Financial Statement Fraud and the Fraud Pentagon Theory: Evidence from Indonesia’s Public Sector

Elsa Nuzula Rahma(1*), Nurcahyono Nurcahyono(2)


(1) Universitas Muhammadiyah Semarang
(2) Universitas Muhammadiyah Semarang
(*) Corresponding Author

Abstract


This study investigates the determinants of financial statement fraud in Indonesian state-owned enterprises (SOEs) using the Fraud Pentagon Theory, which extends the traditional fraud triangle by incorporating five dimensions: pressure, opportunity, rationalization, capability, and arrogance. Each element is proxied respectively by financial stability, the proportion of independent commissioners, auditor turnover, board of directors turnover, and CEO profile picture. The analysis is based on panel data from 25 SOEs listed on the Indonesia Stock Exchange (IDX) during 2019–2023, with fraud measured using the F-Score model. Panel regression results show that financial stability significantly increases the likelihood of fraudulent reporting, indicating that financial pressure is a key driver of earnings manipulation. In contrast, the other variables do not exhibit significant effects, suggesting that conventional governance and image-based proxies may have limited predictive value in this context. These findings offer empirical support for the Fraud Pentagon framework in the public sector and highlight the need for more targeted fraud detection strategies beyond traditional governance indicators.


Keywords


Fraud financial statement, pentagon fraud theory, SOEs company

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References


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DOI: https://doi.org/10.26714/mki.13.2.2023.218-228

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MAKSIMUM: Media Akuntansi Universitas Muhammadiyah Semarang 
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