DOES THE FRAUD PENTAGON DETECT FRAUDULENT FINANCIAL STATEMENTS?

Abstract

This study aims to examine whether the fraud pentagon can detect fraudulent financial statements. In this research, pressure is proxied by financial stability, opportunity by ineffective monitoring, rationalization by change in auditor, competence by change in director, and arrogance by the frequent number of CEO pictures. Data were obtained from S&P Capital as well as financial statements and annual reports of each company. The purposive sampling technique was used to select research samples from secondary data of companies listed on the Indonesia Stock Exchange for the 2020–2023 period, resulting in 117 companies as observations. Using a logistic regression model, this study found that pressure, opportunity, and competence positively influence fraudulent financial statements, while the other two variables, rationalization, and arrogance, have no effect on fraudulent financial statements. The findings of this study highlight the need to strengthen companies’ internal controls to prevent financial statement manipulation, which could negatively impact investors and other stakeholders.