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Relationship between Financial Ratio and Financial Statement Fraud Risk Moderated by Auditor Quality

Author

Listed:
  • Tomy Rizky Izzalqurny

    (Accounting Department, Brawijaya University, Indonesia)

  • Bambang Subroto

    (Accounting Department, Brawijaya University, Indonesia)

  • Abdul Ghofar

    (Accounting Department, Brawijaya University, Indonesia)

Abstract

This study was aimed to prove the research hypothesis that there are effects of financial ratios, which consist of profitability, leverage, and liquidity on the financial statements fraud risk, and the quality of auditors are able to moderate the relationship between financial ratios to financial statements fraud. This study uses a population of manufacturing companies that publish their financial statements on the Indonesian Stock Exchange in 2016-2017 will also be summarized and inferred. This study uses purposive sampling so that the study sample amounted to 275 firm years. The dependent variable uses the financial statements fraud risk with the proxy Dechow F-score. The independent variable in this study consisted of profitability with ROA ratio, leverage using the calculation of the ratio of total liabilities to total assets, and liquidity using the calculation of the ratio of total current assets to current liabilities. The moderating variable in this study is auditor quality as a moderating variable with a dummy variable. The Hypothesis test conducted is using moderated regression analysis (MRA). The results of this study indicate that the financial statements fraud risk is influenced by financial liquidity ratios, while financial ratios of profitability and leverage have not been proven to affect financial report fraud. This study provides a contribution by providing evidence that the quality of auditors can suppress fraudulent actions on financial statements with low profitability. This research provides information to regulators to pay more attention to companies that experience liquidity problems, and become input for regulators to make rules that improve the quality of auditors. Key Words:Profitability, Leverage, Liquidity, Fraud

Suggested Citation

  • Tomy Rizky Izzalqurny & Bambang Subroto & Abdul Ghofar, 2019. "Relationship between Financial Ratio and Financial Statement Fraud Risk Moderated by Auditor Quality," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 8(4), pages 34-43, July.
    • Handle: RePEc:rbs:ijbrss:v:8:y:2019:i:4:p:34-43
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    References listed on IDEAS

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    1. Tulus Suryanto, 2016. "Audit Delay and Its Implication for Fraudulent Financial Reporting: A Study of Companies Listed in the Indonesian Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 18-31.
    2. Roshayani Arshad & Sharinah Mohamed Iqbal & Normah Omar, 2015. "Prediction of Business Failure and Fraudulent Financial Reporting: Evidence from Malaysia," Indian Journal of Corporate Governance, , vol. 8(1), pages 34-53, June.
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    Cited by:

    1. Nyane Bokang M., 2024. "The Effect of Auditors’ Tenure on Short-Term Financial Liquidity – A Conceptual Framework," HOLISTICA – Journal of Business and Public Administration, Sciendo, vol. 15(2), pages 67-80.

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