Detecting potential financial statement fraud using fraud pentagon analysis. Indonesia’s manufacturing firms evidence
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Abstract
This study aims to detect potential financial statement fraud by using the fraud pentagon theory (pressure, opportunity, rationalization, competence, arrogance). Pressure is proxied by financial stability. Opportunity is proxied by ineffective monitoring. Rationalization are proxied by change in auditor. Competence is proxied by director change. Arrogance is proxied by the frequent number of CEO picture and the size of CEO picture. The population in this study are manufacturing firms listed on the IDX for the 2019-2021 period. Sampling was done by purposive sampling method and resulted in 126 firms operated in non-cyclicals consumer sector as samples. Using logistic regression analysis, this study found that the pressure proxied by financial stability affects the potential financial statement fraud. Meanwhile, opportunity proxied by ineffective monitoring; rationalization proxied by change in auditor; competence proxied by director change; arrogance proxied by the frequent number of CEO picture and CEO picture, have no effect on the potential of financial statement fraud.
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