IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v9y2025issue-3p1042-1055.html
   My bibliography  Save this article

The Determinants of Fraudulent Financial Reporting: (A Systematic Literature Review)

Author

Listed:
  • Syerli Novita

    (Student of Doctor in Economics – Postgraduate School – University of Pancasila – Jakarta – Indonesia)

  • Tri Widyastuti

    (Professor, Accounting Department – University of Bhayangkara – Jakarta – Indonesia)

  • Darmansyah

    (Associate Professor Doctoral Program, Postgraduate School – University of Pancasila – Jakarta – Indonesia)

Abstract

This systematic literature review provides a comprehensive examination of the determinants of fraudulent financial reporting by integrating insights from multiple fraud theories, including the Fraud Triangle, Fraud Diamond, Fraud Pentagon, and Fraud Hexagon. Drawing on studies published between 2013 and 2024, the review synthesizes empirical findings and theoretical developments across diverse contexts and industries. The analysis identifies key themes such as governance mechanisms, managerial motives, financial pressures, and the roles of audit quality and corporate governance in moderating fraud risks. The study highlights how foundational theories like the Fraud Triangle, which emphasizes pressure, opportunity, and rationalization, have been expanded to include additional dimensions such as capability, arrogance, and collusion. These advancements are particularly relevant in addressing the complexities of modern fraud scenarios. Emerging economies, especially in Southeast Asia, exhibit unique patterns of fraud influenced by cultural, economic, and regulatory factors, with frameworks like the Fraud Hexagon providing critical insights. Corporate governance emerges as a pivotal factor, with weak structures often enabling fraud while strong mechanisms, such as effective audit committees and board diversity, mitigate risks. Managerial motives driven by financial pressures and the desire to meet performance benchmarks are also identified as significant predictors. Financial distress further exacerbates the risk of fraudulent activities, cutting across industries such as manufacturing and banking. Technological advancements, including artificial intelligence and data analytics, are increasingly critical in fraud detection, marking a shift from reactive to proactive approaches. Despite these advancements, gaps remain in addressing the dynamic nature of fraud and its evolution in response to technological and global changes. This review underscores the need for longitudinal and cross-cultural studies to deepen understanding and enhance preventative strategies.

