International Journal of Management, Accounting and Economics

Monthly Publication

Current Issue

By Issue

By Author

By Subject

Author Index

Keyword Index

About Journal

Aims and Scope

Editorial Board

Publication Ethics

Indexing and Abstracting

Related Links

FAQ

Peer Review Process

Journal Metrics

News

Testing the Crowes Pentagon Theory of Fraud on Financial Statement Fraud

Document Type : Review Article

Authors

1 Universitas Syiah Kuala

2 Akuntansi, Ekonomi dan Bisnis, Universitas Syiah Kuala

Abstract

This paper aims to test the Crowes Pentagon Theory of Fraud in detecting financial statement fraud and provide further explanation of the fraud indicators in the Pentagon Fraud Theory consisting of pressure, opportunity, competence, rationalization, and arrogance. (arrogance) can detect fraud in financial reporting in manufacturing companies listed on the Indonesia Stock Exchange in 2017-2021. The data used in this research was obtained from annual reports and websites of manufacturing companie. The sample selection technique in this study used simple random sampling to obtain 655 company-years. The data analysis techniques used are descriptive statistical and multiple linear regression analyses. The results show that the fraud indicators in the fraud pentagon theory represented by financial stability, leverage, ineffective monitoring, and director turnover, can detect financial statement fraud, while other indicators - auditor changes and a large number of CEO photos - cannot detect financial statement fraud.

Keywords

Main Subjects

COPYRIGHTS

©2024 The Author(s). This is an open access article distributed under the terms of the Creative Commons Attribution (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, as long as the original authors and source are cited. No permission is required from the authors or the publishers.

