FRAUD DIAMOND FOR DETECTION OF FINANCIAL STATEMENT MISREPRESENTATION IN THE MANUFACTURING INDUSTRY

Rizqi Ayu Mentari, Sopian Sopian

Abstract


This research was conducted to obtain empirical evidence regarding fraud, primarily due to fraud in financial reports based on the fraud diamond theory. This study tested six independent variables; financial stability, external pressure, financial targets, effective monitoring, rationalization, and capability. P-Score Model is used to detect potential fraudulent financial statements. The objects studied were 103 manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2015-2019 with 515 annual reports. The results of this study indicate that only two variables have an effect in detecting fraud in financial statements. The variables that have a significant effect are financial stability as proxied by the ratio of changes in assets and financial targets as proxied by the ratio of return on assets (ROA). Other variables represented by external pressure, effective monitoring, rationalization, and capability did not affect the detection of potential fraudulent financial statements. These findings may benefit auditors in predicting fraud in financial statements, considering the fraud diamond environment.

 


Save to Mendeley


Keywords


Fraud Diamond; Financial Statement Misrepresentation; P Score Model

Full Text:

PDF

References


Abdullahi, R., & Mansor, N. (2015). Fraud Triangle Theory and Fraud Diamond Theory.

Understanding the Convergent and Divergent For Future Research. International Journal of

Academic Research in Accounting, Finance and Management Sciences, 5(4), 30–37. https://doi.org/10.6007/ijarafms/v5-i4/1823

ACFE. (2016). Report to the Nations on Occupational Fraud and Abuse. https://www.acfe.com/rttn2016/docs/2016-report-to-the-nations.pdf

ACFE. (2018). Report To The Nations 2018 Global Study on Occupational Fraud and Abuse. https://s3-us-west-2.amazonaws.com/acfepublic/2018-report-to-the-nations.pdf https://www.acfe.com/report-to-the-nations/2018/default .aspx

ACFE. (2020). Report to the nations on occupational fraud and abuse: 2020 global fraud study. In ACFE. https://acfepublic.s3-us-west-2.amazonaws.com/2020-Report-to-the-Nations.pdf

Adnovaldi, Y., & Wibowo, W. (2019). Determinant Analysis of Diamond Fraud Against Fraudulent Financial Statement Detection. Journal of Information, Taxation, Accounting, and Public Finance, 14(2), 125. https://doi.org/10.25105/jipak.v14i2.5195

Agoes, S. (2012). Auditing: Practical Guidelines for Examination of Accountants by Public Accountants. Salemba Four.

Alpeyev, P., & Amano, T. (2015). Toshiba Executives Resign Over $1.2 Billion Accounting Scandal - Bloomberg. Bloomberg. http://www.bloomberg.com/news/articles/2015-07-21/toshiba-executives-resign-over-1-2-billion-accounting-scandal

Altman, E. (1968). Financial ratios, discriminant analysis, and the prediction of corporate bankruptcy. The Journal of Finance, 23(4). https://doi.org/https://doi.org/10.2307/2978933

Altman, E. (2000). Predicting Financial Distress Of Companies: Revisiting The Z-Score And Zeta. Handbook of Research Methods and Applications in Empirical Finance. https://doi.org/10.4337/9780857936097.00027

Annisya, M., Lindrianasari, & Asmaranti, Y. (2016). Fraud Detection of Financial Statements Using Fraud Diamond. Journal of Business And Economics, 23(1), 72–89. https://media.neliti.com/media/publications/76514-ID-detection-kecurang-laporan-keuangan-m.pdf

Aprilia, A. (2017). Analysis of the Effect of Pentagon Fraud on Financial Statement Fraud Using the

Beneish Model in Companies Implementing the ASEAN Corporate Governance Scorecard. ASET, Journal (Research Accounting), 9(1), 101. https://doi.org/10.17509/jaset.v9i1.5259

Bapepam, (2002). Guidelines for Presentation and Disclosure of Financial Statements of Issuers or Public Companies in Indonesia. SE-Chairman of BAPEPAM No. 02/PM/2002 Date, 27 December 2002.

