Analysis of fraud triangle in detecting fraudulent financial statements [Empirical study of banking industry in Indonesia Stock Exchange]

This study aimed to examine whether the elements of fraud triangle can be used to detect fraudulent financial statements. Significant variables, including leverage ratio, independent board of commissioners ratio, and change in public accounting firm, belong to pressure, opportunity, and rationalization. The indication of fraudulent financial statements which is proxied by earnings management serves as dependent variable. The total samples are 93 samples from 31 listed companies in Indonesia Stock Exchange in the banking sector during year period 2012-2014 which is selected using purposive sampling method. Data analysis was conducted using descriptive statistics analysis and multiple linear regression model. The result of this study show that change in public accounting firm is significant in detecting the occurrence of fraudulent financial statements. These significant variable represents rationalization element in fraud triangle theory. Meanwhile, the other two variables, pressure and opportunity have no significant effect in financial statements fraud. Keywords: Fraud triangle, fraudulent financial statements, and earnings management