Determinants Of Fraudulent Financial Statements: Financial Stability, Monitoring Ineffectiveness, Auditor Change In Modern Corporate Reporting
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This study examines the determinants of fraudulent financial statements through the roles of financial stability, ineffective monitoring, and auditor change, with earnings management acting as a mediating variable. The research focuses on energy sector companies listed on the Indonesia Stock Exchange during the 2023–2025 period. Using a quantitative approach and Partial Least Squares-Structural Equation Modeling (PLS-SEM), this study investigates both direct and indirect relationships among the variables. The findings reveal that financial stability has a significant positive effect on earnings management, while earnings management significantly influences working capital accrual. Furthermore, earnings management successfully mediates the relationship between financial stability and working capital accrual. In contrast, ineffective monitoring and auditor change do not significantly affect earnings management or working capital accrual, either directly or indirectly. These results indicate that financial pressure remains a dominant factor encouraging earnings management practices, which subsequently increase the likelihood of accrual-based financial statement manipulation. This study contributes to the fraud and financial reporting literature by providing empirical evidence from the energy sector and highlighting earnings management as a key mechanism linking financial conditions to fraudulent financial reporting behavior. The findings also offer practical insights for investors, auditors, regulators, and corporate governance bodies in strengthening financial reporting quality and mitigating fraud risk
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