Enhance the financial expertise of the audit committee

Oct 13, 2025 by windailys.com 127 views

The Effect of Financial Expertise of the Audit Committee, Managerial Ownership, Leverage, Auditor Change, and Company Size of Financial Statements Cheating

Introduction

The occurrence of fraud in financial statements is a significant concern for companies, investors, and regulatory bodies. In the property, real estate, and building construction sectors, the risk of financial statement fraud is particularly high due to the complex nature of these businesses. This study aims to explore the factors that influence the occurrence of fraud in financial statements, specifically in companies registered on the Indonesia Stock Exchange between 2015 and 2018. The study focuses on the financial expertise of the audit committee, managerial ownership, leverage, auditor changes, and company size as potential determinants of financial statement fraud.

Background

Financial statement fraud is a pervasive problem that can have severe consequences for companies, investors, and the economy as a whole. The risk of financial statement fraud is particularly high in the property, real estate, and building construction sectors due to the complex nature of these businesses. The audit committee plays a crucial role in overseeing and assessing the integrity of financial statements. However, the effectiveness of the audit committee in preventing financial statement fraud depends on various factors, including the financial expertise of its members.

Methodology

This study uses a purposive sampling method to select 30 companies from a total population of 85 companies registered on the Indonesia Stock Exchange between 2015 and 2018. The data collection process involves analyzing financial statements and auditor reports available on the official website of the Indonesia Stock Exchange. The logistics regression method is applied to analyze the data and determine the relationship between the independent variables and the occurrence of financial statement fraud.

Results

The results of the analysis show that the financial expertise of the audit committee and auditor changes have a negative and significant influence on the possibility of financial statement fraud. This means that the higher the financial expertise possessed by the audit committee, and the more frequent changes in auditors, the possibility of financial statement fraud can be reduced. However, other variables such as managerial ownership, leverage, and company size do not show a statistically significant effect on financial statement fraud.

Discussion

The financial expertise of the audit committee plays an important role in overseeing and assessing the integrity of financial statements. By having experienced members in the financial sector, the audit committee is able to identify potential deviations and encourage transparency. This is proven through the results of research which shows that this expertise contributes to decreased fraud.

Auditor changes regularly can bring a new perspective in the assessment of financial statements and increase audit independence. New auditors tend to conduct more critical assessments of company accounting practices, which have the potential to reduce incentives to commit fraud.

Managerial ownership can potentially increase the risk of fraud. Managers who have large share ownership may be affected to commit fraud in order to maintain the value of the company and secure their personal investment. Leverage, or the use of debt, can also create pressure on management to meet the expectations of shareholders, which can encourage unethical accounting practices. However, in this study, the two did not show a significant effect, which might indicate more complexity in the relationship between these variables.

The size of the company is often considered an influential factor. Large companies generally have more internal control and resources to prevent fraud. However, findings that indicate the unansus of the effect of company size may reflect that even large companies can have weaknesses in the internal control system or organizational culture that affect the integrity of financial statements.

Conclusion

This study provides an important insight into the factors that influence the fraud of financial statements in the property sector, real estate, and building construction in Indonesia. The financial expertise of the Audit Committee and Auditor Change is proven to have a significant impact in preventing fraud, while managerial ownership, leverage, and company size requires further understanding to determine its effect. These findings can be a guide for companies to increase transparency and accountability in their financial statements.

Recommendations

Based on the findings of this study, the following recommendations are made:

Enhance the financial expertise of the audit committee: Companies should ensure that the audit committee has experienced members in the financial sector to oversee and assess the integrity of financial statements.
Regularly change auditors: Companies should regularly change auditors to bring a new perspective in the assessment of financial statements and increase audit independence.
Implement internal controls: Companies should implement effective internal controls to prevent fraud and ensure the accuracy and reliability of financial statements.
Increase transparency and accountability: Companies should increase transparency and accountability in their financial statements by providing clear and concise information about their financial performance and position.

Limitations

This study has several limitations that should be noted. Firstly, the study only focuses on companies registered on the Indonesia Stock Exchange between 2015 and 2018, which may not be representative of all companies in the property, real estate, and building construction sectors. Secondly, the study uses a purposive sampling method, which may not be representative of the entire population. Finally, the study only analyzes financial statements and auditor reports, which may not provide a comprehensive picture of the factors that influence financial statement fraud.

