The Role of the Audit Committee in Moderating Financial Statement Fraud: A Pentagon Fraud Theory Perspective

Duta Ajipamulasuari; Indira Januarti; Hussein Hassan Laizer

doi:10.17977/jabe.v11i1.63318

The Role of the Audit Committee in Moderating Financial Statement Fraud: A Pentagon Fraud Theory Perspective

Duta Ajipamulasuari, Indira Januarti, Hussein Hassan Laizer

Abstract

This research examines the causes of potential financial statement fraud in the Indonesian banking sector, utilizing the Fraud Pentagon model (Pressure, Opportunity, Rationalization, Competence, Arrogance), with the audit committee serving as a moderating variable. The novelty of this research lies in the use of the Loan Loss Provision (LLP) as a proxy for arrogance and the role of the audit committee in reducing the potential for fraud. The research population is banking companies listed on the Indonesian stock exchange from 2019 to 2024. Based on the specified criteria, 252 observation data were obtained. The analysis tool uses logistic regression, which is processed with the help of EViews 13. The research results show pressure (financial targets), opportunities (ineffective monitoring), rationalization (change of auditors), competence (director changes) and arrogance in (Loan Loss Provisions) have no potential influence on the possibility of fraudulent financial statements. Opportunities (ineffective monitoring) on the possibility of fraudulent financial statements. However, the audit committee did not participate in reducing the potential influence of pressure (financial targets), rationalization (change of auditor), competence (change of director), and arrogance (loan loss provisions) on the possibility of financial statement fraud. The results of this research can provide implications for strengthening the supervisory role carried out by the audit committee in strengthening efforts to detect and prevent possible fraud in the banking sector.

Keywords

Financial Statement Fraud; Pentagon Fraud; Audit Committee; banking

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DOI: http://dx.doi.org/10.17977/jabe.v11i1.63318