Statement Fraud Research Articles

Financial Stability Drives Fraud in Indonesian Manufacturing

This study investigates the influence of financial stability, external pressure, and financial targets on financial statement fraud in food and beverage manufacturing companies listed on the Indonesian Stock Exchange from 2017 to 2022. Using a quantitative approach with secondary data from 10 companies, we conducted multiple linear regression analysis with SPSS 26. Results indicate that financial stability significantly impacts financial statement fraud, while external pressure and financial targets do not. The findings suggest that improving financial stability can reduce financial statement fraud, highlighting the need for further research on the roles of external pressure and financial targets. Highlight: Financial Stability: Significantly impacts financial statement fraud. External Pressure: Does not significantly affect financial statement fraud. Financial Targets: No significant influence on financial statement fraud. Keywoard: Financial stability, external pressure, financial targets, financial statement fraud, Indonesian Stock Exchange

Journal homepage: http://ijai.iaescore.com Detecting fraudulent financial statement under imbalanced data using neural network

In this paper a novel approach for detecting fraudulent financial statements by employing a combination of neural networks and synthetic minority over sampling technique (SMOTE) is introduced. This approach is designed to tackle the problem of imbalanced datasets prevalent in fraudulent cases, which if left unaddressed will hinder the model to accurately identify fraud. Three neural network models, each representing different fraud predictors as the input layer: 28 inputs raw financial data; 14 inputs financial ratios data; and 42 inputs combination both raw financial and financial ratios data are developed. Experimental validation using established research datasets is conducted to assess the performance of the proposed method. Performance metrics, namely area under the curve (AUC), precision, and sensitivity, are used for evaluation, comparing the proposed model against existing benchmark models found in literature. Results indicate that the proposed model achieves an AUC score of 70.6% and a precision score of 2.89%, in comparable to the existing models, with a sensitivity score of 83% outperforming all counterparts. The high sensitivity rate of the proposed model underscores its practical utility for auditors and regulators, as it minimizes the risk of false negatives, thereby enhancing confidence in fraud detection.

Determinants of financial statement fraud in banking companies

This study aims to analyze the effect of the fraud pentagon theory components on financial statement fraud with the quality of the audit committee as a moderator. This study was conducted on banking sector companies listed on the IDX in 2012-2022. The population of this study was all banking sector companies listed on the IDX, totaling 47 banks. The sampling method used purposive sampling which resulted in 23 companies used as samples. Data analysis was carried out on secondary data using the SEM-PLS analysis technique. The results of this study indicate that financial stability and managerial ownership have a positive effect on financial statement fraud in banking companies listed on the Indonesia Stock Exchange (IDX) for the 2012-2022 period. Furthermore, the board of commissioners has a significant (real) negative effect on financial statement fraud in banking companies listed on the Indonesia Stock Exchange (IDX) for the 2012-2022 period, while changes in auditors are unable to affect the presence or absence of financial statement fraud in banking companies listed on the Indonesia Stock Exchange (IDX) for the 2012-2022 period. Furthermore, the quality of the audit committee is a moderating variable that weakens the influence of financial stability and managerial ownership on financial statement fraud in banking companies listed on the Indonesia Stock Exchange (IDX) for the period 2012-2022. Meanwhile, the quality of the audit committee is a moderating variable that strengthens the negative influence of the board of commissioners on financial statement fraud. However, the quality of the audit committee cannot moderate the effect of auditor changes on financial statement fraud. This means that the presence or absence of audit committee quality cannot weaken or strengthen the effect of auditor changes on financial statement fraud.

Strengthening fraud prevention in small businesses: An analysis of effective accounting and auditing practices

Fraud poses a substantial threat to small businesses, with potentially devastating consequences due to their often-limited resources and lack of sophisticated fraud prevention measures. In the absence of adequate defenses, small businesses are particularly vulnerable to financial losses, operational disruption, and reputational harm. This article examines critical accounting and auditing practices that can strengthen fraud prevention efforts, focusing on practical strategies tailored to small business environments. Research indicates that nearly 5% of annual revenue is lost to fraud worldwide, with small businesses experiencing outsized impacts. By implementing robust internal controls, conducting regular audits, and embracing technology-driven solutions, these enterprises can significantly reduce fraud risks. The paper discusses specific types of fraud, such as asset misappropriation, financial statement fraud, and corruption, all of which are prevalent in small businesses and can often go undetected without structured preventative measures. Leveraging real-time monitoring, data analytics, and employee training, businesses can establish a proactive stance against fraud while fostering a culture of transparency and ethical behavior. Drawing on insights from major fraud studies and frameworks, including the COSO model and ACFE reports, this analysis provides small business owners and stakeholders with actionable recommendations for building resilient fraud prevention systems. This study underscores that with targeted resources and awareness, small businesses can achieve a higher degree of financial integrity and stability, positioning themselves for sustainable growth and trust within their communities.

