The Effect Of Ineffective Monitoring In Detecting Fraudulent Financial Reporting With Family Firm As Moderator

Abdul Manan, Imam Ghozali, Tri Jatmiko Wahyu

Abstract


Ineffective monitoring is one of the opportunities for fraud to occur. This study aims to determine indications of fraudulent financial reporting due to ineffective monitoring in family companies in Indonesia. The sample used in this study is a company in the manufacturing sector. The independent variables in this study are ineffective monitoring of the independent board of commissioners and institutional ownership. Meanwhile, the dependent variable is financial reporting fraud which is measured using the F Score. The moderating variable used is the family firm as measured by family share ownership and family members on the company's board of directors. The results of the study based on a sample of 310 issuers were that ineffective monitoring of independent commissioners had no effect on fraudulent financial reporting and ineffective monitoring of institutional ownership had a significant negative effect on fraudulent financial reporting. The family firm variable which is proxied by family share ownership is not able to moderate the effect of ineffective monitoring both on the independent board of commissioners and institutional ownership on fraudulent financial reporting. Meanwhile, family firms that are proxied by family members in the composition of the board of directors strengthen the effect of ineffective monitoring on institutional ownership on fraudulent financial reporting. However, family members on the board of directors cannot moderate the relationship of ineffective monitoring of the independent board of commissioners to the manipulation of financial reporting.

Keywords: Ineffective Monitoring, Family company, Financial Reporting Fraud


Full Text:

PDF

References


Afifa, Nabila., and Daljono. (2013). The Influence of the Proportion of Independent Commissioners, Audit Committee, and Auditor's Reputation on Earnings Management. Diponegoro Journal Of Accounting. Vol. 2 No. 1. p. 1-10.

Albrecht, WS (2011). Fraud Examination (Fourth ed.). South-Western: Mason Claessens, Stjin, Djankov, Simeon, and Larry HP Lang. 2000. The Separation of Ownership and Control in East Asian Corporation. Journal of Economic Literature Classification: G32, L22

American Institute of Certified Public Accountants (AICPA). 2002. “Consideration of Fraud in a Financial Statement Audit.” Statement on Auditing Standards No. 99. New York, NY: AICPA.

Aprilia, R. 2017, Effect of Financial Stability, Personal Financial Need, Ineffective Monitoring, Change in Auditor and Change In Director on Fraud Financial Statements in Fraud Diamond Perspective (Empirical Study on Manufacturing Companies Listed on the Indonesia Stock Exchange for the period 2012 – 2014). JOM Fekon Vol.4 No.1

Association of Certified Fraud Examiners (ACFE). 2016. Report to Nations. Taken from http://www.acfe.com/rttn2016/images/fraud-tree.jpg

Belkaoui, A., & et al. (1993). Accounting Theory, Herman Wibowo Translation. Second edition. Jakarta: Erlangga.

Beasley, M. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. The Accounting Review, 71(4)

Boediono, Gideon. 2005. Earnings Quality: Study of the Effect of Corporate Governance Mechanisms and the Impact of Earnings Management Using Path Analysis. National Accounting Symposium (SNA) VIII Solo.

Deegan, C. 2002. Introduction: The Legitimising Effect of Social and Environmental Disclosure – A Theoritical Foundation. Accounting, Auditing, and Accountability Journal, Vol.5 No.3: 282-311.

Heriyati, D. (2011). Analysis of the Effect of the Fraud Triangle on the Trend of Accounting Fraud (Study on Public Companies in Indonesia for the Period 2000-2009). Brawijaya University, Faculty of Economics and Business, Malang

Jensen, M., C., and W. Meckling, 1976. “Theory of the firm: Managerial behavior, agency cost and ownership structure”, Journal of Finance Economic 3:305-360,

Miles, P.M., Covin, G.J. & Heeley, B.M. (2000). The relationship between environmental dynamism and small firm structure, strategy, and performance. Journal of Marketing Theory and Practice, 10, 63- 74.

Putri, I GAEP, Sulindawati, Ni Luh Gede E. & Atmadja, AT (2017). The effect of financial targets and ineffective monitoring on the occurrence of fraud: A case study on a multi-purpose cooperative funded by Pertiwi Seririt, Seririt District, Buleleng Regency, Bali Province. Journal of Accounting S1, 7 (1).

Rachmania, A. (2017). Analysis of the effect of the fraud triangle on fraudulent financial statements in food and beverage companies listed on the Indonesia Stock Exchange for the period 2013-2015. Student Online Journal (JOM) in Accounting, 2(2).

Scott, RW 1997. Financial Accounting Theory. New Jersey: Pretice Hall.

Soselisa, Rangga and Mukhlasin. 2008. "The Influence of Organizational, Management, Strategic, Financial, and Auditor Culture Factors on Accounting Fraud Trends: A Study on Public Companies in Indonesia." XI National Accounting Symposium, Pontianak, Indonesia, 23-24 July 2008.

Skousen, JC, Wright, JC, Smith Kevin, R. 2009, “Detecting and Predicting Financial Statement Fraud: The Effectiveness of The Fraud Triangle and SAS No. 99." Corporate and Firm Performance Advances in Financial Economics, Vol. 13, p. 53-81.

Tuanakotta, Theodorus M. 2007. Forensic Accounting and Investigative Auditing. Jakarta : Publishing Institute, Faculty of Economics, University of Indonesia

William R Scott. 2009. Financial Accounting Theory. Fifth Edition. Pearson Prentice Hall: Toronto. Financial Accounting Theory (Craig Deegan)2007


Refbacks

  • There are currently no refbacks.