Statement Fraud Research Articles

Detecting financial statements fraud: Evidence from listed companies in China

Financial statement fraud is the deliberate misrepresentation of a company’s financial statements. Financial statement fraud has been a global concern since it not only harms the investors and creditors but also undermine the public confidence of the capital market. Based on the fact that a common incentive for companies to manipulate financial statement is a decline in the company’s financial prospects, this paper applies the mixture hazard early warning model to identify the key impacting financial characteristics in detecting the financial statement fraud for listed companies in China. We find that in the construction industry the warning sign of suspcious business practices is a falling return on assets, while in the real estate industry the financial red flag is an increase in the inventory level. The estimation results indicate that the financial characteristics may have different implications in different industries in detecting financial statement fraud. This research has shed light on setting specific financial characteristics for fraud monitoring and detecting by the regulators.

Analisis Faktor - Faktor yang Mempengaruhi Financial Statement Fraud pada Perusahaan Bank Syariah Indonesia: Studi Kasus pada Perusahaan Bank Syariah yang Terdaftar pada Bursa Efek Indonesia Tahun 2021-2023

This study aims to determine the analysis of the analysis of factors that affect the financial statement fraud in the company of bank syariah indonesia quantitative research. The population that was the focus of this study was all Indonesian Islamic banks listed on the Indonesia Stock Exchange during the period 2021 to 2023. The selection of Islamic commercial banks as the subject of research is based on unique principles applied in its operations. Sampling technique using purposive sampling technique. The results of the study can be concluded that the financial targets, financial stability does not affect the financial statement fraud, external pressure affects the financial statement fraud.

Polytope Fraud Theory

Polytope Fraud Theory (PFT) extends the existing triangle and diamond theories of accounting fraud with ten abnormal financial practice alarms that a fraudulent firm might trigger. These warning signals are identified through evaluation of the shorting behavior of sophisticated activist short sellers, which are used to train several supervised machine learning methods in detecting financial statement fraud using published accounting data. Our contributions include a systematic manual collection and labeling of companies that are shorted by professional activist short sellers. We also combine well-known asset pricing factors with accounting red flags in financial features selections. Using 80 % of the data for training and the remaining 20 % for out-of-sample test and performance assessment, we find that the best method is XGBoost, with a Recall of 72 % and F1-score of 82 %. Other methods have relatively lower performance, demonstrating the robustness of our results. This shows that the sophisticated activist short sellers, from whom the algorithms are learning, have excellent accounting insights, tremendous forensic analytical knowledge, and sharp business acumen. Our feature importance analysis indicates that potential short-selling targets share many similar financial characteristics, such as bankruptcy or financial distress risk, clustering in some industries, inconsistency of profitability, high accrual, and unreasonable business operations. Our results imply the possible automation of advanced financial statement analysis, which can both improve auditing processes and effectively enhance investment performance. Finally, we propose the Unified Investor Protection Framework, summarizing and categorizing investor-protection related theories from the macro-level to the micro-level.

Pengaruh Fraud Hexagon Terhadap Fraudulent Financial Statement pada Perusahaan Sektor Keuangan yang Terdaftar di Bursa Efek Indonesia Tahun 2020 – 2022

This study aims to determine the effect of fraud hexagon on fraudulent financial statements. This research is classified as quantitative research. The sample of this study used financial sector companies listed on the Indonesia Stock Exchange in 2020-2022. In this study, the determination of samples was carried out using purposive sampling technique. The type of data used in this study is secondary data. The results can be concluded that external pressure, financial targets, significant effect on fraudulent financial statements, financial stability, nature of industry, ineffective monitoring, razionalization, capability, arrogance and political connection did not significantly affect the fraudulent financial statements

Determinants of Fraudulent Financial Statements Through the Fraud Hexagon Theory Perspective: The Empirical Study of Mining Sector Companies Listed on the Indonesia Stock Exchange 2018–2022

This study aims to analyze and provide empirical evidence regarding the effect of fraud hexagon theory elements consisting of six variables, where each variable has a proxy, namely Stimulus (external pressure), Opportunity (nature of industry), Rationalization (change in auditor), Capability (change in directors). Ego (CEO duality), and Collusion (political connection) on fraudulent financial statements. In determining fraudulent financial statements, this study uses the fscore model. The population in this study are mining sector companies listed on the Indonesia Stock Exchange in 2018- 2022. The sampling technique in this study was purposive sampling which resulted in 30 companies for 5 years, with 4 outlier data units, so that the total analysis units were 146 units. The data analysis method used is logistic regression analysis with SPSS V.25 software. The results showed that the variables external pressure and change in directors had a positive effect on fraudulent financial statements, while the nature of industry variable had a negative effect on fraudulent financial statements, while change in auditor, CEO duality, and political connection had no effect on fraudulent financial statements.

