Title:
Unveiling Fraud Indicators in Indonesian Cyclical and Non-cyclical Sectors: A Fraud Pentagon-based Analysis

Authors:
Dewi Kurnia Indrastuti, Indonesia

Abstract:

This study seeks to uncover the influence of elements from the Fraud Pentagon Theory, focusing on the pressure factor, which includes financial targets, personal financial needs, and financial stability, the capability factor encompasses audit quality and changes in director, while the opportunity factor is evaluated based on industry characteristics and the effectiveness of monitoring. The arrogance factor is assessed through the frequency of CEO photographs, and the fifth factor, rationalization, is determined by auditor switching. The study includes 51 companies from the Indonesia Stock Exchange (IDX) between 2018 and 2022, covering both cyclical and non-cyclical sectors, resulting in 153 data points. The analysis employs purposive sampling and logistic regression techniques using SPSS. Findings reveal that financial targets, personal financial needs, financial stability, audit quality, changes in director, industry characteristics, CEO photograph frequency, and auditor switching do not have a significant impact on fraudulent financial statements. In contrast, ineffective monitoring demonstrates a significant and positive effect on the probability of fraudulent financial statements. Therefore, the monitoring process must independently assess various stakeholder perspectives, including the interests of minority shareholders, and facilitate communication between management, shareholders and other stakeholders to minimize fraudulent financial reporting.

DOI: https://doi.org/10.51505/IJEBMR.2025.9608