FRAUDULENT FINANCIAL REPORTING: A PENTAGON FRAUD ANALYSIS

Abstract: Financial statements describe the company's financial condition. There are many
gaps in the financial reports that enable management to commit fraudulent financial reporting.
This study purpose to analyze the pentagon fraud, namely the pressure that is proxied by the
financial target, the opportunity that is proxied by the effectiveness of monitoring (ineffective
monitoring); Rationalization which is proxied by change in auditor; Competence which is
proxied by the change of company directors; and Arrogance which is proxied by the number
of CEO images that appear (number of CEO's picture), detects fraudulent financial statements
measured using the Altman Z Score. The sample used in this study were 24 pharmaceutical
sub-sector manufacturing companies registered on the Indonesia Stock Exchange during the
period 2015 until 2017. The type of data used is secondary data obtained from annual reports
and company financial statements for the 2015-2017 period. The analysis of the data used is
multiple regression using the SPSS version 16. This study found that financial stability and
ineffective monitoring influence fraudulent financial statements. Whereas auditor turnover,
change of directors and the number of CEO photos that appear do not affect fraudulent
financial statements.
Keywords: pentagon fraud, financial statement fraud, altman z score