Track: Sustainable Manufacturing

Abstract

In this globalization era, the risk of fraudulent financial statements is increasing. Fraudulent financial statements were due to opportunities, pressures, and political relations from several ranks of the board of directors and commissioners. Countries often experience economic instability, so companies must maintain financial performance to remain in good condition. Economic instability and less than optimal supervision trigger companies to commit fraudulent actions in financial statements, like manipulation of financial statements, misappropriation of assets, or other matters that are not under applicable accounting standards. This study aims to examine the effect of the nature of the industry, financial stability, and political connection on fraudulent financial statements. This study uses 58 manufacturing companies listed on the Indonesia Stock Exchange from 2018 to 2020. Fraudulent financial statements are measured using the fraud score model. This study finds that the nature of the industry negatively affects fraudulent financial statements. Companies with a high ratio of changes in receivables need to be supported by strong supervision so that management does not have the opportunity to manipulate financial statements. This study also found that financial stability positively affects fraudulent financial statements. When a company experiences growth below the industry average, management manipulates financial statements to improve the company's prospects. However, this study did not find any influence of political connections on fraudulent financial statements.