Hexagon theory perspective on financial statement fraud in Indonesian ministries

This study aims to examine and analyze financial statement fraud from the perspective of the hexagon theory using secondary data. The research sample was selected through purposive sampling, consisting of Ministries and Agencies in Indonesia. The research method employing the OLS (ordinary least squares) approach involves testing the model’s suitability through the F-statistical test, evaluating the coefficient of determination by examining, and conducting hypothesis testing using EViews. The findings of this study suggest that pressure and sscapability do not significantly influence financial reporting fraud. In contrast, opportunity, rationalization, arrogance, and collusion positively and significantly impact financial fraud reports. Implementing a whistleblowing system is crucial for ensuring that e-procurement encompasses all elements of government organizations, serving as a means of transparency and accountability to mitigate the occurrence of fraudulent financial reports within government entities, particularly in Ministries and Agencies in Indonesia. The financial audit opinion is not intended to detect fraud but to assess conformity with government accounting standards, the extent of disclosure, compliance with legislation, and the effectiveness of the government's internal control system. This can encourage institutions in other countries to strengthen the financial security of their organizations.

The Celadon Group: accounting shenanigans backfire

Research methodology The authors gathered the core information for this case using publicly available filings from the US Department of Justice and the US Securities and Exchange Commission. Publicly available news articles were used to complement the core information. All sources are cited. Case overview/synopsis This case involves an assumed fraud perpetrated by the C-suite members of Celadon Group, Inc. – formerly one of the largest trucking companies in North America. By 2016, the value of Celadon’s truck inventory significantly decreased in value. Instead of reducing the inventory to its market value on the Balance Sheet, management engaged in a series of trades and creative accounting to conceal the fact they had overvalued the trucks. Investment analysts at Prescience Point Capital Management and Jay Yoon (both published on Seeking Alpha) found inconsistencies and red flags in Celadon’s 2016 and 2017 financial reports and reported their suspicions to the public. Soon after, Celadon’s audit committee declared the company’s recent financial statements could no longer be relied upon, resulting in an immediate market loss of $62.3m. In 2019, Celadon entered into a Deferred Prosecution Agreement and was ordered to pay $42.2m in restitution. The Department of Justice (DOJ) criminally charged Danny Williams (president of Quality, a Celadon subsidiary) and he entered a plea agreement. The DOJ also criminally charged Bobby Lee Peavler (CFO) and William Eric Meek (COO). Celadon filed for bankruptcy and operations ceased. Then, in an unexpected turn of events, in 2022, the DOJ dismissed the criminal case against Peavler and Meek. Complexity academic level This case allows students to apply theory learned in a fraud examination or forensic accounting course to an actual fraud case. It discusses red flags and how perpetrators of fraud often need to keep perpetrating wrongdoing to keep the original fraud from being discovered. The authors designed the case for upper-level or graduate business students. It should be included in the course when covering financial statement fraud.

A narrative analysis of the justifications and excuses of serious employee fraud offenders

AbstractMost fraud research in accounting has focused on controls rather than offenders' subjective experience, meaning that our understanding of motive in fraud (defined as linguistic devices employed to justify, interpret, or excuse actions) remains underexplored. This is particularly the case for employee fraud, which has been largely neglected relative to top management fraud or financial statement fraud. To provide a richer understanding of how fraud offenders make sense of their offending, we interviewed 30 serious employee fraud offenders to better investigate their typal vocabularies of motive. We focus on holistic narrative accounts to provide insights into the common justifications and excuses presented by employee fraud offenders. We develop a taxonomy of narrative constructions based on the explanatory locus of the accounts offered by offenders. We identify three common justifications, (1) inconsequentiality motives, (2) permission motives, and (3) unfair treatment motives, and three common excuses, (4) personal crisis motives, (5) addiction motives, and (6) appeasement motives. We draw implications for researching fraud, organizational control, and ethics in accounting education.

Pengaruh Fraud Hexagon Theory Terhadap Fraudulent Financial Statement: Studi pada Perusahaan BUMN yang Terdaftar di Bursa Efek Indonesia (BEI) Periode 2020-2023

This study aims to analyze the effect of fraud hexagon theory on fraudulent financial statements. This study includes quantitative research. The population used is all state-owned companies listed on the Indonesia Stock Exchange for the period 2020-2023 which has a total of 27 companies. The sampling technique used in this study is saturated sampling technique. This study used a type of secondary data. The results can be concluded that stimulus, capability, collusion, rationalization does not affect the fraudulent financial statement, While opportunity and ego have an effect on fraudulent financial statement

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.