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DETECTION FRAUDULENT FINANCIAL REPORTING AND CORPORATE GOVERNANCE MECHANISMS USING FRAUD DIAMOND THEORY OF THE PROPERTY AND CONSTRUCTION SECTORS IN INDONESIA
Corresponding Author(s) : Imang Dapit Pamungkas
Humanities & Social Sciences Reviews,
Vol. 8 No. 3 (2020): May
Abstract
Purpose of the study: This study aims to analyze the detection of the risk factors of fraudulent financial reporting and corporate governance mechanisms as moderating variables with fraud diamond theory of the property and construction sector in Indonesia. The risk factors of fraudulent financial reporting by financial targets, ineffective monitoring, auditor change, change of directors.
Methodology: The sample selection using purposive method sampling. The number of population in this study was 219. The samples of this study were 114 property and construction sector companies listed on the Indonesia Stock Exchange during 2016-2018. This study tests the hypothesis in multivariate analysis using logistic regression with IBM SPSS Statistics 25.
Main Findings: The results of this study the board of commissioners, independent commissioners, institutional ownership are able to moderate the relationship between financial targets on fraudulent financial reporting. The companies are able to optimize corporate governance mechanisms, especially the roles of the board of commissioners, independent commissioners, institutional ownership. So, that fraudulent financial reporting in the companies can decrease.
Implications of this study: The results of this study are expected to provide practical implications for companies listed on the Indonesia Stock Exchange, namely the need to strengthen the board of commissioners, independent commissioners, and institutional ownership to detect and prevent fraudulent financial reporting. The higher effectiveness of monitoring will be able to minimize the occurrence of fraudulent financial reporting.
Novelty/Originality of this study: This study uses fraud diamond theory to detect and tests the moderating variables of corporate governance mechanisms on the relationship between the determinant fraudulent financial reporting. The study uses a moderating variable that is corporate governance mechanisms which is proxy by the board of commissioners, independent commissioners, institutional ownership, and audit committee.
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- Annisya, M., Lindrianasari, & Asmaranti, Y. (2016). Pendeteksian Kecurangan Laporan Keuangan Menggunakan Fraud Diamond. Jurnal Bisnis Dan Ekonomi, 23(1), 72–89.
- Anwaar, M. (2016). Global Journal of Management and Business Research: D Accounting and Auditing Volume. Impact of Firms’ Performance on Stock Returns (Evidence From Listed Companies of Fste100 Index London, Uk), 16(1).
- Azizah, R., & Anisykurlillah, I. (2014). Pengaruh Ukuran Perusahaan, Debt Default, dan Kondisi Keuangan Perusahaan Terhadap Penerimaan Opini Audit Going Concern. Accounting Analysis Journal, 3(ISSN 2252-6765), 361–369.
- Cheung, W. M., Chung, R., & Fung, S. (2015). The effects of stock liquidity on firm value and corporate governance: Endogeneity and the REIT experiment. Journal of Corporate Finance, 35, 211–231. https://doi.org/10.1016/j.jcorpfin.2015.09.001 DOI: https://doi.org/10.1016/j.jcorpfin.2015.09.001
- Das, S. K. (2017). Impact of Corporate Governance Mechanisms on Firm’s Performance: A Study on Listed Conventional Banks. Asian Business Review, 7(1), 15–24. https://doi.org/10.18034/abr.v7i1.6 DOI: https://doi.org/10.18034/abr.v7i1.6
- Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2011). Predicting Material Accounting Misstatements. Contemporary Accounting Research, 28(1), 17–82. https://doi.org/10.1111/j.1911-3846.2010.01041.x DOI: https://doi.org/10.1111/j.1911-3846.2010.01041.x
- Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36. https://doi.org/10.1111/j.1911-3846.1996.tb00489.x DOI: https://doi.org/10.1111/j.1911-3846.1996.tb00489.x
- Dewi, A. S., Susanti, F., Magdalena, M., Zulvia, D., & Fernos, J. (2018). The Effect of Auditing Quality and Independent Board of Commissioners on Financial Performance of Property and Real Estate Companies in Indonesia. 57(Piceeba), 123–132. https://doi.org/10.2991/piceeba-18.2018.39 DOI: https://doi.org/10.2991/piceeba-18.2018.39
- Gamayuni, R. R. (2015). The Effect Of Intangible Asset Financial Performance And Financial Policies On The Firm Value. International Journal of Scientific & Technology Research, 4(1), 202–212.
