The Influence of Diamond Fraud, Audit Committee and Leverage on Financial Report Fraud

Abstract

Purpose: This research aims to explain the influence of fraud diamonds, audit committees, and leverage on fraudulent financial reports in financial companies listed on the Indonesia Stock Exchange during the 2019-2022 period.   Theoretical Framework: The study is grounded in the theory of fraud diamond, which identifies pressure, opportunity, rationalization, and capability as the key factors contributing to financial report fraud. The role of the audit committee and leverage is also examined in the context of their potential influence on financial reporting integrity.   Method: This research uses a sample of 144 companies selected through purposive sampling techniques. Secondary data obtained from financial reports were analyzed using logistic regression analysis, facilitated by the EViews 10 software application.   Results and Conclusion: The results show that fraud diamonds do not have a significant effect on financial report fraud. In contrast, audit committees exhibit a negative effect, indicating that stronger audit committees reduce the likelihood of financial report fraud. Leverage demonstrates a positive effect, suggesting that higher leverage increases the propensity for financial report fraud in Indonesian financial companies. The findings highlight the importance of an optimal audit committee in minimizing fraudulent activities in financial reporting.   Originality/Value: This research contributes to the existing literature by providing empirical evidence on the roles of fraud diamonds, audit committees, and leverage in financial report fraud within the context of Indonesian financial companies. It underscores the critical function of audit committees in mitigating fraudulent practices, offering valuable insights for regulators, practitioners, and policymakers aiming to enhance the integrity of financial reporting.