk, profitability, liquidity, and solvency of a company that is small or minus will encourage management to commit fraud so that the company looks good. Also, organizational culture can reduce the risk of fraudulent financial statements if it is properly internalized.
Highlights
Fraudulent financial statement is a misstatement or intentional omission of amounts or disclosures in financial statements to deceive financial statement users [1]
This research was conducted on financial companies listed on the Indonesian stock exchange with 90 companies listed for three consecutive years, which met the criteria for a sample of 76 companies and 228 observations
Based on the findings of the analysis, it can be concluded that the risk of financial statement fraud can be minimized
Summary
Fraudulent financial statement is a misstatement or intentional omission of amounts or disclosures in financial statements to deceive financial statement users [1]. Fraud will threaten the sustainability of the business [2] and harm the macroeconomy, for example, the case of fraud committed by Enron, WorldCom, Qwest, Tyco, and Global Crossing with a loss of $ 460 [2,3]. Fraud has become a big enemy of corporations and the state; according to the Association of Certified Fraud Examiners' survey (A.C.F.E.) in 2019, there were 239 cases of fraud with a loss of IDR 873.4 billion, 20.9% cases of misappropriation of assets with a loss of IDR 257.5 billion; corruption in 69.9% cases with a loss of IDR 373.6 billion; financial statement fraud in 9.2% cases with a loss of 242.3 billion [2]. Fraudulent financial statements resulted in substantial losses with few cases, with the financial industry being the most disadvantaged, around 41.4% of the total loss [2].
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