- Hu, Y., & Zhou, X. (2008). The performance effect of managerial ownership: Evidence from China. Journal of Banking and Finance, 32(10), 2099–2110. https://doi.org/10.1016/j.jbankfin.2007.12.047 DOI: https://doi.org/10.1016/j.jbankfin.2007.12.047
- Ibrani, E. Y., Faisal, F., & Handayani, Y. D. (2019). The determinant of non-GAAP earnings management practices and its impact on firm value. Cogent Business and Management, 6(1), 1–17. https://doi.org/10.1080/23311975.2019.1666642 DOI: https://doi.org/10.1080/23311975.2019.1666642
- Irwandi, S. A., Ghozali, I., Faisal, & Pamungkas, I. D. (2019). Detection fraudulent financial statement: Beneish m-score model. WSEAS Transactions on Business and Economics, 16, 271–281.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial. Journal of Financial Economics, 3, 305–360. https://doi.org/10.1016/0304-405X(76)90026-X DOI: https://doi.org/10.1016/0304-405X(76)90026-X
- Loebbecke, J. K., Eining, M. M., & Willingham, J. J. (1989). Auditors experience with material irregularities-frequency, nature, and detectability. Auditing-A Journal of Practice & Theory, 9(1), 1–28.
- Manurung, D. T. H., & Hardika, A. L. (2015). Analysis of factors that influence financial statement fraud in the perspective fraud diamond: Empirical study on banking companies listed on the Indonesia Stock Exchange year 2012 to 2014. International Conference on Accounting Studies (ICAS), (November). https://doi.org/10.4108/eai.18-7-2019.2288648 DOI: https://doi.org/10.4108/eai.18-7-2019.2288648
- Mardiani, S., Sukarmanto, E., & Maemunah, M. (2017). Pengaruh Fraud Diamond Terhadap Pendeteksian Financial Statement Fraud dengan Komite Audit Sebagai Variabel Moderasi. Prosiding Akuntansi, 3(2), 476–484.
- Nugraheni, N. K., & Triatmoko, H. (2016). Analisis Faktor-faktor yang mempengaruhi terjadinya Financial Statement Fraud: Perspectif Diamond Fraud Theory (Studi Pada Perusahaan Perbankan Yang Terdaftar Di Bursa Efek Indonesia Periode 2014-2016). 2002(1), 35–40. https://doi.org/10.1109/CICED.2018.8592188 DOI: https://doi.org/10.1109/CICED.2018.8592188
- Pamungkas, Imang Dapit, Ghozali, I., & Achmad, T. (2018). A pilot study of corporate governance and accounting fraud: The fraud diamond model. Journal of Business and Retail Management Research, 12(2), 253–261. https://doi.org/10.24052/JBRMR/V12IS02/APSOCGAAFTFDM DOI: https://doi.org/10.24052/JBRMR/V12IS02/APSOCGAAFTFDM
- Pamungkas, Imang Dapit, & Utomo, S. D. (2018). Fraudulent financial reporting: An application of fraud pentagon theory to the association of southeast Asian nations corporate governance scorecard. Journal of Advanced Research in Law and Economics, 9(5), 1729–1737. https://doi.org/10.14505//jarle.v9.5(35).26 DOI: https://doi.org/10.14505//jarle.v9.5(35).26
- Santoso, S. H. (2019). Fenomena kecurangan laporan keuangan pada perusahaan terbuka di indonesia. 6(2), 171–192.