Beasley, MS, Carcello, J. V, & Hermanson, DR (1999). Fraudulent financial reporting: 1987-1997, an analysis of US public companies, committee on sponsoring organizations of the Treadway

Commission, AICPA. Association Sections, Divisions, Boards, Teams, 249, 1987–1997.

Beneish, MD (1999). The Detection of Earnings Manipulation. Financial Analysts Journal, 55(5), 24–36. https://doi.org/10.2469/faj.v55.n5.2296

Bhavani, G., & Amponsah, CT (2017). M-Score and Z-Score for Detection of Accounting Fraud. Accountancy Business and the Public Interest, January. https://www.researchgate.net/publication/318489930_M-Score_and_Z-Score_for_detection_of_Accounting_Fraud

Bloomfield, D., & Shackman, J. (2008). Non-audit service fees, auditor characteristics, and earnings restatements. Managerial Auditing Journal, 23, 125–141. https://doi.org/http://doi.org/10.1108/02686900810839839

Boediono, GSB (2005). Earnings Quality: Study of the Effect of Corporate Governance Mechanisms and the Impact of Earnings Management Using Path Analysis. Corporate Governance, September 15–16. https://smartaccounting.files.wordpress.com/2011/03/kakpm-09_2.pdf

Cahyonowati, N., & Pramaharjan, B. (2015). Factors Influencing Audit Report Lag in Manufacturing Companies. Diponegoro Journal of Accounting, 4(4). https://ejournal3.undip.ac.id/index.php/accounting/article/view/9668

Christian, N., Basri, YZ, & Arafah, W. (2019). Analysis of Fraud Pentagon To Detecting Corporate Fraud in Indonesia. International Journal Of Economics, Business and Management Research, 3(08), 1–13. https://www.researchgate.net/publication/335060768_Analysis_of_Fraud_Triangle_Fraud_Diamond_and_Fraud_Pentagon_Theory_to_Detecting_Corporate_Fraud_in_Indonesia

CNBC Indonesia. (2019). Chronology of AISA Fund Inflating the Producer of Taro. https://www.cnbcindonesia.com/market/20190328073206-17-63318/kronologi-penggelembungan-dana-aisa-si-produsen-taro

Cressey, DR (1953). Other people's money; a study of the social psychology of embezzlement. In Other people's money; a study of the social psychology of embezzlement. Free Press.

Crowe Howard. (2011). The Mind Behind The Fraudsters Crime: Key Behavioral and Environmental Elements. Crowe Horwath LLP, 1–62.

Darmawan, A., & Saragih, SO (2017). The impact of auditor quality, financial stability, and financial targets for fraudulent financial statements. Journal of Applied Accounting and Taxation, 2(1), 9–14.

Dixon, WJ (1960). Simplified Estimation from Censored Normal Samples. The Annals of Mathematical Statistics, 31(2), 385–391. https://doi.org/10.1214/aoms/1177705900

Fimanaya, F., & Syafruddin, M. (2014). Analysis of Factors Affecting Fraudulent Financial Statements (Empirical Study on Non-Financial Companies Listed on the Indonesia Stock Exchange in 2008-2011). Diponegoro Journal of Accounting, 3(3), 397–407. https://ejournal3.undip.ac.id/index.php/accounting/article/view/6077

Godfrey, J., Hodgson, A., Tarca, A., Hamilton, J., & Holmes, S. (2010). Accounting Theory (7th ed.). McGraw Hill.

Gudono. (2012). Organization Theory. BPFE Faculty of Economics and Business, Gadjah Mada University.

Halim, A. (2008). Auditing (Fundamentals of Auditing Financial Statements). YKPN STIM YKPN Publishing and Printing Unit.

