Financial Statement Fraud of Indonesian Islamic Banks

Abstract

Objective: Financial statement fraud (FSF) in Islamic institutions is considered unethical due to its production of inaccurate information for stakeholders. In this study, we examine some institutional characteristics, particularly those pertaining to corporate governance, that have the potential to regulate the occurrence of financial statement fraud (FSF).   Methodology: Data was gathered quantitatively. Thel study utilizeld a samplel including 11 commelrcial Islamic banks opelrating in Indonelsia. Thel obselrvation pelriod spanneld from 2019 to 2022.   Result: Through an examination of Islamic banks in Indonesia, it was observed that some characteristics of the Sharia Supervisory Board (SSB) of these banks, including their level of knowledge, the size of the board, and the frequency of their meetings, had the potential to mitigate Financial Statement Fraud (FSF). In addition, the composition of the audit committee and the perceived credibility of the external auditors can also contribute to the effective management of financial statement fraud.  This study does not identify any significant impact of the board of commissioners' structure on the financial stability of the firm (FSF). One additional discovery pertains to the three SSB traits examined in this study, with the most significant impact on regulating FSF being the specialised knowledge and proficiency in accounting, finance, or economics possessed by each SSB.   Conclusion: It is recommended that each Sharia Supervisory Board (SSB) be equipped with professionals in relevant disciplines, in addition to their experience in Islamic jurisprudence.