Factors Affecting Fraud Financial Statement

Oct 13, 2025 by talynt.org 21 views

Introduction

In the business world, especially in companies listed on the Indonesia Stock Exchange (IDX), the reliability of financial statements is one of the very crucial aspects. The existence of fraud in financial statements, or known as the financial statement fraud, can harm various parties, including investors, creditors, and even the company itself. This study aims to empirically explore the factors that influence the fraud of financial statements in the context of the fraud triangle, which includes financial stability, financial targets, external pressure, ineffective supervision, and rationalization.

Factors Affecting Fraud Financial Statement

In this analysis, the factors studied are proxied through certain variables. Financial stability is a critical aspect that can influence the likelihood of fraud in financial statements. It is measured by ACCHANGE, which represents accounting changes. Meanwhile, other variables such as ROA (Return on Assets), LEV (Debt to Equity Ratio), BDDOUT (Limits on Dividends), and AUDCHANGE (Auditor Change) are tested to understand their influence against potential fraud.

The study also examines the impact of financial targets on the likelihood of fraud. Companies that experience significant pressure to meet financial expectations may be more vulnerable to fraud. Additionally, external pressure from stakeholders, such as investors and creditors, can also contribute to the likelihood of fraud.

Methodology

The secondary data used in this study came from the annual financial statements of manufacturing companies listed on the IDX during the 2012-2015 period. From the existing population, using purposive sampling techniques, 40 companies were chosen as research samples. The analysis method applied is logistical regression, which allows researchers to understand the relationship between independent and dependent variables.

Results and Discussion

The results of the study showed that financial stability measured by ACCHANGE had a significant influence on the financial statement fraud. This indicates that companies that experience significant changes in their financial conditions tend to be more vulnerable to fraud. Conversely, other variables such as ROA, LEV, BDDOUT, and AUDCHANGE did not show a significant effect on fraud financial statements.

The findings suggest that companies with unstable financial performance tend to find shortcuts to improve their image in the eyes of investors and stakeholders. This is in line with the perspective of the fraud triangle, where the pressure to meet financial expectations can trigger management to commit fraud.

Additional Analysis

The study also highlights the importance of rationalization in the decision-making process of management. In situations where the company experiences high financial pressure, management may feel that fraud is a justified step to save the company from a bad condition. This rationalization can lead to a culture of dishonesty and corruption within the organization.

Furthermore, the study emphasizes the need for ineffective supervision to be addressed. Weak supervision can create an environment in which fraud can develop without being detected. This highlights the importance of strengthening the supervision system and creating a strong ethical culture within the company.

Conclusion

This study highlights the importance of financial stability in preventing fraud of financial statements. For companies, maintaining stable and transparent financial performance is an important step to minimize the risk of fraud. In addition, strengthening the supervision system and creating a strong ethical culture within the company will be very helpful in preventing the financial statement of fraud.

For stakeholders, the results of this study provide insight into the factors that need to be observed when assessing the integrity of a company's financial statements. By understanding the factors that contribute to fraud, stakeholders can make informed decisions and take necessary steps to mitigate the risk of fraud.

Recommendations

Based on the findings of this study, the following recommendations are made:

Companies should prioritize financial stability and transparency to minimize the risk of fraud.
Strengthening the supervision system and creating a strong ethical culture within the company is essential to prevent fraud.
Stakeholders should be aware of the factors that contribute to fraud and take necessary steps to mitigate the risk of fraud.
Regulatory bodies should implement stricter regulations and enforcement mechanisms to prevent and detect fraud.

By implementing these recommendations, companies and stakeholders can work together to prevent fraud and maintain the integrity of financial statements.

Limitations

This study has several limitations that should be acknowledged. Firstly, the study only examined the factors that contribute to fraud in manufacturing companies listed on the IDX. Future studies can expand the scope to include other industries and companies.

Secondly, the study used secondary data from the annual financial statements of companies. Future studies can use primary data collection methods to gather more detailed and accurate information.