- Skousen, C. J., Smith, K. R., & Wright, C. J. (2009). Detecting and Predicting Financial Statement Fraud: The Effectiveness of The Fraud Triangle and SAS No. 99 in Corporate Governance and Firm Performance. International Journal of Quality & Reliability Management (Vol. 32). https://doi.org/10.1108/S1569-3732(2011)0000014001 DOI: https://doi.org/10.1108/S1569-3732(2011)0000014001
- Sugita, M. (2018). Peran Komite Audit sebagai variabel moderasi terhadap hubungan fraud diamond dan pendeteksian financial Statement Fraud (Studi Empiris pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Tahun 2014-2016). (1), 43. https://doi.org/10.1017/CBO9781107415324.004 DOI: https://doi.org/10.1017/CBO9781107415324.004
- Trisnantari, A. N. (2010). Pengaruh Corporate Governance pada Hubungan Pergantian Chief Executive Officer dengan Kinerja Perusahaan. Jurnal Ilmiah Akuntansi Dan Humanika, 1(2).
- Ugrin, J. C., & Odom, M. D. (2010). Exploring Sarbanes-Oxley’s effect on attitudes, perceptions of norms, and intentions to commit financial statement fraud from a general deterrence perspective. Journal of Accounting and Public Policy, 29(5), 439–458. https://doi.org/10.1016/j.jaccpubpol.2010.06.006 DOI: https://doi.org/10.1016/j.jaccpubpol.2010.06.006
- Utomo, S. D., Machmuddah, Z., & Pamungkas, I. D. (2019). The effect of auditor switching and managerial ownership on the fraudulent financial statement. WSEAS Transactions on Business and Economics, 16, 306–315.
- Utomo, S. D., & Pamungkas, I. D. (2018). Cash flow activities and stock returns in manufacturing of Indonesia: A moderating role of earning management. Academy of Accounting and Financial Studies Journal, 22(6), 1–10.
- Utomo, S. D., Pamungkas, I. D., & Machmuddah, Z. (2018). The moderating effects of managerial ownership on accounting conservatism and quality of earnings. Academy of Accounting and Financial Studies Journal, 22(6), 1–11.
- Wolfe, D. T., & Hermanson, D. R. (2004). The Fraud Diamond : Considering the Four Elements of Fraud: Certified Public Accountant. The CPA Journal, 74(12), 38–42.
- Yusof,Azrina., & Lai, Ling. (2014), "An integrative model in predicting corporate tax fraud", Journal of Financial Crime, Vol. 21 No. 4, pp. 424-432. https://doi.org/10.1108/JFC-03-2013-0012 DOI: https://doi.org/10.1108/JFC-03-2013-0012
- Zaki, N. M. (2017). The appropriateness of fraud triangle and diamond models in assessing the likelihood of fraudulent financial statements-An empirical study on firms listed in the Egyptian Stock Exchange. International Journal of Social Science and Economic Research, 2(2), 2403-2433.
References
Annisya, M., Lindrianasari, & Asmaranti, Y. (2016). Pendeteksian Kecurangan Laporan Keuangan Menggunakan Fraud Diamond. Jurnal Bisnis Dan Ekonomi, 23(1), 72–89.
Anwaar, M. (2016). Global Journal of Management and Business Research: D Accounting and Auditing Volume. Impact of Firms’ Performance on Stock Returns (Evidence From Listed Companies of Fste100 Index London, Uk), 16(1).
Azizah, R., & Anisykurlillah, I. (2014). Pengaruh Ukuran Perusahaan, Debt Default, dan Kondisi Keuangan Perusahaan Terhadap Penerimaan Opini Audit Going Concern. Accounting Analysis Journal, 3(ISSN 2252-6765), 361–369.