Budget participation and financial information asymmetry: Behavior of budget users and financial report fraud

Financial statement fraud is a problem often faced by organizations that can reduce their performance. An organization that successfully achieves its goals must be aware of information asymmetry and the need for moral justice in managing its finances. The research population comprises employees of the finance, planning, reporting, and budget preparation sections of the Gowa Regency regional performance unit. This research selected a saturated sample of 76 employees from the total population. The results show that participatory budgeting has a significant effect on financial report fraud and that information asymmetry has a substantial influence on financial statement fraud. The research results show that moral justice moderates the effect of participatory budgeting on financial report fraud. Moral justice cannot moderate the influence of information asymmetry on financial statement fraud. Employees must still have good moral justice in participatory budgeting to minimize the possibility of fraudulent financial reports. It is hoped that the findings of this research will enable organizations to create innovative information facilities to reduce information asymmetry so that organizational performance can be achieved.

The Fraud Pentagon Analysis In Financial Companies On The Indonesia Stock Exchange

This research was conducted to examine the effect of the fraud pentagon theory developed by Crowe Horwath on the possibility of fraud in financial statements. The sample used in this study came from 105 financial companies listed on the Indonesia Stock Exchange (IDX) during the 2020-2022 period. Sampling was carried out using the purposive sampling method. The data analysis method is logistic regression test analysis, processed using the Eviews application. The Pentagon theory posits five key factors: pressure, opportunity, competence, arrogance, and rationalisation. Our analysis revealed that while pressure and opportunity, as proxied by financial targets, stability, external pressure, and ineffective supervision, did not significantly influence fraud risk, the quality of the external auditor emerged as a significant determinant. Conversely, changes in auditors (rationalisation), directors (competence), and the frequency of CEO pictures (arrogance) did not appear to be significant predictors of fraud. This study suggests that external audit quality is more significant in preventing financial statement fraud than the traditional fraud triangle (pressure, opportunity, rationalisation) or other factors like competence and arrogance.

CEO Demographics, Board Gender Diversity and Financial Statements Fraud among Listed Firms in East Africa Community

CEO Demographics, Board Gender Diversity and Financial Statements Fraud among Listed Firms in East Africa Community

Mendeteksi Kecurangan Laporan Keuangan Dengan Menggunakan Analisis Rasio Keuangan

The aim of this research is to test financial ratios as a tool for detecting fraudulent financial statements. This research uses the monitoring premise of agency theory to explain the association between financial ratios and financial statement fraud. Proxies for measuring financial ratios include four financial ratios, namely debt ratio, profitability, cash flow and accruals. Financial reporting fraud uses an occurrence-based proxy, namely a dummy for regulatory violations in sample companies. The samples tested were manufacturing companies registered on the IDX during 2016-2018. The results of this research show that empirically financial ratios are not yet fully capable of being used to detect fraudulent financial statements.

Pengaruh Fraud Hexagon terhadap Kecurangan Laporan Keuangan pada Perusahaan Sektor Energi yang Terdaftar di ISSI Tahun 2019-2022

This study aims to determine the effect of the fraud hexagon model, namely stimulus (pressure) proxied by financial stability, opportunity (opportunity) proxied by ineffective monitoring, rationalization (rationalization) proxied by change in auditor, capability (ability) proxied by change in director, ego ( arrogance) is proxied by the frequent number of CEO's picture, and collusion is proxied by state-owned enterprises in detecting potential fraud in financial statement. The sample of this study is energy sector companies listed on the Indonesian Sharia Stock Index (ISSI) in 2019-2022. This study uses secondary data, namely financial reports and annual reports. Based on the purposive sampling method, the number of companies sampled in this study was 27 companies out of a total of 34 companies registered and analyzed using multiple linear regression analysis using the SPSS 25 program. The results of this study found that the stimulus element proxied by financial stability had a significant effect on fraudulent financial statements. Meanwhile, ineffective monitoring, change in auditor, change in director, frequent number of CEO's picture, and state-owned enterprises have no significant effect on fraudulent financial statement in energy sector companies registered with ISSI in 2019-2022.