Future Research Directions

This study provides a foundation for future research on the factors that influence financial statement fraud in the property, real estate, and building construction sectors. Future research should aim to:

Examine the relationship between managerial ownership and leverage: Future research should examine the relationship between managerial ownership and leverage to determine whether these variables have a significant effect on financial statement fraud.
Investigate the impact of company size on financial statement fraud: Future research should investigate the impact of company size on financial statement fraud to determine whether large companies are more or less susceptible to financial statement fraud.
Analyze the effect of internal controls on financial statement fraud: Future research should analyze the effect of internal controls on financial statement fraud to determine whether effective internal controls can prevent financial statement fraud.

By addressing these limitations and future research directions, this study provides a valuable contribution to the literature on financial statement fraud and highlights the importance of the financial expertise of the audit committee and auditor changes in preventing financial statement fraud.
Q&A: The Effect of Financial Expertise of the Audit Committee, Managerial Ownership, Leverage, Auditor Change, and Company Size of Financial Statements Cheating

Q: What is financial statement fraud, and why is it a concern for companies and investors?

A: Financial statement fraud refers to the intentional misrepresentation or omission of information in a company's financial statements to deceive stakeholders, including investors, creditors, and regulatory bodies. It is a concern for companies and investors because it can lead to financial losses, damage to reputation, and even bankruptcy.

Q: What are the factors that influence financial statement fraud, and how do they relate to each other?

A: The factors that influence financial statement fraud include the financial expertise of the audit committee, managerial ownership, leverage, auditor changes, and company size. These factors are interconnected and can have a cumulative effect on the likelihood of financial statement fraud.

Q: What is the role of the audit committee in preventing financial statement fraud?

A: The audit committee plays a crucial role in overseeing and assessing the integrity of financial statements. By having experienced members in the financial sector, the audit committee can identify potential deviations and encourage transparency.

Q: How does the financial expertise of the audit committee affect financial statement fraud?

A: The financial expertise of the audit committee has a negative and significant influence on the possibility of financial statement fraud. This means that the higher the financial expertise possessed by the audit committee, the lower the likelihood of financial statement fraud.

Q: What is the impact of auditor changes on financial statement fraud?

A: Auditor changes regularly can bring a new perspective in the assessment of financial statements and increase audit independence. New auditors tend to conduct more critical assessments of company accounting practices, which have the potential to reduce incentives to commit fraud.

Q: How does managerial ownership affect financial statement fraud?

A: Managerial ownership can potentially increase the risk of financial statement fraud. Managers who have large share ownership may be affected to commit fraud in order to maintain the value of the company and secure their personal investment.

Q: What is the relationship between leverage and financial statement fraud?

A: Leverage, or the use of debt, can create pressure on management to meet the expectations of shareholders, which can encourage unethical accounting practices. However, in this study, the relationship between leverage and financial statement fraud was not found to be statistically significant.

Q: How does company size affect financial statement fraud?

A: The size of the company is often considered an influential factor. Large companies generally have more internal control and resources to prevent fraud. However, findings that indicate the unansus of the effect of company size may reflect that even large companies can have weaknesses in the internal control system or organizational culture that affect the integrity of financial statements.

Q: What are the implications of this study for companies and investors?

A: This study provides an important insight into the factors that influence financial statement fraud in the property sector, real estate, and building construction in Indonesia. The financial expertise of the Audit Committee and Auditor Change is proven to have a significant impact in preventing fraud, while managerial ownership, leverage, and company size requires further understanding to determine its effect. These findings can be a guide for companies to increase transparency and accountability in their financial statements.

Q: What are the limitations of this study, and how can they be addressed in future research?

A: This study has several limitations that should be noted. Firstly, the study only focuses on companies registered on the Indonesia Stock Exchange between 2015 and 2018, which may not be representative of all companies in the property, real estate, and building construction sectors. Secondly, the study uses a purposive sampling method, which may not be representative of the entire population. Finally, the study only analyzes financial statements and auditor reports, which may not provide a comprehensive picture of the factors that influence financial statement fraud.

Q: What are the future research directions for this study?

A: This study provides a foundation for future research on the factors that influence financial statement fraud in the property, real estate, and building construction sectors. Future research should aim to:

Examine the relationship between managerial ownership and leverage: Future research should examine the relationship between managerial ownership and leverage to determine whether these variables have a significant effect on financial statement fraud.
Investigate the impact of company size on financial statement fraud: Future research should investigate the impact of company size on financial statement fraud to determine whether large companies are more or less susceptible to financial statement fraud.
Analyze the effect of internal controls on financial statement fraud: Future research should analyze the effect of internal controls on financial statement fraud to determine whether effective internal controls can prevent financial statement fraud.