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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
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    References listed on IDEAS

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    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. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. repec:eme:maj000:maj-12-2020-2969 is not listed on IDEAS
    10. 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.
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