Internal auditor competence and internal control: Improving internal audit quality to prevent fraudulent financial statements

Internal auditor competence and internal control: Improving internal audit quality to prevent fraudulent financial statements

The Influence of Pentagon Fraud on Fraudulent Financial Reporting in Companies Registered on the IDX BUMN20 Indonesia Stock Exchange for the 2020-2022 Period

Financial Statement Fraud is fraud or manipulation of a company's financial statements to show the best condition of the company so that investors are interested and/or retain the funds owned by the company. This research is intended to analyze the influence of the factors in the fraud Pentagon theory on fraudulent financial reports in companies listed on IDX BUMN20 on the Indonesia Stock Exchange for the 2020-2022 period. The proxy variables used in this research are Pressure proxied by Financial Target and External Pressure, Opportunity proxied by Ineffective Monitoring, Rationalization proxied by Change of Auditor, Competence proxied by Change of Director, and Arrogance proxied by Frequent Number of CEO's Picture and Fraudulent financial reporting measured by F-Score. The data used in this research is secondary data obtained from the annual reports of companies listed on IDX BUMN20 on the Indonesia Stock Exchange for the 2020-2022 period. The number of samples used was 18 samples from companies selected through the purposive sampling technique. The data analysis used in this research is logistic regression analysis. The research results show that the partial test results do not influence each of the independent variables, namely financial target, external pressure, ineffective morning, change of auditor, change of directors, and frequent number of CEO's pictures on fraudulent financial reporting, but the simultaneous test results show that there is an influence the entire independent variable to the dependent variable is fraudulent financial reporting.

Detecting Financial Statement Fraud Using the Hexagon Fraud Theory Approach in Financial Sector Companies

Good companies do not commit fraud and provide accurate and relevant information. Therefore, financial reports must be made as well as possible in order to provide accu-rate information to its users. This research is quantitative in nature to analyze the influence of the Fraud Hexagon Theory which is proxied by sixteen variables, consist-ing of four variables from the stimulus element (financial targets, external pressure, financial stability, personal financial needs), three variables from the opportunity ele-ment (supervision ineffectiveness, auditor quality and nature of the industry), two variables from the rationalization element (auditor turnover and value accruals), two variables from the capability element (director turnover and CEO education), two variables from the ego element (CEO duality and the number of CEO photos in the annual report), and three variables from collusion elements (political connections, audit fees and collaboration with government projects) on fraudulent financial statements. This research uses secondary data with purposive sampling. In 2019-2022, there are 63 financial sector companies listed on the Indonesian Stock Exchange. The results of this research prove that financial targets, financial stability, supervisory ineffective-ness, nature of industry and CEO duality influence financial report fraud.

Valeant pharmaceuticals fraud

Purpose The aim of this study is to examine the patterns of fraud present in Valeant’s 2014 and 2015 financial statements and determine through a risk management analysis whether these frauds could have been prevented. This analysis provides the opportunity to more effectively prevent financial statement fraud. Design/methodology/approach Data were collected from Valeant pharmaceuticals annual reports, financial statements reports and financial authority documentation. Based on these documents, this paper analyzes the different fraud schemes and investigate whether fraud could have been detected earlier by governance actors. In particular, this paper examines the firm’s financial statements three years before the fraud was detected by the Securities and Exchange Commission. Findings The analysis of financial statements reveals few clues and no alarming red flags three years before detection of the fraud. However, financial statement analyses were complex because of the many acquisitions the firm made in the years before. Originality/value This paper aims to contribute to the literature on fraud by investigating a case of financial statement fraud.

The Effect Of Reporting Financial Quality and Practices Accounting Ethical: Deposit Money Banks In Nigeria Perspective

This study looks into how Nigerian deposit money banks behave with creative accounting. Five deposit money institutions in Nigeria were included in the ten-year sample, which ran from 2007 to 2016. The study's multiple regression analysis showed that the performance of banks is not much impacted by non-performing loans. Additionally, it was discovered that while gross earnings significantly improved the performance of Nigerian deposit money institutions, total accrual had no discernible impact on that performance. While it would be absurd to believe that banks' creative accounting procedures have no good impact at all, it is possible to reduce their negative consequences to a minimum by implementing the International Financial Reporting Standard (a new standard), which places greater emphasis on ethical factors and reduces bank managers' latitude in selecting various accounting techniques. Financial statement fraud would be further decreased and of higher quality as a result.

