Detecting Fraudulent Financial Reporting with Financial Ratios: Case Study on Indonesia Stock Exchange

Abstract

This study aimed to examine the significant differences in the financial ratios of FFR and non-FFR companies listed on the Indonesia Stock Exchange (IDX) in 2018-2019. It used the difference test of two population means and the Mann-Whitney U test to determine the financial ratios useful in distinguishing the companies. Furthermore, multiple logistic regression was employed to determine significant financial ratios as predictors against Fraudulent Financial Reporting (FFR). The M-Score formula was applied to classify the sample into 19 non-FFR and 59 FFR public companies. The results showed that seven financial ratios effectively differentiate FFR and non-FFR companies. Moreover, one significant financial ratio predicts FFR in public companies listed on the Indonesia Stock Exchange.