DETECTION FRAUDULENT FINANCIAL REPORTING AND CORPORATE GOVERNANCE MECHANISMS USING FRAUD DIAMOND THEORY OF THE PROPERTY AND CONSTRUCTION SECTORS IN INDONESIA

Abstract

Purpose of the study: This study aims to analyze the detection of the risk factors of fraudulent financial reporting and corporate governance mechanisms as moderating variables with fraud diamond theory of the property and construction sector in Indonesia. The risk factors of fraudulent financial reporting by financial targets, ineffective monitoring, auditor change, change of directors. Methodology: The sample selection using purposive method sampling. The number of population in this study was 219. The samples of this study were 114 property and construction sector companies listed on the Indonesia Stock Exchange during 2016-2018. This study tests the hypothesis in multivariate analysis using logistic regression with IBM SPSS Statistics 25. Main Findings: The results of this study the board of commissioners, independent commissioners, institutional ownership are able to moderate the relationship between financial targets on fraudulent financial reporting. The companies are able to optimize corporate governance mechanisms, especially the roles of the board of commissioners, independent commissioners, institutional ownership. So, that fraudulent financial reporting in the companies can decrease. Implications of this study: The results of this study are expected to provide practical implications for companies listed on the Indonesia Stock Exchange, namely the need to strengthen the board of commissioners, independent commissioners, and institutional ownership to detect and prevent fraudulent financial reporting. The higher effectiveness of monitoring will be able to minimize the occurrence of fraudulent financial reporting. Novelty/Originality of this study: This study uses fraud diamond theory to detect and tests the moderating variables of corporate governance mechanisms on the relationship between the determinant fraudulent financial reporting. The study uses a moderating variable that is corporate governance mechanisms which is proxy by the board of commissioners, independent commissioners, institutional ownership, and audit committee.