Finances, accounting and audit

The pentagon fraud theory perspective: understanding of motivation of executives to manipulate with the financial statements of a state-owned enterprise

Economic Annals-XXI

Economic Annals-ХХI: Volume 194, Issue (11-12), Pages: 104-110

Citation information:
Setiorini, K. R., Rahmawati, Payamta, & Hartoko, S. (2021). The pentagon fraud theory perspective: understanding of motivation of executives to manipulate with the financial statements of a state-owned enterprise. Economic Annals-XXI, 194(11-12), 104-110. doi: https://doi.org/10.21003/ea.V194-13

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Kusumaningdiah Retno Setiorini
MA (Economics),
Lecturer,
FEB-Akuntansi,
Alma Ata University Yogyakarta
Jl. Brawijaya No.99, Jadan, Tamantirto, Kec. Kasihan, Kabupaten Bantul, Daerah Istimewa Yogyakarta, 55184, Indonesia
k.retno.s@almaata.ac.id
ORCID ID: https://orcid.org/0000-0001-8290-5310

Rahmawati
MA (Economics),
Lecturer,
PDIE UNS,
Sebelas Maret University
Jl. Ir. Sutami No.36, Kentingan, Kec. Jebres, Kota Surakarta, Jawa Tengah, 57126, Indonesia
Rahmaw2005@yahoo.com
ORCID ID: https://orcid.org/0000-0002-9931-1380

Payamta
PhD (Economics),
Lecturer,
PDIE UNS,
Sebelas Maret University
Jl. Ir. Sutami No.36, Kentingan, Kec. Jebres, Kota Surakarta, Jawa Tengah, 57126, Indonesia
payamtaakauntan@gmail.com
ORCID ID: https://orcid.org/0000-0003-2344-8564

Sri Hartoko
PhD (Economics),
MBA,
Lecturer,
PDIE UNS,
Sebelas Maret University
Jl. Ir. Sutami No.36, Kentingan, Kec. Jebres, Kota Surakarta, Jawa Tengah, 57126, Indonesia
sri.hartoko@yahoo.com
ORCID ID: https://orcid.org/0000-0001-8327-9198

The pentagon fraud theory perspective: understanding of motivation of executives to manipulate with the financial statements of a state-owned enterprise

Abstract. State-Owned Enterprises (SOEs) in Indonesia are important economic actors in the national economy. However, SOEs have problems with accountability and financial transparency. SOEs problems ultimately lead to high economic costs and reduce efficiency. This study aims to determine the practice of fraudulent financial statements in SOEs. The method used in this research is descriptive. Data was obtained using observation and documentation of the Garuda Indonesia Group company which is a major airline in Indonesia. In addition, data were obtained from the Indonesia Stock Exchange (IDX), which consists of 36 samples. This study analyzes the financial statements from 2010 to 2018 as an independent variable. The dependent variable is measured by the elements of the pentagon fraud theory (pressure, opportunity, rationalization, competence, and arrogance) to detect fraudulent financial statements. Data analysis uses Kernel regression parameters, namely R-squared, predictive sign, and standard error, to detect earnings management in the context of the Garuda Indonesia Group.
The results show that all the elements of the pentagon fraud theory affect financial statements. The study results show that the pentagon theory of fraud can be relied upon to detect misreporting in financial statements of SOEs. Furthermore, the study results are expected to be considered by related parties to be better prepared when detecting financial statement fraud using the fraud pentagon theory model.

Keywords: Financial Statement Fraud; Fraud Pentagon Theory; Cheat Triangle; Fraud Triangle; Revenue Management; State-Owned Enterprise; SOE; Public Company; Motivation; Manipulating; Misreporting

JEL Classifications: F30; F33; F50; F51; A10

Acknowledgements and Funding: The authors received no direct funding for this research.

Contribution: The authors contributed equally to this work.

Data Availability Statement: The dataset is available from the authors upon request.

DOI: https://doi.org/10.21003/ea.V194-13

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Received 22.09.2021
Received in revised form 12.10.2021
Accepted 20.10.2021
Available online 27.12.2021

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