Handoko, BL, & Selly. (2020). The Effect of Fraud Diamond on Detection of Financial Statement Fraud. International Journal of Advanced Science and Technology, 29(3), 467–475. http://sersc.org/journals/index.php/IJAST/article/view/3946/2669

Hanifa, SI, & Laksito, H. (2015). Effect of Fraud Indicators on Fraudulent Financial Statements: Empirical Study on Companies Listed on the Indonesia Stock Exchange (IDX) in 2008-2013. Diponegoro Journal of Accounting, 4(4), 411–425. https://ejournal3.undip.ac.id/index.php/accounting/article/view/9595

Hribar, P., Kravet, T., & Wilson, R. (2014). A new measure of accounting quality. Review of Accounting Studies, 19(1), 506–538. https://doi.org/10.1007/s11142-013-9253-8

Hutomo, OS, & Sudarno. (2012). How to Detect Fraudulent Financial Reporting Using Financial Ratios (Case Study of Companies Listed in BAPEPAM's Annual Report). In Thesis. Semarang: Diponegoro University

Indarto, S., & Ghozali, I. (2016). Fraud Diamond: Detection Analysis on The Fraudulent Financial Reporting. November. https://doi.org/10.22495/rcgv6i4c1art1

Irawan, PA, Susilowati, D., & Puspasari, N. (2019). Detection Analysis on Fraudulent Financial Reporting Using Fraud Score Model. SAR (Soedirman Accounting Review): Journal of Accounting and Business, 4(2), 161. https://doi.org/10.20884/1.sar.2019.4.2.2467

Jensen, MC, & Meckling, WH (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X

Kaminski, KA, Sterling Wetzel, T., & Guan, L. (2004). Can financial ratios detect fraudulent financial reporting? Managerial Auditing Journal, 19(1), 15–28. https://doi.org/10.1108/02686900410509802

Karyono. (2013). Forensic Fraud. Andi's CV.

Manurung, DTH, & Hardika, A. (2015). Analysis of factors influencing financial statement fraud in the perspective fraud diamond: Empirical study on banking companies listed on the Indonesia Stock Exchange year 2012 to 2014. International Conference on Accounting Studies (ICAS) 2015. http://repo.uum.edu. my/17583/

Norbarani, L. (2012). Adopted Fraud Triangle Analysis in SAS No. 99 [University of Lampung]. In Diponegoro Journal of Accounting (Vol. 2, Issue 99). http://eprints.undip.ac.id/35524/1/Jurnal_Listiana.pdf

Ozcelik, H. (2020). An Analysis of Fraudulent Financial Reporting Using the Fraud Diamond Theory Perspective: An Empirical Study on the Manufacturing Sector Companies Listed on the Borsa

Istanbul. 102, 131–153. https://doi.org/10.1108/s1569-375920200000102012

Pardosi, RW (2015). Fraud Diamond Analysis in Detecting Fraud in Financial Statements in Manufacturing Companies in Indonesia Using the Fraud Score Model (2010-2013). Lampung University.

Puspitha, MY, & Yasa, GW (2018). Fraud Pentagon Analysis in Detecting Fraudulent Financial Reporting (Study on Indonesian Capital Market). International Journal of Sciences: Basic and Applied Research, 42(5), 93–109. http://gssrr.org/index.php?journal=JournalOfBasicAndApplied

Pustylnick, I. (2009). Combined Algorithm for Detection of Manipulation in Financial Statements. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1422693

Pustylnick, I. (2011). Algorithm of Detection of Manipulations with Revenue and Retained Earnings in Financial Statements. SSRN Electronic Journal, 1–15. https://doi.org/10.2139/ssrn.1833804

Riyanti, EC, W Putri, HC, Artadi, W., & Umar, H. (2019). The Effect of Audit Quality on Fraudulent Financial Reporting with the Audit Committee as a Moderating Variable (Empirical Study on Manufacturing Companies listed on the IDX in 2016 – 2018). Proceedings of the National Seminar on Scholars, 2016, 2. https://doi.org/10.25105/semnas.v0i0.5774

Ruankaew, T. (2016). Beyond the Fraud Diamond. International Journal of Business Management & Economic Research, 7(1), 474–476. http://ijbmer.com/docs/volumes/vol7issue1/ijbmer2016070102.pdf

Sari, SP, & Nugroho, NK (2020). Fraud Financial Statements with Vousinas Approach Fraud Hexagon Model: Overview of Public Companies in Indonesia. 1st Annual Conference of Ihtifaz, 409–430. http://seminar.uad.ac.id/index.php/ihtifaz/article/download/3641/1023

Schuchter, A., & Levi, M. (2015). Beyond the fraud triangle: Swiss and Austrian elite fraudsters. Accounting Forum, 39(3), 176–187. https://doi.org/10.1016/j.accfor.2014.12.001

Sekaran, U. (2006). Research Methodology for Business: Book 1. Salemba Empat Publishers.

