Financial Statement Fraud in Indonesia: A Comparative Analysis of Pre- and Post- Financial Services Authority Cases

Jaswadi Jaswadi, Hari Purnomo, and Sumiadji Sumiadji (School of Accounting, State Polytechnic of Malang, Malang, Indonesia)

Introduction

Indonesia has witnessed numerous financial statement fraud incidents in the past few decades. This study aims to provide an in-depth analysis of these cases, with a focus on the similarities and differences between fraudulent activities before and after the establishment of the Financial Services Authority (OJK).

Research Methodology

The researchers conducted a content analysis of annual reports from 93 listed companies that faced official investigations due to financial misstatements, prior to and following the establishment of the Financial Services Authority.

Findings

The findings reveal significant differences in patterns of financial statement fraud between the two regulatory regimes:

Pre-Authority Regimes

Senior management were the primary perpetrators of financial statement fraud.
Recording fictitious sales was the most common method of falsifying financial statements.

Post-Authority Regimes

Individual directors have been the primary targets of fines and prosecutions.
Recording fictitious sales remained the most common method of falsifying financial statements.

Impact of Financial Services Authority

The new Financial Services Authority has significantly impacted the publishing and enforcement of financial statement fraud cases, with a shift towards risk-based supervision limiting the disclosure of such incidents.

Key Contributions

This study adds value to the financial reporting and accounting literature by providing a comparative analysis of financial statement fraud cases scrutinized by the securities exchange commission in an emerging nation.

Keywords

Financial services authority
Financial statement fraud
Content analysis
Enforcement undertaken

Acknowledgements

Research funding provided by State Polytechnic of Malang through the Research Grant scheme, Polinema Research Grant 2020, No. 5215/PL2.1/HK/2020.
Valuable insights and suggestions from internal and external reviewers during the research process.

Citation

Jaswadi, J., Purnomo, H., & Sumiadji, S. (2024). Financial statement fraud in Indonesia: A longitudinal study of financial misstatement in the pre- and post-establishment of financial services authority. Journal of Financial Reporting and Accounting, 22(3), 634-652. doi: 10.1108/JFRA-10-2021-0336

Publisher

Emerald Publishing Limited