References
ACFE. (2022). Occupational Fraud 2022.
Aghghaleh. (2014). Fraud Risk Factors of Fraud Triangle and the Likelihood of Fraud Occurrence: Evidence from Malaysia. Information Management and Business Review, 6(1), 1–7. https://doi.org/10.22610/imbr.v6i1.1095
Agusputri, H., & Sofie, S. (2019). Factors That Influence Fraudulent Financial Reporting Using Pentagon Fraud Analysis. Journal of Information, Taxation, Accounting and Public Finance, 14(2), 105.https://doi.org/10.25105/jipak.v14i2.5049
Agustina, R. D., & Pratomo, D. (2019). The Influence of Pentagon Fraud in Detecting Fraudulent Financial Reporting. Scientific Journal of Management, Economics, & Accounting (MEA), 3(1), 44–62. https://doi.org/10.31955/mea.vol3.iss1.pp44-62
AICPA. (2002). Consideration of Fraud in a Financial Statement. Construction Contractors, 175–188. https://doi.org/10.1002/9781119480310.ch12
Association of Certified Fraud Examiners. (2016). Report To the Nations On Occupational Fraud and Abuse 2016. ACFE report, 1–92.
Aviantara, R. (2019). The BIG 4 Role in Moderating the Detection of Fraud Pentagon Against Fraudulent Financial Reports (Study on Indonesian Public Sector Government Companies). International Journal of Sciences: Basic and Applied Research (IJSBAR), 48(4), 94–107.
Avortri, C., & Agbanyo, R. (2021). Determinants of management fraud in the banking sector of Ghana: the perspective of the diamond fraud theory. Journal of Financial Crime, 28(1), 142–155. https://doi.org/10.1108/JFC-06-2020-0102
Cheliatsidou, A., & Al, E. (2021). No Title. 1 Desember. https://doi.org/https://doi.org/10.1108/JMLC-09-2021-0103
Crowe Horwarth. (2011). IIA Practice Guide: Fraud and Internal Audit. Western Regional Conference, 1–49.
Dama Yanti, D., & Munari. (2021). A Pentagon Fraud Analysis of Manufacturing Companies Listed on the Indonesian Stock Exchange. Ubhara Management Scientific Journal, April 2021, 153–168.
Eisenhardt, K. M. (1989). Agency Theory : An Assessment and Review Linked references are available on JSTOR. 14(1), 57–74.
Erdoğan, M., & Erdoğan, E. O. (2020). Chapter 11 Financial Statement Manipulation : A Beneish Model Applicatio. 102, 173–188. https://doi.org/10.1108/S1569-375920200000102014
Horwath, C. (2011). The Mind Behind the Fraudsters Crime: Key Behavioral and Environmental Elements. United States of America: Crowe Horwath LLP, 1–62.
Jensen, M. C., & Meckling, W. H. (1976). Theory Of The Firm: Managerial Behavior, Agency Costs And Ownership Structure. In Journal of Financial Economics (Vol 3). Q North-Holland Publishing Company.
Johnson, R. E., & Silverman, S. B. (2010). Acting Superior But Actually Inferior ?: Correlates and Consequences of  Work place Arrogance. 403–427. https://doi.org/10.1080/08959285.2010.515279
Khamainy, A. H., & Ali, M. (2022). No Title. 24 may. https://doi.org/https://doi.org/10.1108/JFC-06-2021-0118
Mukhtaruddin, Sabrina, E., Hakiki, A., Saftiana, Y., & Kalsum, U. (2020). Fraudulent financial reporting: fraud pentagon analysis in banking and financial sector companies. Issues in Business Management and Economics, 8(2), 12–24.
Omukaga, K. O. (2019). Is the fraud diamond perspective valid in Kenya ? https://doi.org/10.1108/JFC-11-2019-0141
Owusu, G. M. Y., Koomson, T. A. A., Alipoe, S. A., & Kani, Y. A. (2022). Examining the predictors of fraud in state-owned enterprises: an application of the fraud triangle theory. Journal of Money Laundering Control, 25(2), 427–444. https://doi.org/10.1108/JMLC-05-2021-0053
Ozcelik, H. (2020a). Analysis Of Fraudulent Financial Reporting Using The Fraud Diamond Theory Perspective : An Empirical Study On The Manufacturing Sector Companies Listed On. Contemporary Issues in Audit Management and Forensic Accounting, 102, 131–153. https://doi.org/10.1108/S1569-375920200000102012
Ozcelik, H. (2020b). An Analysis of Fraudulent Financial Reporting Using the Fraud Diamond Theory Perspective: An Empirical Study on the Manufacturing Sector Companies Listed on the Borsa Istanbul (bll 131–153). https://doi.org/10.1108/s1569-375920200000102012
Ratmono, D., Darsono, D., & Cahyonowati, N. (2020). Financial Statement Fraud Detection With Beneish M-Score and Dechow F-Score Model: An Empirical Analysis of Fraud Pentagon Theory in Indonesia. International Journal of Financial Research, 11(6), 154. https://doi.org/10.5430/ijfr.v11n6p154
Sasongko, Noer. Wijayantika, S. F. (2019). Fraud Risk Factors regarding the implementation of fraudulent financial reporting based on the approach (Crown's Fraud Pentagon Theory). Indonesian accounting and finance research, 4 no 1, 10.
Septriani, Y., & Desi Handayani,  dan. (2018). Detecting Fraudulent Financial Reports with Pentagon Fraud Analysis. 11(1), 11–23.
Siddiq, F. R., Achyani, F., & Zulfikar. (2017). Fraud Pentagon in Detecting Financial Statement Fraud. National Seminar and The 4th Call for Syariah Paper, 1–18.
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. Advances in Financial Economics, 13, 53–81. https://doi.org/10.1108/S1569-3732(2009)0000013005/FULL/XML
Syahputra, E. (2019). Analysis of the Influence of Fraud Diamond in Detecting Financial Statement Fraud: Empirical Study of Manufacturing Companies Listed on the Indonesia Stock Exchange (BEI) 2010 - 2017. North Sumatra.
Tessa, C. G., & Harto, P. (2016). Testing the Pentagon Fraud Theory in the Financial and Banking Sector in Indonesia. National Accounting Symposium, 1–21.
Ulfah, M., Nuraina, E., & Wijaya, A. L. (2017). The Influence of Pentagon Fraud in Detecting Fraudulent Financial Reporting (Empirical Study of Banks in Indonesia Registered on BEI. Accounting Education Scientific Forum, 5(1), 399–418.
Warshavsky, M. (2012). Analyzing Earnings Quality as a Financial Forensic Tool. 39, 16–20.
Wolfe, D. T., & R, H. D. (2004). The Fraud Diamond: Considering the Four Elements of Fraud. 12, 38–42.
International Journal of Management, Accounting and Economics
Volume 11, Issue 3 - Serial Number 116
March 2024
Pages 296-312
Files
Share
How to cite
Statistics