Setiawan, TJ, & Lestari, JS (2014). The Effect of Audit Quality on Real Earnings Management in Manufacturing Companies Listed on the Indonesia Stock Exchange. https://doi.org/http://e-journal.uajy.ac.id/6745/1/JOURNAL.pdf

Shelton, AM (2014). Analysis of Capabilities Attributed to the Fraud Diamond Analysis of Capabilities Attributed to the Fraud Diamond Acct 4018- Senior Honors Seminar [East Tennessee State University]. https://dc.etsu.edu/cgi/viewcontent.cgi?article=1211&context=honors

Sihombing, KS, & Rahardjo, SN (2014). Diamond Fraud Analysis in Detecting Fraud Financial Statements: An Empirical Study on Manufacturing Companies Listed on the Indonesia Stock Exchange (IDX) 2010 – 2012. Diponegoro Journal of Accounting, 03((2)), 1–12. https://doi.org/10.25105/semnas.v0i0.5780

Skousen, CJ, Smith, KR, & Wright, CJ (2008). Detecting and Predicting Financial Statement Fraud: The Effectiveness of the Fraud Triangle and SAS No. 99. SSRN Electronic Journal, 99. https://doi.org/10.2139/ssrn.1295494

Skousen, CJ, & Twedt, BJ (2009). Fraud in Emerging Markets: A Cross Country Analysis. Journal of Chemical Information and Modeling, 53(9), 1689–1699. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1340586

Sunardi, S., & Amin, MN (2018). Fraud detection of financial statement by using fraud diamond perspective. International Journal of Development and Sustainability, Volume 7(Number 3), 878–891. https://isdsnet.com/ijds-v7n3-04.pdf –891.

Supri, Z., Rura, Y., & Pontoh, GT (2018). Detection of fraudulent financial statements with fraud. Journal of Research in Business and Management, 6(5), 39–45. https://www.questjournals.org/jrbm/papers/vol6-issue5/F06053945.pdf

Surjaatmaja, L. (2018). Detecting Fraudulent Financial Statements Using Fraud Triangle: Capability as Moderating Variable. KnE Social Sciences, 3(10), 945. https://doi.org/10.18502/kss.v3i10.3184

Tiffani, L., & Marfuah. (2015). Detection of Fraud Financial Statements with Triangel Fraud Analysis on Manufacturing Companies Listed on the Indonesia Stock Exchange. Indonesian Journal of Accounting and Auditing, 19(2), 112–125. https://doi.org/https://doi.org/10.20885/jaai.vol19.iss2.art3

Tuanakotta, TM (2013). Auditing Based on ISA (International Standard on Auditing). Salemba Four.

Tuanakotta, TM (2014). Forensic Accounting & Investigative Auditing. Salemba Four.

Vousinas, GL (2019). Advancing theory of fraud: the SCORE model. Journal of Financial Crime, 26(1), 372–381. https://doi.org/10.1108/JFC-12-2017-0128

Wahyuninngtias, F. (2016). Analysis of Fraud Diamond Elements as Financial Determinants of Fraud Statements in Banking Companies in Indonesia. In Thesis Universitas Airlangga. http://repository.unair.ac.id/55264/19/Tesis_Fauziah_W_1-min.pdf

Wolfe, DT, & Hermanson, DR (2004). The Fraud Diamond: Considering the Four Elements of Fraud. The CPA Journal, 74(12), 38–42. https://digitalcommons.kennesaw.edu/facpubs/1537/




DOI: https://doi.org/10.33508/rima.v5i2.4005