Pressure, Opportunity, and Rationalization Effects on Fraudulent Financial Reporting in Indonesian Manufacturing

Purpose: This study examines the effects of pressure, opportunity, and rationalization on fraudulent financial reporting in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2020–2024.

Research Methodology: A quantitative approach with descriptive and verification methods was employed. Using purposive sampling, 67 of 195 manufacturing companies were selected, yielding 335 firm-year observations. Secondary data from annual reports were analyzed using multiple linear regression after classical assumption tests. Pressure was proxied by leverage, opportunity by changes in accounts receivable, rationalization by auditor turnover, and fraudulent financial reporting by the Beneish M-Score.

Results: The three variables jointly have a significant effect on fraudulent financial reporting. Individually, pressure has a negative insignificant effect, opportunity has a positive significant effect, and rationalization has a positive insignificant effect. Opportunity is the strongest determinant of fraudulent financial reporting.

Conclusions: Fraudulent financial reporting is primarily driven by opportunities for manipulation rather than financial pressure or rationalization. Strengthening internal controls and corporate governance is therefore essential to reduce fraud risk.

Contributions: This study extends the empirical evidence on Fraud Triangle Theory in Indonesian manufacturing companies and provides practical insights for regulators, auditors, investors, and management in preventing fraudulent financial reporting.

Limitations: The study is limited to manufacturing companies, three Fraud Triangle proxies, and the Beneish M-Score, which indicates potential rather than confirmed fraud.