Audit Quality, the Fraud Diamond, and Fraudulent Financial Reporting: The Moderating Role of the Audit Committee in Indonesia's Consumer Sector

Background: Fraudulent financial reporting is relatively infrequent but disproportionately costly, and recent fraud evidence continues to show the importance of detecting material misstatement risk (Association of Certified Fraud Examiners). Indonesian consumer cyclicals and non-cyclicals are analytically relevant because intense competition, performance targets, macroeconomic exposure, and long distribution chains can increase reporting pressure. Objective: This study tests the effects of audit quality and the fraud diamond on fraudulent financial reporting risk and examines audit committee activity as a moderator. Methods: The sampling frame comprised Indonesia Stock Exchange firms classified as consumer cyclicals or consumer non-cyclicals during 2020–2024. Purposive screening produced 100 eligible firms and 500 balanced firm-year observations. Panel regression selected the Common Effect Model, followed by mean-centered moderated regression and diagnostic tests. Results: Audit quality is negatively associated with fraudulent financial reporting risk, whereas financial target and external pressure are positively associated with it. The other fraud-diamond proxies are not significant. Audit committee activity strengthens the protective association of audit quality and weakens the positive association of financial target but does not moderate the remaining relationships. Conclusion: Pressure-related factors are the dominant significant fraud-diamond signals in this sample, while the audit committee operates as a selective complement to external audit rather than a universal safeguard.