Effect of Financial Stability, External Pressure, Change in Director, Effective Monitoring, Change in Auditor, and Arrogance on Financial Statement Fraud

T: Fraud is usually carried out by management or employees who are used to benefit their own wealth or to help others involved with it. Financial reporting that contains a fraudulent component can cause a decrease in the integrity of a data where the data presented can mislead investors and other users of financial statements. When there is a material error in the financial statements, the data contained in it becomes irrelevant as a basis for decision making because the analysis carried out is not based on actual data. This study aims to empirically examine the effect of the pentagon fraud in explaining the incidence of financial statement fraud. This study consists of six variables, namely financial stability, external pressure, change in director, effective monitoring, change in auditor, and arrogance. The dependent variable, namely financial statement fraud, was measured using the Beneish M-Score. There are several financial ratios used in the M-Score detection, namely day's sales in receivable index (DSRI); gross margin index (GMI); asset quality index (AQI); sales growth index (SGI); depreciation index (DEPI); sales, general and administrative expenses (SGAI); leverage index (LVGI), and total accrual to total assets (TATA).The company can be said to be manipulating if the M-Score>-2.22. The results of the M-Score are then translated into a dummy variable where a value of 1 means committing fraud while a value of 0 means not committing fraud. The research sample is mining companies listed on the Indonesia Stock Exchange in 2018-2020. The sampling method in this research is purposive sampling method, namely taking samples based on certain criteria, so that the final results obtained are 105 samples. This study used logistic regression analysis. Based on the results of the first and fifth regression models, namely financial stability and change in auditors had a positive effect on financial statement fraud, while external pressure, effective monitoring, and arrogance had no effect on financial statements fraud.