Independence, Management Motives and Financial Statement Fraud: Role of Earnings Management

Yenny Wati, Teddy Chandra

Abstract


This study aimed to look at the direct impact of auditor independence and management motivation upon financial statement fraud, with earnings management acting as a moderator. This study relies on secondary data from manufacturing companies registered on the Indonesia Stock Exchange for the period 2013-2018. This study's data were analyzed using partial least squares and the WarpPLS 5.0 program. The outcomes showed that auditor independence and management motivation (financial target and rationalization) have a positive impact on financial statement fraud and earning management. Earnings management can help to mediate the effect of auditor independence and management motivation (financial target and rationalization) with partial mediation. Our research provides new empirical evidence in providing information about factors that are factors in financial statement fraud that are beneficial for companies and stakeholders as well as assessing activities carried out by organizations or companies. Company management can prevent and detect fraud or manipulation of financial statements early, find out the factors that allow fraud to occur, and control areas that may give rise to fraud. This research can be a reference in making various policies regarding the practice of financial statement fraud in an entity.

Keywords


Independence, motivation, earnings management, fraud

Full Text:

PDF

References


Abdilla, Willy and Jogiyanto Hartono. (2016). Partial Least Square (PLS): Alternatif Structural Equation Modeling (SEM) Dalam Penelitian Bisnis. Yogyakarta: CV Andi Offset.

Andon, P. and Free, C. (2015). Pathways to accountant fraud: australian evidence and analysis. Accounting Research Journal, 28(1), 10-44. doi: 10.1108/ARJ-06-2014-0058.

Arens, Alvin A., Randal J. Elder, and Mark S. Beasly. (2015). Auditing dan Jasa Assurance PendekatanTerintegrasi, Jilid I, Edisi Kelima belas. Jakarta: Erlangga.

Atiqah, Siti. (2016). Earnings management, corporate governance and goodwill impairment among malaysian listed companies (Master thesis, Universiti Utara Malaysia).

Beneish, M. D. (1999). The detection of earnings manipulation. Financial Analysis Journal, 55(5), 24-36. doi: 10.2469/faj.v55.n5.2296.

Cressey, D. (1953). Other people’s money, in detecting and predicting financial statement fraud: the effectiveness of the fraud triangle and SAS No. 99, Skousen et al. 2009. Journal of Corporate Governance and Firm Performance, 13, 53-81. doi: 10.1108/S1569-3732(2009)0000013005.

Cupertino, Cesar Medeiros, Antonio Lopo Martinez, and Newton Carneiro Affonso. (2016). Consequences for future return with earnings management through real operating activities. Review Contemporary Finance, 27, 232-242. doi: 10.1590/1808-057x201602520.

Davis, Larry R., Billy Soo, and Greg Trompeter. (2010). Auditor tenure and the ability to meet or beat earnings forecasts. Contemporary Accounting Research, 26(2), 517-548. doi: 10.2139/ssrn.1014601.

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225. http://www.jstor.org/stable/248303.

Dowlatabadi, Reza and Mahdi Filsaraei. (2016). Value relevance, earnings management, and corporate governance system. International Journal of Accounting and Financial Reporting, 6(2), 317-330. doi: 10.5296/ijafr.v6i2.10410.

Duc, K. T. (2016). Audit firm rotation and audit firm tenure, improvement or deterioration of the financial reporting quality for dutch listed firms? Social Science Research Network, 1-33.

Eriabie, Sylvester and Eyesan Leslie Dabor. (2017). Audit quality and earnings management in quoted nigerian banks. Journal of Accounting, Finance, and Auditing, 3(1), 1-16. https://jafas.org/2017-vol-3-issue-1/.

Eyenubo, Samuel Akpovwre, Mudzamir Mohamed, and Mohamad Ali. (2017). The effect of audit tenure and financial reporting quality in nigeria listed companies. Asian Journal of Applied Science and Technology, 1(9), 113-120. https://ajast.net/data/uploads/2114.

Ghozali, I. and Latan, H. (2017). Partial Least Square Concepts, Methods and Applications Using the WarpPLS 5.0 Program. Semarang: Universitas Diponegoro.