Cheung, W. M., Chung, R., & Fung, S. (2015). The effects of stock liquidity on firm value and corporate governance: Endogeneity and the REIT experiment. Journal of Corporate Finance, 35, 211–231. https://doi.org/10.1016/j.jcorpfin.2015.09.001 DOI: https://doi.org/10.1016/j.jcorpfin.2015.09.001
Das, S. K. (2017). Impact of Corporate Governance Mechanisms on Firm’s Performance: A Study on Listed Conventional Banks. Asian Business Review, 7(1), 15–24. https://doi.org/10.18034/abr.v7i1.6 DOI: https://doi.org/10.18034/abr.v7i1.6
Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2011). Predicting Material Accounting Misstatements. Contemporary Accounting Research, 28(1), 17–82. https://doi.org/10.1111/j.1911-3846.2010.01041.x DOI: https://doi.org/10.1111/j.1911-3846.2010.01041.x
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36. https://doi.org/10.1111/j.1911-3846.1996.tb00489.x DOI: https://doi.org/10.1111/j.1911-3846.1996.tb00489.x
Dewi, A. S., Susanti, F., Magdalena, M., Zulvia, D., & Fernos, J. (2018). The Effect of Auditing Quality and Independent Board of Commissioners on Financial Performance of Property and Real Estate Companies in Indonesia. 57(Piceeba), 123–132. https://doi.org/10.2991/piceeba-18.2018.39 DOI: https://doi.org/10.2991/piceeba-18.2018.39
Gamayuni, R. R. (2015). The Effect Of Intangible Asset Financial Performance And Financial Policies On The Firm Value. International Journal of Scientific & Technology Research, 4(1), 202–212.
Hu, Y., & Zhou, X. (2008). The performance effect of managerial ownership: Evidence from China. Journal of Banking and Finance, 32(10), 2099–2110. https://doi.org/10.1016/j.jbankfin.2007.12.047 DOI: https://doi.org/10.1016/j.jbankfin.2007.12.047
Ibrani, E. Y., Faisal, F., & Handayani, Y. D. (2019). The determinant of non-GAAP earnings management practices and its impact on firm value. Cogent Business and Management, 6(1), 1–17. https://doi.org/10.1080/23311975.2019.1666642 DOI: https://doi.org/10.1080/23311975.2019.1666642
Irwandi, S. A., Ghozali, I., Faisal, & Pamungkas, I. D. (2019). Detection fraudulent financial statement: Beneish m-score model. WSEAS Transactions on Business and Economics, 16, 271–281.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial. Journal of Financial Economics, 3, 305–360. https://doi.org/10.1016/0304-405X(76)90026-X DOI: https://doi.org/10.1016/0304-405X(76)90026-X
Loebbecke, J. K., Eining, M. M., & Willingham, J. J. (1989). Auditors experience with material irregularities-frequency, nature, and detectability. Auditing-A Journal of Practice & Theory, 9(1), 1–28.
Manurung, D. T. H., & Hardika, A. L. (2015). Analysis of factors that influence financial statement fraud in the perspective fraud diamond: Empirical study on banking companies listed on the Indonesia Stock Exchange year 2012 to 2014. International Conference on Accounting Studies (ICAS), (November). https://doi.org/10.4108/eai.18-7-2019.2288648 DOI: https://doi.org/10.4108/eai.18-7-2019.2288648
Mardiani, S., Sukarmanto, E., & Maemunah, M. (2017). Pengaruh Fraud Diamond Terhadap Pendeteksian Financial Statement Fraud dengan Komite Audit Sebagai Variabel Moderasi. Prosiding Akuntansi, 3(2), 476–484.
