An Analysis of Pentagon Fraud Theory to Detect Fraudulent Financial Reporting (a Case Study at Sub Sector Transportation That Listed in Indonesian Stock Exchange 2014-2018)

Abstract

The aim of this study is to examine the element of fraud in fraud pentagon theory against indications of fraudulent financial reporting. The Fraud pentagon model is a further development of classical fraud triangle theory and fraud diamond theory. It includes pressure on financial targets, financial stability, external pressure, institutional ownership, nature of industry, ineffective monitoring, quality of external auditor, change in auditor, change of directors, and duality CEO. The indication of fraudulent financial reporting as dependent variable. Samples were selected using a purposive sampling method from 175 mining companies listed on Indonesia Stock Exchange during the year period 2014 – 2018, resulting in 70 firm-observations. Data analysis was conducted using the logistic regression method. The results of this study show that the change of directors is significant in detecting the occurrence of fraudulent financial reporting.