Fraudulent financial reporting: an application of fraud diamond to Toshiba’s accounting scandal

Abstract

Purpose The purpose of this paper is to examine Toshiba’s fraudulent financial reporting in relation to the fraud diamond (pressure, opportunity, rationalisation and capability). Design/methodology/approach A quantitative empirical research, analysing secondary data from Toshiba’s published annual reports before restatement, from 2008–2014 has been used. A simultaneous equations approach was used to test the hypothesis. Excel software was used to analyse secondary data and to carry out correlation analysis and descriptive statistics analysis. Findings This study uncovers evidence that pressure proxied by return on assets (ROA), the opportunity proxied by ineffective monitoring (BDOUT), rationalisation proxied by audit opinion (AO) and capability proxied by board member changes (BCHANGE) had moderate to strong relationship to financial statement fraud (FSF) (proxied by Beneish M-score model). However, ROA has a negative and significant effect on Toshiba’s FSF. BDOUT, AO and BCHANGE have positive and significant effect on Toshiba’s FSF. Furthermore, there is no multicollinearity problem within the four variables. Overall, this study has statistically proven that all dimensions of fraud diamond are required for the explanation of Toshiba’s accounting scandal. Originality/value Although a few studies discuss the four dimensions (fraud diamond), none, to our surprise, exists which explain the circumstances led Toshiba’s high-level executives to commit fraud. This study is the first thorough investigation of Toshiba’s accounting scandal that uses all four dimensions to explain Toshiba’s FSF.

Determinants Of Financial Shenanigans Indications During The Covid-19 Pandemic

“…Financial Target and Financial Shenanigans. High financial targets have the potential of causing management to engage in financial shenanigans in order to demonstrate good corporate performance (Fitri et al, 2019;Devi et al, 2021;Demetriades and Owusu-Agyei, 2022). Consequently, the higher the company's financial target, the more pressure management will face, forcing management to commit fraud (Ramírez-Orellana et al, 2017).…”

Internal Control Moderates the Influence of the Fraud Hexagon on Financial Statement Fraud

“…The change of directors also occurred allegedly due to a mismatch with the directors who were not in line with committing fraud (Imtikhani & Sukirman, 2021). Directors who have knowledge of fraud are removed to weaken internal control operations and avoid detection (Demetriades & Owusu-Agyei, 2021). According to agency theory, management in carrying out its role as an agent is equipped with capabilities that can be a door for committing fraud that has a negative impact on the company (Devi, Widanaputra, Budiasih, & Rasmini, 2021).…”

“…In the director's change capability, it affects the FSF (Aviantara, 2021;Xu, Lin, & Chen, 2018;Yulistyawati, Suardikha, & Sudana, 2019;Devi, Widanaputra, Budiasih, & Rasmini, 2021) while some research results were found to have no significant effect (Handoko & Tandean, 2021;Imtikhani & Sukirman, 2021;Demetriades & Owusu-Agyei, 2021;Vivianita & Indudewi, 2018). On the opportunity, Demetriades & Owusu-Agyei (2021), Devi, Widanaputra, Budiasih, & Rasmini (2021), and Imtikhani & Sukirman (2021) found that monitoring effectiveness affected FSF, while Handoko & Tandean (2021) did not. On rationalization, Auditor changes were found to affect the FSF (Imtikhani & Sukirman, 2021) but also had no effect on the research by Handoko & Tandean (2021).…”

“…Previous studies tried to test the effect of TFH on FSF, but still showed inconsistent results. On the stimulation element (Vivianita & Indudewi, 2018;Devi, Widanaputra, Budiasih, & Rasmini, 2021) found that the ROA ratio had a positive effect on FSF, while (Demetriades & Owusu-Agyei, 2021) no. In the director's change capability, it affects the FSF (Aviantara, 2021;Xu, Lin, & Chen, 2018;Yulistyawati, Suardikha, & Sudana, 2019;Devi, Widanaputra, Budiasih, & Rasmini, 2021) while some research results were found to have no significant effect (Handoko & Tandean, 2021;Imtikhani & Sukirman, 2021;Demetriades & Owusu-Agyei, 2021;Vivianita & Indudewi, 2018).…”

“…On the stimulation element (Vivianita & Indudewi, 2018;Devi, Widanaputra, Budiasih, & Rasmini, 2021) found that the ROA ratio had a positive effect on FSF, while (Demetriades & Owusu-Agyei, 2021) no. In the director's change capability, it affects the FSF (Aviantara, 2021;Xu, Lin, & Chen, 2018;Yulistyawati, Suardikha, & Sudana, 2019;Devi, Widanaputra, Budiasih, & Rasmini, 2021) while some research results were found to have no significant effect (Handoko & Tandean, 2021;Imtikhani & Sukirman, 2021;Demetriades & Owusu-Agyei, 2021;Vivianita & Indudewi, 2018). On the opportunity, Demetriades & Owusu-Agyei (2021), Devi, Widanaputra, Budiasih, & Rasmini (2021), and Imtikhani & Sukirman (2021) found that monitoring effectiveness affected FSF, while Handoko & Tandean (2021) did not.…”