Testing the Fraud Pentagon in Indonesian Manufacturing Companies: Pressure, Rationalization, and Capability as Determinants of Financial Statement Fraud during 2019–2023
Keywords:
financial statement fraud, Fraud Pentagon, external pressure, auditor change, manufacturing companiesAbstract
Financial statement fraud is a serious issue because it can mislead investors, weaken corporate credibility, and harm stakeholders. This study aims to analyze the effects of external pressure, financial stability, nature of industry, auditor change, director change, and changes in the number of CEO photographs on financial statement fraud from the perspective of the Fraud Pentagon in manufacturing companies listed on the Indonesia Stock Exchange during the 2019–2023 period. This study employed a quantitative approach with a causal-comparative design. The sample was selected using purposive sampling, resulting in 10 companies with a total of 50 observations from financial statements and annual reports. Data were analyzed using multiple linear regression, classical assumption tests, simultaneous tests, partial tests, and the coefficient of determination. The results show that external pressure, financial stability, auditor change, and director change have significant effects on financial statement fraud. In contrast, nature of industry and changes in the number of CEO photographs do not have significant effects. Simultaneously, the six variables have a significant effect, with the model explaining 55.4% of the variation. These findings indicate that the Fraud Pentagon remains relevant, but operates selectively, as the dimensions of pressure, rationalization, and capability are more dominant than the dimensions of opportunity and arrogance. This study concludes that fraud detection in manufacturing companies should focus more strongly on financial pressure and changes in key corporate actors.
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