Gino, F., and M. Bazerman. (2009). When misconduct goes unnoticed: the acceptability of gradual erosion in others’ unethical behavior. Journal of Experimental Social Psychology, 45(4), 708-719. doi: 10.1016/j.jesp.2009.03.013.

Guindy, Medhat N. El. and Mohamed A. K. Basuony. (2018). Audit firm tenure and earnings management: the impact of changing accounting standards in UK firms. The Journal of Developing Areas, 52(4), 167-181. doi: 10.1353/jda.2018.0058.

Gunny, Katherine A. (2010). The relation between earnings management using real activities manipulation and future performance: evidence from meeting earnings benchmarks. Contemporary Accounting Research, 27(3), 855–888. doi: 10.1111/j.1911-3846.2010.01029.x.

Hasnan, S., Rahman, R.A., and Mahenthiran, S. (2014). Determinants of fraudulent financial reporting: evidence from malaysia. Jurnal Pengurusan UKM Journal of Management, 42, 103-117. doi: 10.17576/pengurusan-2014-42-09.

Huguet, David and Juan L. Gandía. (2016). Audit and earnings management in spanish. Business Research Quarterly, 19, 171-187. doi: 10.1016/j.brq.2015.12.001.

Indonesia, M. K. R. Keputusan Menteri Keuangan Republik Indonesia Nomor: 17/PMK.01/2008 Tanggal 05 Februari 2008 Tentang Jasa Akuntan Publik (2008).

Ismail, N. and Weetman P. (2008). Regulatory profit targets and earnings management in initial public offerings: the case of malaysia. Journal of Financial Reporting and Accounting, 6(1), 91-115. doi: 10.1108/19852510880000637.

Jayeola, O., Agbatogun Taofeek, O., & Toluwalase, A. (2017). Audit quality and earnings management among nigerian listed deposit money banks. International Journal of Accounting Research, 5(2), 1-5. doi: 10.4172/2472-114X.1000159.

Jensen, M. C. and W. Meckling. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 305–360. doi: 10.1016/0304-405X(76)90026-X.

Liu, W., and Liu, X. (2008). Auditor switching, earnings manipulation and auditor independence: evidence from a-share listed companies in china. Accounting and Business Research Journal, 2(2), 283-302. doi: 10.1007/s11782-008-0017-4.

Nawaiseh, Mohammad Ebrahim. (2016). Can earnings management be influenced by audit quality? International Journal of Finance and Accounting, 5(4), 209-219. doi:10.5923/j.ijfa.20160504.06.

Parfet, W. U. (2000). Accounting subjectivity and earnings management: a preparer perspective. Accounting Horizons, 14(4), 481–488. doi: 10.2308/acch.2000.14.4.481.

Perols, Johan L. and Barbara A. Lougee. (2011). The relation between earnings management and financial statement fraud. Advances in Accounting, incorporating Advances in International Accounting, 27, 39–53. doi: 10.1016/j.adiac.2010.10.004.

Powell, L., C. Jubb, P. Lange, and K. L. Smith. (2005). The distinction between aggressive accounting and financial reporting fraud: perception of auditors. AFAANZ Conference, Auckland, New Zealand.

Ramírez, Alicia, María J. Martínez, and Teresa Mari. (2017). Measuring fraud and earnings management by a case of study: evidence from an international family business. European Journal of Family Business, 7, 41-53. doi: 10.1016/j.ejfb.2017.10.001.

Reuters. (2004). Worldcom Chief Turns Himself into FBI. Reuters.com, 03 March 2004.

Rukmana, HeruSatria. (2018). Pentagon fraud affect on financial statement fraud and firm value evidence in indonesia. South East Asia Journal of Contemporary Business, Economics and Law, 16(5), 118-122. doi: 10.31334/bijak.v18i1.1345.

Rusmana, Oman dan Hendra Tanjung. (2019). Identifikasi kecurangan laporan keuangan dengan fraud pentagon studi empiris BUMN terdaftar di bursa efek indonesia. Jurnal Ekonomi, Bisnis dan Akuntansi, 21(4), 1-15. doi: 10.32424/jeba.v21i4.1545.

