The Use of the Fraud Pentagon Model in Assessing the Risk of Fraudulent Financial Reporting
This study examines the relevance of the Fraud Pentagon Theory in detecting fraudulent financial reporting among companies listed on the Bucharest Stock Exchange. While financial reporting is essential for informed stakeholder decisions, requiring information to be accurate, reliable, and fairly presented and pressure to meet expectations can lead to manipulation. The Fraud Pentagon Theory identifies five potential drivers of such behavior: pressure, opportunity, rationalization, capability, and arrogance. This research contributes to the literature by empirically testing the theory in the Romanian context, an emerging market with limited prior analysis, using a sample of 62 listed companies over the 2017–2021 period. Regression analysis was applied, using the Dechow F-score, which combines accrual quality and financial performance to assess the likelihood of fraudulent financial reporting. The findings reveal that not all dimensions of the theory significantly affect the likelihood of fraudulent reporting. Specifically, pressure-related factors (financial performance and financial stability) were found to be statistically significant, while external pressure, opportunity (external auditor quality and nature of industry), rationalization (change of auditor), capability (change of director), and arrogance (number of CEO’s pictures) did not show significant influence in the Romanian framework. These results highlight the importance of contextual factors such as market structure, governance practices, and stakeholder expectations, suggesting that fraudulent reporting risk indicators may vary across different economic environments.
Authors
- Marius Eugen Rogoz (ORCID: https://orcid.org/0009-0006-0741-7230)
- Ionela Munteanu (ORCID: https://orcid.org/0000-0003-4631-8228)
- Ion Anghel (ORCID: https://orcid.org/0000-0002-7614-994X)
- Georgiana Burlacu (ORCID: https://orcid.org/0009-0002-8869-1135)
- Ioan-Bogdan Robu (ORCID: https://orcid.org/0000-0002-4067-7433)
Institutions
- Alexandru Ioan Cuza University (RO)
- Ovidius University (RO)
- Bucharest University of Economic Studies (RO)
Publication Details
- Journal
- Risks
- Published
- 2025-05-22
- DOI
- https://doi.org/10.3390/risks13060102
- Citations
- 1
- Primary Topic
- Auditing, Earnings Management, Governance
- Type
- article
- Field-Weighted Citation Impact
- 3.91