The Extensible Business Reporting Language and

Fraudulent Financial Statement in Indonesia

Desya Puspa Wijaya1, Diah Hari Suryaningrum2

{puspadesya22@gmail.com1, diah.suryaningrum.ak@upnjatim.ac.id2}

UPN Veteran Jawa Timur, Surabaya, Indonesia12345

Abstract. This study aims to prove the effectiveness of the implementation of

Extensible Business Reporting Language (XBRL) on the level of fraudulent financial
statements. The sample was determined by using purposive sampling method and
obtained 81 companies as the research sample. The results showed that XBRL with the
SIZE control variable affected financial statement fraud. In contrast, the control
variables DAR, ROA, GDP, and PBV did not support the effect of XBRL on financial
statement fraud. The test results also prove that there are differences before and after
implementing XBRL, where the measurement of financial statement fraud is lower after
the application of XBRL. This result means that the implementation of XBRL will
force companies to provide accountable and transparent information. The business and
financial information collected in XBRL is a machine format reading and operation,
thereby increasing the ease of dissemination and public analysis, thus making it easier
to detect fraudulent financial statements.

Keywords: Extensible Business Reporting Language (XBRL), Firm Size, Fraudulent

Financial Statement

1 Introduction

The increase in the number of capital market investors will be in line with the increasing
need for information. Complete information can be obtained from the company's financial
statements. Investors are looking for profit information. A rising or stable profit will look
more attractive. Not a few companies do various ways to enhance profits. Erick Tohir [1],
said that many BUMNs are doing window dressing. This act can be categorized as a criminal
act. Several cases of fraud that occurred among them were PT Asuransi Jiwasraya, which
reported false profit since 2006, as well as allegations of corruption in it [2]. The OJK
sanctioned PT Hanson (MYRX) for not disclosing PPJB to its auditors, resulting in material
overstated income [3], Garuda Indonesia's net profit is considered odd. Gains were obtained,
thanks to soaring other operating income of U.S. $ 306.88 million [4], and Bank Bukopin
modified credit card data. These frauds cause commission-based income to increase
inappropriately [5].
According to The Association of Certified Fraud Examiners [6], financial statement fraud
is an act of deliberate misstatement of material in the financial statements of an organization.
Fraudulent actions in financial reporting can be caused by pressures and expectations of
performance [7]. The efforts made by the Indonesia Stock Exchange to minimize this
problem is by developing a reporting system based on Extensible Business Reporting

MICOSS 2020, September 28-29, Jakarta, Indonesia

Copyright © 2021 EAI
DOI 10.4108/eai.28-9-2020.2307378
Language (XBRL). Extensible Business Reporting Language is digital-based reporting using
a reporting language that can be authorized; the terms and explanations contained in XBRL
will make it easier for users to understand financial information more efficiently. Users also
find it easier to analyze financial reports [8].
IDX is aggressively developing XBRL, so that June 22, 2015, the system has been
launched to the public. The planned technology is to integrate XBRL with a listed company
reporting system, namely, IDXnet [9]. According to the Indonesia Stock Exchange [10],
XBRL has benefits, such as increasing information disclosure, being able to improve
information services, and making it easier to collect issuers' reporting data so that
information is more reliable. This research is essential because, in Indonesia, no similar
study has been conducted. Besides, the problem of fraudulent financial statements seems to
be a polemic so that the chain must be broken slowly. Researchers are interested in doing this
research because XBRL is relatively new in Indonesia. Researchers want to prove the role of
XBRL in reducing fraudulent financial statements.

2 Theoretical Review

2.1 Agency Theory

Agency theory [11], discusses there is a contract between the agent (management) and
the principal (shareholder) in which the agent receives the mandate to manage the company
from the principal. On the basis of personal interest, the agent can take action which leads to
fraudulent financial statements to beautify company profits. When able to cheat, the agent
benefits from this practice in the form of a bonus. Differences in interests caused by
information gaps can lead to bigger problems with increasingly uncontrollable fraud, the
most common in the form of earnings management.
Based on agency theory, information gaps are also an opportunity for an agent to act
fraudulently to benefit themselves. When fraudulent financial statements occur, it will have
an impact on many parties. The perpetrators must bear some consequences, the community
will also lose trust, and the worst thing that will happen to a company in bankruptcy [12].
Financial statement fraud that often occurs is often in the form of earnings management.
Ruiz [13] suggested that fraudulent financial statements such as earnings management arise
because of several motivations in a manager, such as the desire to get a bonus, compensation
or other personal gains.