Pengaruh Crowe’s Fraud Pentagon Theory sebagai Uji Identifikasi terhadap Fraudulent Financial Statement

The purpose of this research is to find the influence of financial target variables, ineffective monitoring, change in auditor, change in director, frequent number of CEO's picture on fraudulent financial statements. The sample in this study includes 45 food and beverage sub-sector manufacturing companies listed on the Indonesia Stock Exchange for the period (2019-2023). The sampling technique used the purpose sampling method and obtained 225 sample data from 45 companies. The statistical analysis used in this research is logistic regression analysis using the Statistical Product and Service Solution (SPSS) Program Version 22. The results of this research show that financial targets have a negative and significant effect on fraudulent financial statements, ineffective monitoring has an insignificant effect on fraudulent financial statements. statement, change in auditor has no significant effect on fraudulent financial statements, change in director has no significant effect on fraudulent financial statements, frequent number of CEO picture has a negative and significant effect on fraudulent financial statements.

Analisis Fraud Pentagon terhadap Kecurangan Laporan Keuangan (Studi Empiris pada Perusahaan yang terdaftar di Bursa Efek Indonesia pada Tahun 2011-2020)

This research aims to detect fraudulent financial reports using the fraud pentagon. The research uses elements in the form of financial targets, financial instability, number of independent commissioners, special party receivable transactions, special party debt transactions, special party sales transactions, special party purchase transactions, change of auditors, change of directors, and number of CEO photos. The sample in this research is 108 companies listed on the Indonesia Stock Exchange for the 2011-2020 period which were selected using a purposive sampling method. The sample companies in this study consisted of 54 fraud companies and 54 non-fraud companies. In testing the hypothesis using logistic regression analysis using the SPSS test tool. The results of this research show that financial targets and financial instability are not the driving factors for management to commit financial statement fraud, receivables transactions with privileged parties are a driving factor for fraud, but this is not the case for debt, sales and purchase transactions with privileged parties. Likewise, changing auditors in a particular financial year is also a driving factor for fraud, but not changing directors. Finally, the number of directors' photos in the annual report is not a driving factor in financial statement fraud.

Pengaruh Fraud Pentagon Dan Tingkat Suku Bunga Terhadap Kecurangan Laporan Keuangan Pada Perusahaan Consumer Cyclicals Yang Terdaftar di Bursa Efek Indonesia Tahun 2020-2022

This study aims to analyze the effect of fraud pentagon and interest rate levels on financial statement fraud in consumer cyclical companies listed on the Indonesia Stock Exchange (IDX) in 2020-2022. Fraud pentagon, which consists of pressure, opportunity, rationalization, capability, and arrogance, is the main focus to see how each element affects the potential for fraud in the company's financial statements. Interest rates are also analyzed as external variables that can contribute to financial pressure and encourage fraudulent behavior. The method in this study uses quantitative analysis. This study uses a purposive sampling technique to select samples, so that 12 consumer cyclical companies were obtained with a research period from 2020-2022. The data analysis technique applied is multiple linear regression, with hypothesis testing using the T-test, F-test, and coefficient of determination, all carried out using SPSS software version 26. The results of this study indicate that, overall, the variables External Pressure, Nature of Industry, Change of Director, and interest rates have a significant effect on financial reporting fraud in consumer cyclical companies listed on the Indonesia Stock Exchange during the 2020-2022 period. However, a separate analysis shows that the variables Change in Auditor and Frequent Number of CEO's Picture (CEOPIC) do not show a significant effect on financial reporting fraud in these companies during the same period.

Multi-Relational Graph Representation Learning for Financial Statement Fraud Detection

Multi-Relational Graph Representation Learning for Financial Statement Fraud Detection

The Effect of Financial Performance to Share Returns on Companies IDX 30 Indexed During The Covid Pandemic at The Indonesian Stock Exchange

This research is a replication of several previous on going studies due to previous research results that tried to test the influence of financial performance on stock returns on IDX 30 during the covid 19 pandemic. The study is intended to obtain an explanation of empirical facts on the influence of factors described through financial stability, external pressure, and financial targets together and partial influences financial statement fraud on banking companies during the period of COVID 19 on the Indonesian Stock Exchange. The population in this study is all IDX 30 indexed companies on the Indonesian Stock Exchange, namely as many as 30 companies. With sample count of 22 companies. The type of data used in this study was secondary data with the amount of observation from 2019-2020 during the COVID 19 pandemic period so that it became a sample of observation of 22 X 2 = 44 samples, and the scale used in this study was the scale of ratio and analysis of data used was with the multiple linear regression approach at a significant rate of 5%. Research will be very useful input for investors as an important guideline for looking at the condition of the company and the fundamental aspects to assess the expectations of the return (return shares) that it will acquire and as a decision maker to buynot buy shares of the company. The results of this research are also expected to be used by IDX 30 companies to find out their condition and finances so as to improve the financial performance of the next period that will eventually affect the company’s stock price. In addition, this research can also be used as the basis for advanced research to review financial performance viewed from different perspectives of financial instruments.