Nugraheni, N. K., & Triatmoko, H. (2016). Analisis Faktor-faktor yang mempengaruhi terjadinya Financial Statement Fraud: Perspectif Diamond Fraud Theory (Studi Pada Perusahaan Perbankan Yang Terdaftar Di Bursa Efek Indonesia Periode 2014-2016). 2002(1), 35–40. https://doi.org/10.1109/CICED.2018.8592188 DOI: https://doi.org/10.1109/CICED.2018.8592188
Pamungkas, Imang Dapit, Ghozali, I., & Achmad, T. (2018). A pilot study of corporate governance and accounting fraud: The fraud diamond model. Journal of Business and Retail Management Research, 12(2), 253–261. https://doi.org/10.24052/JBRMR/V12IS02/APSOCGAAFTFDM DOI: https://doi.org/10.24052/JBRMR/V12IS02/APSOCGAAFTFDM
Pamungkas, Imang Dapit, & Utomo, S. D. (2018). Fraudulent financial reporting: An application of fraud pentagon theory to the association of southeast Asian nations corporate governance scorecard. Journal of Advanced Research in Law and Economics, 9(5), 1729–1737. https://doi.org/10.14505//jarle.v9.5(35).26 DOI: https://doi.org/10.14505//jarle.v9.5(35).26
Santoso, S. H. (2019). Fenomena kecurangan laporan keuangan pada perusahaan terbuka di indonesia. 6(2), 171–192.
Skousen, C. J., Smith, K. R., & Wright, C. J. (2009). Detecting and Predicting Financial Statement Fraud: The Effectiveness of The Fraud Triangle and SAS No. 99 in Corporate Governance and Firm Performance. International Journal of Quality & Reliability Management (Vol. 32). https://doi.org/10.1108/S1569-3732(2011)0000014001 DOI: https://doi.org/10.1108/S1569-3732(2011)0000014001
Sugita, M. (2018). Peran Komite Audit sebagai variabel moderasi terhadap hubungan fraud diamond dan pendeteksian financial Statement Fraud (Studi Empiris pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Tahun 2014-2016). (1), 43. https://doi.org/10.1017/CBO9781107415324.004 DOI: https://doi.org/10.1017/CBO9781107415324.004
Trisnantari, A. N. (2010). Pengaruh Corporate Governance pada Hubungan Pergantian Chief Executive Officer dengan Kinerja Perusahaan. Jurnal Ilmiah Akuntansi Dan Humanika, 1(2).
Ugrin, J. C., & Odom, M. D. (2010). Exploring Sarbanes-Oxley’s effect on attitudes, perceptions of norms, and intentions to commit financial statement fraud from a general deterrence perspective. Journal of Accounting and Public Policy, 29(5), 439–458. https://doi.org/10.1016/j.jaccpubpol.2010.06.006 DOI: https://doi.org/10.1016/j.jaccpubpol.2010.06.006
Utomo, S. D., Machmuddah, Z., & Pamungkas, I. D. (2019). The effect of auditor switching and managerial ownership on the fraudulent financial statement. WSEAS Transactions on Business and Economics, 16, 306–315.
Utomo, S. D., & Pamungkas, I. D. (2018). Cash flow activities and stock returns in manufacturing of Indonesia: A moderating role of earning management. Academy of Accounting and Financial Studies Journal, 22(6), 1–10.
Utomo, S. D., Pamungkas, I. D., & Machmuddah, Z. (2018). The moderating effects of managerial ownership on accounting conservatism and quality of earnings. Academy of Accounting and Financial Studies Journal, 22(6), 1–11.
Wolfe, D. T., & Hermanson, D. R. (2004). The Fraud Diamond : Considering the Four Elements of Fraud: Certified Public Accountant. The CPA Journal, 74(12), 38–42.
Yusof,Azrina., & Lai, Ling. (2014), "An integrative model in predicting corporate tax fraud", Journal of Financial Crime, Vol. 21 No. 4, pp. 424-432. https://doi.org/10.1108/JFC-03-2013-0012 DOI: https://doi.org/10.1108/JFC-03-2013-0012
Zaki, N. M. (2017). The appropriateness of fraud triangle and diamond models in assessing the likelihood of fraudulent financial statements-An empirical study on firms listed in the Egyptian Stock Exchange. International Journal of Social Science and Economic Research, 2(2), 2403-2433.