Hexagon Fraud Analysis in Detecting Fraudulent Financial Reporting

This study aims to analyze the influence of factors derived from the fraud hexagon theory pressure (financial stability, external pressure, ‎financial targets), opportunity (audit committee, ineffective monitoring), rationalization (change of auditors), capability (change of directors), ‎arrogance (CEO education, CEO duality), and collusion (related party transactions) on the likelihood of fraudulent financial reporting (FFR). ‎Adopting a quantitative approach, this research utilizes numerical data and statistical analysis to test the proposed hypotheses, examining the ‎relationships between these variables. The results of the logistic regression analysis reveal that several factors have a significant positive ‎impact on the probability of FFR. Specifically, financial stability, financial targets, change of auditors, change of directors, and related party ‎transactions were found to significantly increase the likelihood of fraudulent reporting. Conversely, external pressure, the presence of an ‎audit committee, ineffective monitoring, CEO education, and CEO duality did not demonstrate a statistically significant influence on FFR in ‎this study. The implications for companies are substantial. These findings underscore the critical need for robust corporate governance and ‎vigilant board oversight. Companies should carefully monitor high-pressure environments driven by aggressive financial targets and scrutinize significant organizational changes, such as the turnover of directors or auditors, as these events may serve as red flags for potential ‎fraud. Furthermore, establishing stricter controls and ensuring greater transparency in related party transactions are essential strategies to ‎mitigate the risk of fraudulent financial reporting‎.