Fraud Triangle Analyses in Detecting Fraudulent Financial Statement Using Fraud Score Model

Abstract

Company’s financial condition reflected in the financial statements. However, there are many loopholes in the financial statements which can become a chance for the management and certain parties to commit fraud on the financial statements. This study aims to detect financial statement fraud as measured using fraud score model that occurred in issuers entered into the LQ-45 index in 2014-2016 with the use of six independent variables are financial stability, external pressure, financial target, nature of industry, ineffective monitoring and rationalization. This study using 27 emiten of LQ-45 index during 2014-2016. However, there are some data outlier that shall be removed, thus sample results obtained 66 data from 25 companies. Multiple linear regression analysis were used in this study. The results showed that the financial stability variables (SATA), nature of industry (RECEIVBLE), ineffective monitoring (IND) and rationalization (ITRENDLB) proved to be influential or have the capability to detect financial statement fraud. While the external pressure variables (DER) and financial target (ROA) are not able to detect the existence of financial statement fraud. Simultaneously all variables in this study were able to detect significantly financial statement fraud.

The Effect Of Financial Health Levels To The Indication Of Financial Statement Fraud In Transportation Sector

“…According to Machado & Gartner (2018), the elements in the fraud triangle, namely pressure, opportunity, and rationalization, can identify indications of fraud. The same thing also expressed by Mariati & Indrayani (2020), the study said that not only the pressure element (financial stability, meeting financial targets, and external pressure), which gives effect to the possibility of financial statement fraud but the factor of chance (which is created through the lack of effective monitoring function) and rationalization factors could also influence the possibility of financial statement fraud.…”

Detecting Financial Statement Fraud Using Fraud Triangle and Board of Director’s Attributes Analyses

“…The current study combines fraud triangle and directors' diversity analyses to detect financial statement fraud. This makes the study different from previous similar studies that utilize single fraud detection method, either fraud triangle analysis [8], [12], or directors' diversity [7], [9], [10].…”

“…If the entity is facing an unstable financial condition, the pressure to commit fraud will be higher [12]. Some studies have proven that the pressure aspect has a significant relationship with financial statement fraud [7], [8]. On the other hand, a company that has good financial stability is less likely to have pressure to commit fraud.…”

Can the Fraud Triangle Detect Financial Statement Fraud? (An Empirical Study of Manufacturing Companies in Indonesia)

“…A larger collection period or increased credit sales result in an increase in receivables, which disrupts the company's cash flow. Non-current cash flows can affect profitability, which companies can try to overcome by committing fraud [24].…”

“…The measurement of the allowance for bad debts is subjective which is the focus of managers to commit fraud [23]. Mariati and Indrayani [24] conclude that an increase in accounts receivable indicates that the company's cash turnover is not good, which can affect the company's financial stability and encourage it to commit fraud. Our study is based on a sample of manufacturing companies.…”