Said, Jamaliah, Mahmudul Alam, and Masitah Ramli. (2017). Integrating ethical values into fraud triangle theory in assessing employee fraud: evidence from the malaysian banking industry. Journal of International Studies, 10(2), 170-184. doi: 10.14254/2071-8330.2017/10-2/13.

Schipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3(4), 91-102.

Schwartz, N.D. (2001). Enron Fallout: Wide But Not Deep. Fortune, 09 December 2001.

Shirzad, Ali, Shaban Mohammadi and Ryhaneh Haghighi. (2015). The effect of financial performance on earnings management in the drug distribution industry. The Journal of Industrial Distribution & Business, 6(4), 23-26. doi: 10.13106/ijidb.2015.vol6.no4.23.

Sholihin, M. and Ratmono, D. (2013). Analysis of SEM-PLS with WarpPLS 3.0 for Nonlinear Relations in Social and Business Research. Yogyakarta: CV Andi Offset.

Skousen, Christopher J., Kevin R. Smith, and Charlotte J. Wright. (2008). Detecting and predicting financial statement fraud: the effectiveness of the fraud triangle and SAS no. 99. Corporate and Firm Performance Advances in Financial Economics Journal, 13, 1-40. doi: 10.2139/ssrn.1295494.

Stice, E. K., and J. D. Stice. (2006). Financial Accounting Reporting & Analysis. United States of America: Thomson South-Western.

Sugiyono. (2016). Metode Penelitian Kuantitatif Kualitatif dan Kombinasi (Mix Method). Bandung: Alfabeta.

Summers, S. and Sweeney, J. (1998). Fraudulently misstated financial statements and insider trading: an empirical analysis. The Accounting Review, 73(1), 131-146. https://www.jstor.org/stable/248345.

Umarsono. (2016). Efektivitas fraud triangle dalam mendeteksi manajemen laba akrual berbasis SAS no. 99 pada perusahaan penanaman modal asing. Jurnal Riset Akuntansi dan Perpajakan, 3(2), 225-237. doi: 10.35838/jrap.2016.003.02.18.

Warsidi, Bambang Agus Pramuka, dan Suhartinah. (2018). Determinant financial statement fraud: perspective theory of fraud diamond. Jurnal Ekonomi, Bisnis, dan Akuntansi, 20(3), 1-19. doi: 10.32424/jeba.v20i3.1130.

Weygandt, J. J., Kimmel, P. D., and Kieso, D. E. (2013). Financial Accounting: IFRS Edition, 2nd Edition. New Jersey: John Wiley & Sons, Inc.

Zaki, Noha Mohamed. (2017). The Appropriateness of fraud triangle and diamond models in assessing the likelihood of fraudulent financial statements-an empirical study on firms listed in the egyptian stock exchange. International Journal of Social Science and Economic Research, 2(2), 2403-2433.




DOI: http://doi.org/10.33312/ijar.603

Refbacks

  • There are currently no refbacks.


-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Indonesian Journal of Accounting Research (IJAR)

Editorial Secretariat

Master of Science and Doctoral Programs
Faculty of Economics and Business, Gadjah Mada University

Jl. Nusantara, Bulaksumur Yogyakarta 55281
CP : Novita
Phone  : +62 812-2848-2829
Fax    : +62 274 524606
Website: http://ijar-iaikapd.or.id/
Email  : sekretariat@ijar-iaikapd.or.id

Marketing and Sales Office

Ikatan Akuntan Indonesia
Graha Akuntan, Jl. Sindanglaya No.1 Menteng, Jakarta Pusat 10310
CP : Reza Fauzi
Divisi Pelayanan, Keanggotaan dan Mitra IAI.
Grha Akuntan, Jl. Sindanglaya No.1, Menteng.
Telp.021-31904232 Ext.324/321

 

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ISSN 2086-6887 (Print)
ISSN 2655 - 1748 (online)

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

 

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------