The Effect of Fraud Star on Financial Statement Fraud with Audit Quality as a Moderating Variable

Abstract

Background: Financial statement fraud can materially distort stakeholders' assessment of corporate performance and remains difficult to detect when managerial incentives and monitoring weaknesses coexist. Objective: This study examined the effects of Fraud Star elements—pressure, opportunity, rationalization, capability, and integrity—on financial statement fraud and assessed audit quality as a moderating mechanism in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2020–2024. Methods: A quantitative causal-comparative design was applied to secondary financial and annual-report data. Purposive sampling yielded 120 manufacturing companies and 600 firm-year observations. Financial statement fraud was measured using the Beneish M-Score. Audit quality was operationalized using public accounting firm size (Big Four versus non-Big Four) and audit tenure. The hypotheses were tested using pooled multiple linear regression and Moderated Regression Analysis (MRA). Results: Pressure, opportunity, rationalization, and capability were positively and significantly associated with financial statement fraud, whereas integrity showed a significant negative association. The model produced an Adjusted R² of 0.684. The interaction estimates indicated that audit quality weakened the positive associations of pressure, opportunity, rationalization, and capability with financial statement fraud and strengthened the negative association of integrity with financial statement fraud. Conclusion: The findings support the importance of stronger internal controls, management integrity, and rigorous external auditing in reducing financial statement fraud risk. The rationalization result should be interpreted cautiously because Total Accruals to Total Assets (TATA), used as its proxy, is also an input in the Beneish M-Score.