Financial Statement Fraud Case Study

INTRODUCTION

Related party transactions (hereafter RPTs) are transactions between companies and their own managers, directors, owners or affiliates. Such transactions, which are very diverse and often complex, are a challenge for corporate management. Because of the characteristics of the RPT, some argue that RPTs provide benefits to the company but others say RPTs are negative and harmful practices. Moreover, another study said that RPTs has a negative influence on minority shareholders through tunneling activities, however, the RPTs is also beneficial for minority shareholders because RPT is also seen as a propping up the company's earnings (Cheung, Jing, Lu, Rau, & Stouraitis, 2009).
Based on the agency theory perspective assuming that

Financial statement fraud is very detrimental to the company because it can lead to several consequences including: a) the need for investigation; b) remediation efforts; c) negative market reactions; and d) examination by researchers (Trompeter, Carpenter, Desai, Jones, K. L., & Riley Jr, 2012). Moreover, Tugas, (2012) argue that financial accounting fraud have place the accounting profession in bad light. Even, Beasley, Carcello, and Hermanson (1999) explain “that consequences of financial statement fraud to the company often include bankruptcy, significant changes in ownership, and delisting by national exchanges.”
The concern for preventing fraud is increased because the negative impact of fraud have also increased over the years. Moreover, financial statements fraud are likely the most worrying because it causing decreasing company performance (Kassem & Higson, 2012; Aghghaleh, Mohamed, & Rahmat, 2016). Fraud is a topic that gets significant attention from regulators, auditors, and the public (Kassem & Higson, 2012). Soltani (2014) says that one type of fraud is financial statement