Lastly, the study only examined the factors that contribute to fraud in the context of the fraud triangle. Future studies can explore other factors that contribute to fraud and develop a more comprehensive understanding of the issue.

Future Research Directions

Based on the findings of this study, several future research directions can be identified:

Exploring the impact of other factors that contribute to fraud, such as corporate governance and internal control.
Developing a more comprehensive understanding of the fraud triangle and its components.
Examining the effectiveness of regulatory bodies in preventing and detecting fraud.
Investigating the impact of fraud on stakeholders, including investors, creditors, and employees.

By exploring these research directions, future studies can contribute to a deeper understanding of the issue of fraud and develop effective strategies to prevent and detect it.

Q: What is the main objective of this study?

A: The main objective of this study is to empirically explore the factors that influence the fraud of financial statements in the context of the fraud triangle, which includes financial stability, financial targets, external pressure, ineffective supervision, and rationalization.

Q: What are the factors studied in this analysis?

A: The factors studied in this analysis are proxied through certain variables, including financial stability (measured by ACHANGE), financial targets (measured by ROA, LEV, BDDOUT, and AUDCHANGE), external pressure, ineffective supervision, and rationalization.

Q: What is the methodology used in this study?

A: The secondary data used in this study came from the annual financial statements of manufacturing companies listed on the IDX during the 2012-2015 period. From the existing population, using purposive sampling techniques, 40 companies were chosen as research samples. The analysis method applied is logistical regression, which allows researchers to understand the relationship between independent and dependent variables.

Q: What are the results of this study?

A: The results of the study showed that financial stability measured by ACHANGE had a significant influence on the financial statement fraud. This indicates that companies that experience significant changes in their financial conditions tend to be more vulnerable to fraud. Conversely, other variables such as ROA, LEV, BDDOUT, and AUDCHANGE did not show a significant effect on fraud financial statements.

Q: What are the implications of this study?

A: The findings of this study highlight the importance of financial stability in preventing fraud of financial statements. For companies, maintaining stable and transparent financial performance is an important step to minimize the risk of fraud. In addition, strengthening the supervision system and creating a strong ethical culture within the company will be very helpful in preventing the financial statement of fraud.

Q: What are the limitations of this study?

A: This study has several limitations that should be acknowledged. Firstly, the study only examined the factors that contribute to fraud in manufacturing companies listed on the IDX. Future studies can expand the scope to include other industries and companies. Secondly, the study used secondary data from the annual financial statements of companies. Future studies can use primary data collection methods to gather more detailed and accurate information.

Q: What are the future research directions based on this study?

A: Based on the findings of this study, several future research directions can be identified. Firstly, exploring the impact of other factors that contribute to fraud, such as corporate governance and internal control. Secondly, developing a more comprehensive understanding of the fraud triangle and its components. Thirdly, examining the effectiveness of regulatory bodies in preventing and detecting fraud. Fourthly, investigating the impact of fraud on stakeholders, including investors, creditors, and employees.

Q: What are the recommendations based on this study?

A: Based on the findings of this study, the following recommendations are made:

Companies should prioritize financial stability and transparency to minimize the risk of fraud.
Strengthening the supervision system and creating a strong ethical culture within the company is essential to prevent fraud.
Stakeholders should be aware of the factors that contribute to fraud and take necessary steps to mitigate the risk of fraud.
Regulatory bodies should implement stricter regulations and enforcement mechanisms to prevent and detect fraud.

Q: What are the benefits of this study?

A: The benefits of this study include:

Providing a comprehensive understanding of the factors that contribute to fraud in financial statements.
Highlighting the importance of financial stability in preventing fraud.
Identifying the need for strengthening the supervision system and creating a strong ethical culture within the company.
Providing recommendations for companies and stakeholders to mitigate the risk of fraud.

Q: What are the potential applications of this study?

A: The potential applications of this study include:

Improving the accuracy and reliability of financial statements.
Enhancing the effectiveness of internal control systems.
Strengthening the supervision system and creating a strong ethical culture within the company.
Providing a framework for companies and stakeholders to mitigate the risk of fraud.