A CONCEPTUAL PAPER: THE MODERATING EFFECT OF RELIGION ON THE RELATIONSHIP BETWEEN FRAUD PENTAGON'S THEORY AND ACCOUNTING IRREGULARITIES
Purpose: The main objective of the study is to examine the influence of Fraud Pentagon’s Theory dimension on accounting irregularities in Indonesia. It also aims to determine the moderation effect of religion on the relationship between fraud Pentagon’s theory and accounting irregularities
Background: The financial statements are very useful for economic decision-making and the company will strive to present the financial statement as well. Nowadays, economic development is growing fast, causing the competition among the companies is getting tighter. The tough competition causes the company to think various strategies to increase company’s value and to present very good financial statements. Companies might involve themselves in accounting irregularities and other financial statement fraudulent in order to present an attractive financial statement. There are many financial scandals in the world involving accounting irregularities and fraudulent financial reporting, for examples Enron in 2001, Worldcom in 2002 and Toshiba in 2015. In Indonesia, there have been problems related to fraudulent financial reporting and accounting irregularities such as in companies of PT. Kimia Farma in 2001 and Lippo Bank in 2002. Financial Service Authority (OJK) examined 77 cases that are alleged to be any violation on the provision of presenting financial reporting and charged administration sanctions to industrial actors in capital markets in 2014. . In 2018, OJK reported that 13 finance companies were in the problematic categories. This study examines the fraud pentagon theory dimensions on accounting irregularities, and add the two new variables of arrogance dimension namely CEO age and CEO tenure. this study also examine religion that moderate the relationship between the dimensions of fraud pentagon theory on accounting irregularities.
Design/Methodology/Approach: This study uses secondary data of Indonesian public listed companies and is to determine the moderation effect of religion on the relationship between fraud pentagon’s theory and accounting irregularities. The population of the study consist of Indonesian listed company on the Bursa Efek Indonesia (BEI) includes 600 companies for 2018 listed on the Bursa Efek Indonesia in the period of 2013 to 2018.
Results/Findings: This study extends the pentagon fraud theory on accounting irregularities. The contribution in this study to determine whether there is any significan relationship between the dimensions of pentagon fraud theory on accounting irregularities. This study has also added two new variables into the dimension of the arrogance that is variable CEO age and CEO tenure. This study is designed to go beyond the earlier studies by incorporating religion as a moderating variables.
Conclusion and Implications: The results of this study could be useful for companies in considering factors that cause accounting irregularities in financial reporting. Companies can also consider the religion factor to reduce the occurrence of accounting irregularities. For the government, the results of this study are also very useful especially for the Indonesia Stock Exchange and other related financial institutions. The results can also be useful for the Financial Services Authority to trace the causes of companies that get sanctions due to accounting irregularities and set policies and laws related to accounting irregularities.