Fraud Hexagon Analysis for Detecting Potential Fraudulent Financial Reporting in Manufacture Sector

Abstract

The number of fraud case that occur from year to year are increasing. One of the frauds that causes substantial losses is financial statement fraud that cause a large amount of loss to financial statement user. Fraud theory has been introduces from long time ago and continuously evolved. It was from Fraud Triangle, Diamond, Pentagon and then Hexagon. We use Fraud Hexagon as grand theory in our research. The purpose of this research is to analyze fraud hexagon in detecting financial statement fraud. Sources of data used in this study are secondary data that obtained from the Indonesia Stock Exchange website. The population of this research were manufacture companies listed on Indonesia Stock Exchange for the period 2017-2019. Since manufacture is the largest among the sectors in our stock market. Our research is quantitative causal study, this research used the purposive sampling technique and found 80 companies, within 3 years of observation. Thus, the total number of samples studied was 240. Ordinary least square approach using multiple linear regression method is used to analyze data. The research results indicated that financial stability, nature of industry and CEO duality have an effect in detecting financial statement fraud. Meanwhile, financial target, ineffective monitoring, external auditor substitution, replacement of company director and state-owned enterprise do not have an effect in detecting financial statement fraud on listed manufacture companies.