Fraudulent Financial Reporting: A Fraud Pentagon Analysis

Abstract

Objective – The massive and broad impact caused by fraud has made it widely discussed by researchers. Several theories have been developed to explain the cause of fraud. The most recent theory that attempts to explain fraud is pentagon fraud. This study attempts to explain the effect of pentagon fraud on the detection of financial statement fraud in 624 companies listed on the Indonesian stock exchange. Methodology/Technique – Data from financial statements published in 2018 were analyzed using multiple regression analysis. Findings – The results of data analysis using E-Views have proven that Pressure, Opportunity, Arrogance and Rationalization have a negative effect on fraudulent financial reporting. However, competence is known to have no significant effect on fraudulent financial reporting. Novelty – The results suggest that human factors such as pressure, arrogance and rationalization encourage fraudsters to produce fraudulent financial reports. These findings imply that human factors such as pressure arrogance and rationalization are important to be considered in designing any anti-fraud strategy. Type of Paper: Empirical Keywords: Fraud Pentagon; Fraudulent Financial Report; Opportunity, Pressure. Reference to this paper should be made as follows: Nanda; S, T; Zenita R; Salmiah N; 2019. Fraudulent Financial Reporting: A Fraud Pentagon Analysis, Acc. Fin. Review 4 (4): 106 – 113. https://doi.org/10.35609/afr.2019.4.4(2) JEL Classification: M40, M41, M49.

Mendeteksi Faktor-faktor Pressure Terhadap Kecurangan Laporan Keuangan Menggunakan Artificial Neural Network

“…Fraud merupakan perbuatan menentang peraturan yang sengaja dilakukan contohnya seperti penggelapan, memberikan keterangan palsu dan perbuatan lainnya yang dilakukan beberapa pihak baik itu secara pribadi atapun kelompok untuk mendapatkan keuntungan dan merugikan orang lain (Sunardi & Amin, 2018). Kecurangan pada laporan keuangan adalah hasil penyajian yang salah akibat tindakan disengaja maupun kelalaian, yang dapat menyesatkan pembaca laporan keuangan secara material (Nanda et al, 2019). Model yang digunakan untuk mengidentifikasi dan menemukan adanya kecurangan laporan keuangan adalah Beneish M-Score yang pertama kali dicetuskan oleh Messod Daniel Beneish tahun 1999 (Beneish, 1999).…”

Emotional intelligence and fraud tendency: a survey of future accountants in Nigeria

“…It is fraud against an organization that can be carried out by any individual who is a member of the organization, whether they are ordinary employees or directors (Ratmono and Frendy, 2022). It has three mutually exclusive categories: asset misappropriation, financial statement fraud and corruption (ACFE, 2020;Holtfreter, 2005;Nanda et al, 2019). And following the Enron and Andersen scandal in 2002 and subsequent cases of occupational fraud, accountants have come under stern criticisms of being enablers of occupational fraud, accused of using their expertise and intelligence to aid the management and directors of Emotional intelligence and fraud tendency companies to alter their financial statements (Bakre, 2007;Griffin, 2015;Oboh and Omolehinwa, 2022;Rezaee and Riley, 2010;Sikka, 2017).…”

“…But emotionally intelligent individuals may consider the emotions of others and put their interests first, desisting from fraud than hurting the feelings of others (Dewi and Anisykurlillah, 2021;Marks, 2019). Though previous literature suggests mixed possibilities on the association between EI and fraud tendency, the dearth of empirical research on fraud tendency and rationalization behaviors demands a critical response, especially given the rising occurrences of occupational fraud involving accountants, managers and directors of companies (Nanda et al, 2019;Rezaee and Riley, 2010;Sikka, 2017; Emotional intelligence and fraud tendency Sikka and Lehman, 2015). While Gaspar et al (2021) suggest a positive association between EI and fraud tendency, the current study expects a negative association in line with Marks' (2019) fraud pentagon model and the submissions of Rahmatullah et al (2018), Ismail and Rasheed (2019) and Sulastri and Kasanah (2021).…”

“…Bakre, 2007; Griffin, 2015; Oboh, 2019; Sikka, 2009; Sikka, 2017; Uche, 2002) allege that accountants use their expertise to aid the management and directors of companies to deliberately alter their financial statements to evade taxes, siphon money and manipulate share prices. The Enron scandal is a classic case that depicts accountants as accomplices of occupational fraud with management and directors of companies, especially financial statement fraud, to meet market expectations and impress investors (Ajekwe and Ibiamke, 2017; Albrecht et al ., 2019; Nanda et al ., 2019; Rezaee, 2005; Rezaee and Riley, 2010). Recent fraud cases of Volkswagen, Toshiba, Nissan and other multinational companies involving accountants are shreds of evidence necessitating research response and counter fraud interventions (Gaspar et al ., 2021; Oboh, 2019; Oboh and Omolehinwa, 2022).…”

“…At its highest level, occupational fraud consists of three primary categories: asset misappropriation, financial statement fraud and corruption (ACFE, 2020). It remains a leading threat to the growth and survival of businesses, and it permeates into public and private organizations, causing economic uneasiness in developed and developing countries, as over $3.3 bn is lost to occupational fraud annually (ACFE, 2020;Central Intelligence Agency [CIA], 2017; Nanda et al, 2019). A survey of 125 countries by the ACFE in 2020 confirms the rise and threat posed by occupational fraud to the global economy and security (ACFE, 2020), and amid these rising fraud incidences, accountants are accused of being enablers of occupational fraud (Adekoya et al, 2020;Matthews and Gandel, 2015;Oboh et al, 2020;Oboh and Omolehinwa, 2022; Rezaee and Riley, Emotional intelligence and fraud tendency 3 2010; Sikka and Lehman, 2015).…”