Suggested Citation

  • Syerli Novita & Tri Widyastuti & Darmansyah, 2025. "The Determinants of Fraudulent Financial Reporting: (A Systematic Literature Review)," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(3), pages 1042-1055, March.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-3:p:1042-1055
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-9-issue-3/1042-1055.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/the-determinants-of-fraudulent-financial-reporting-a-systematic-literature-review/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Citra Sukmadilaga & Srihadi Winarningsih & Tri Handayani & Eva Herianti & Erlane K Ghani, 2022. "Fraudulent Financial Reporting in Ministerial and Governmental Institutions in Indonesia: An Analysis Using Hexagon Theory," Economies, MDPI, vol. 10(4), pages 1-14, April.
    2. Maryam Yousefi Nejad & Ahmed Sarwar Khan & Jaizah Othman, 2024. "A panel data analysis of the effect of audit quality on financial statement fraud," Asian Journal of Accounting Research, Emerald Group Publishing Limited, vol. 9(4), pages 422-445, August.
    3. Maylia Pramono Sari & Era Mahardika & Dhini Suryandari & Surya Raharja, 2022. "The audit committee as moderating the effect of hexagon’s fraud on fraudulent financial statements in mining companies listed on the Indonesia stock exchange," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2150118-215, December.
    4. Tarmizi Achmad & Imam Ghozali & Imang Dapit Pamungkas, 2022. "Hexagon Fraud: Detection of Fraudulent Financial Reporting in State-Owned Enterprises Indonesia," Economies, MDPI, vol. 10(1), pages 1-16, January.
    5. Hans-Ulrich Westhausen, 2017. "The escalating relevance of internal auditing as anti-fraud control," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 24(2), pages 322-328, May.
    6. repec:eme:maj000:maj-12-2020-2969 is not listed on IDEAS
    7. 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.
    8. Noorul Azwin Binti Md Nasir & Muhammad Jahangir Ali & Kamran Ahmed, 2019. "Corporate governance, board ethnicity and financial statement fraud: evidence from Malaysia," Accounting Research Journal, Emerald Group Publishing Limited, vol. 32(3), pages 514-531, September.
    9. A. N. Adi & Z. Baridwan & E. Mardiati, 2018. "Profitability, Liquidity, Leverage and Corporate Governance Impact on Financial Statement Fraud and Financial Distress as Intervening Variable," Вестник Киевского национального университета имени Тараса Шевченко. Экономика., Socionet;Киевский национальный университет имени Тараса Шевченко, vol. 5(200), pages 66-74.
    10. Georgios L. Vousinas, 2019. "Advancing theory of fraud: the S.C.O.R.E. model," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 26(1), pages 372-381, January.
    11. Rabi’u Abdullahi & Noorhayati Mansor, 2015. "Fraud Triangle Theory and Fraud Diamond Theory. Understanding the Convergent and Divergent For Future Research," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(4), pages 38-45, October.
    12. Chu Chen & Hongmei Jia & Yang Xu & David Ziebart, 2022. "The effect of audit firm attributes on audit delay in the presence of financial reporting complexity," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 37(2), pages 283-302, January.
    13. Patrick Velte, 2023. "The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research," Management Review Quarterly, Springer, vol. 73(1), pages 353-411, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Citra Sukmadilaga & Srihadi Winarningsih & Tri Handayani & Eva Herianti & Erlane K Ghani, 2022. "Fraudulent Financial Reporting in Ministerial and Governmental Institutions in Indonesia: An Analysis Using Hexagon Theory," Economies, MDPI, vol. 10(4), pages 1-14, April.
    2. Inta Bruna & Kastytis Senkus & Rasa Subaciene & Ruta Sneidere, 2017. "Evaluation of Perception of Accountant`s Role at the Enterprise in Latvia and Lithuania," European Research Studies Journal, European Research Studies Journal, vol. 0(3A), pages 143-163.
    3. Omar ALHATO, 2023. "The impact of management accounting practices: Comparative analysis study between Jordan and Romania," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(636), A), pages 297-304, Autumn.
    4. Hamzah & Aripin Ahmad, 2018. "Capital Market Products and Investor Protection," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 714-727.
    5. K.S. Surnina & A.A. Andrutskaya & E.I. Drobyshevskaya & A.A. Yanovskaya, 2017. "Analytical Monitoring of Entity's Cash Flows as a Guarantee of Financial Security of the Region," European Research Studies Journal, European Research Studies Journal, vol. 0(3B), pages 163-171.
    6. Bello Umar & Umar Abbas Ibrahim & Peter Eriki, 2020. "Forensic Accounting and Incidence of Fraud Detection: Evidence from Nigeria," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(2), pages 72-81, April.
    7. Siti Patimah, 2017. "Leadership Styles, Motivation Achievers and Quality in Cultural Teaching," European Research Studies Journal, European Research Studies Journal, vol. 0(3A), pages 278-290.
    8. Lu, Pu & Wang, Yong & Li, Bing, 2024. "Short selling and corporate financial fraud: Empirical evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1569-1582.
    9. Olukayode Abayomi Sorunke, 2016. "Personal Ethics and Fraudster Motivation: The Missing Link in Fraud Triangle and Fraud Diamond Theories," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(2), pages 159-165, February.
    10. SABAU (POPA) Andrada Ioana & SAFTA (PLESA) Ioana Lavinia & BORLEA Nicolae Sorin, 2023. "Analysis Of The Quality Of Corporate Governance. Case For Romanian Companies," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 75(1), pages 66-79, April.
    11. Namrata Sandhu & Shefali Saluja, 2023. "Fraud Triangle as an Audit Tool," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 48(3), pages 418-443, August.
    12. V.U. Imagbe & T.O. Abiloro & G.A. Saheed, 2019. "Fraud Diamond and Financial Crimes in Nigerian Banking Industries," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(4), pages 294-303, October.
    13. Jeroen Ceuster, 2024. "The link between board characteristics and EU competition law infringements," European Journal of Law and Economics, Springer, vol. 58(3), pages 427-455, December.
    14. Patrick Velte, 2023. "The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research," Management Review Quarterly, Springer, vol. 73(1), pages 353-411, February.
    15. Yustiana Djaelani & Zainuddin Zainuddin & Rena Mustari Mokoginta, 2022. "Academic fraud of students in the Covid-19 period: Testing with the Pentagon's fraud dimension," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(2), pages 414-422, March.
    16. 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.
    17. Lailah Fujianti & Indra Satria, 2020. "Firm Size, Profitability, Leverage as Determinants of Audit Report Lag: Evidence From Indonesia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 61-67, April.
    18. Faris Nasif Al Shubiri & Syed Ahsan Jamil, 2017. "Assessing the Determinants of Interest Rate Spread of Commercial Banks in Oman: An Empirical Investigation," European Research Studies Journal, European Research Studies Journal, vol. 0(2A), pages 90-108.
    19. Tulus Suryanto & Ridwansyah Ridwansyah, 2016. "The Shariah Financial Accounting Standards: How they Prevent Fraud in Islamic Banking," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 140-157.
    20. Al-Gamrh, Bakr & Farooq, Umar & Ahsan, Tanveer, 2024. "Beyond the balance sheet: Assessing corporate governance through the Lens of debtholders," International Review of Financial Analysis, Elsevier, vol. 96(PA).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:9:y:2025:issue-3:p:1042-1055. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.