2.2 Extensible Business Reporting Language (XBRL)

XBRL [14], is digital-based reporting using language authorized financial reporting.
XBRL uses a format similar to XML and HTML which contains taxonomies of financial
databases. XBRL is operated through access to software. The main purpose of XBRL is how
business data or information can be exchanged, compared, and used without language
barriers and accounting standards. Several researchers have studied the role of XBRL, such
as Leow [15] investigate the impact of XBRL adoption on earnings management. The same
research was conducted Kaidi [16], testing the effect of XBRL in reducing discretionary
accruals for companies that are required to use the XBRL format. The results are proof that
discretionary accruals decrease after implementing XBRL.
Kaidi's research provides direction, to pay attention to company discretionary accruals in
calculating earnings management that proxies fraudulent financial statements. Also, studies
Kim et al. [17] comparing the size of discretionary accruals in the adopted XBRL quarter
with the non-adopted quarter. The study found discretionary accruals decreased in the post-
XBRL adoption period. Other findings also prove XBRL can improve reporting
comparability. Liu et al. [18] examined XBRL from another perspective by reviewing the
application of XBRL to the information asymmetry of Belgian companies. The results show
that the information asymmetry is decreasing and there is an increase in liquidity in the
company. Based on agency theory and previous research, the formulation of the research
hypothesis is:
H1: The application of XBRL affects fraudulent financial statements
H2: There are differences in financial statement fraud before and after implementing
XBRL

3 Research Method

The data in this study financial reports of related companies. Data were obtained from
the official website of the Indonesia Stock Exchange (www.idx.co.id), and the company's
official website. The type of data, secondary data in the form of financial reports. The
population of this research is 674 companies, and 81 companies were obtained as the
research sample, through purposive sampling technique. The research object is something
that will be used as material research. The research object in this study was fraudulent
financial statements, while the research subjects were all variables used in the study.
The data is divided into two parts, namely three years before (2012-2014) and three
years after the implementation of XBRL (2016-2018). Financial statement fraud will be
proxied through earnings management. The earnings management model used is the
Modified Jones Model. The influence of the XBRL variable on Financial Statement Fraud is
supported by the existence of 5 control variables in the form of firm size (SIZE), return on
assets (ROA), debt to asset ratio (DAR), gross domestic product (GDP), and price to book
value (PBV). This study uses multiple linear regression analysis techniques with the help of
SPSS software. To test the hypotheses, if the significant value is < 5%, then the hypotheses
are accepted.

4 Results and Discussion

The classical assumption test is carried out to ensure that the data for multiple linear
regression are for Best Linear Unbiased Estimator (BLUE).

4.1 Analysis and Hypothesis 1 Regression

The model fit test was used to assess the suitability of the research regression model in
Table 1.
Table 1. Model Fit Test Results and Coefficient of Determination
Model F Sig. R2 Std Error
b
Regression 1 5.823 .016 .014 .00034
Regression 2 3.050 .010b .046 .00147
Source: Processed data (2020)
 The results of the goodness of fit test for regression models 1 and 2 showed a significance
value of 0.016 and 0.010 <0.05. The calculated F value = 5.823 and 3.050> F table = 3.86
and 2.12. It can be concluded that the XBRL variable (X) and the control variable can be
used to predict financial statement fraud (Y). The results of the coefficient of determination
(R2) show that only 4.6% of the application of XBRL, Size, ROA, DAR, PBV, and GDP can
predict financial statement fraud. The rest is explained by other variables not discussed in
this study.
Table 2. Estimation of Multiple Linear Regression Model and Hypothesis Test
Variabeles B Std. Error t Sig. Conclusion
(Constant) 0.031 0.004 8.457
XBRL (X) -0.001 0 -2.324 0.021 Accepted
SIZE 0.001 0 2.084 0.038 Accepted
ROA -0.003 0.002 -1.369 0.172 Rejected
DAR -0.005 0.001 -0.626 0.532 Rejected
PBV -4.527 0 -0.636 0.532 Rejected
GDP -2.881 0 -1.595 0.111 Rejected
Dependent variable: Fraudulent Financial Statement (Y)
Source: Processed data (2020)

Based on the results in table 2, the regression equation is:

Y or DA = 0.21 + -0.001 XBRL……………………………….….. Regression 1
Y or DA = 0,31 + -0,001 XBRL + 0,001 SIZE + -0,005 DAR + -4,527 PBV + -0,003 ROA +
(-2,881) GDP…………………………………….….…….. Regression 2

The application of XBRL affects fraudulent financial statements (H1 is accepted), with
the XBRL coefficient being minus, meaning that the implementation of XBRL will cause a
decrease in financial statement fraud). The only control variable that affects financial
statement fraud is the firm size (SIZE).,

4.2 Analysis of Hypothesis 2 Paired T-Test

Paired T-Test or different test is used to test whether there is a difference in the two
paired data. The requirement for a different test is that the data must be normally distributed
first. This difference test is carried out only on the XBRL variable (X) and financial
statement fraud (Y) by not including the control variable because the objective is to prove the
difference before and after the implementation of XBRL. Based on table 3, the sig (2-tailed)
value of 0.000 <0.05 from these results indicates that there are differences in financial
statement fraud for three years (2012-2014) before and three years (2016-2018) after
applying and H2 is accepted. The positive mean value is 0.4796, which means that there is a
decrease in fraudulent financial statements after implementing XBRL.
Table 3. Paired T-Test Results
Mean Std Error Mean t Sig. Conclusion
Pair1 before – after .4796 .0227 21.106 0.000 Accepted
Source: Processed data (2020)
4.3 The effect of XBRL application on fraudulent financial statements
The results of hypothesis testing prove that there is an effect of XBRL application on
financial statement fraud proxied by earnings management. Besides, of the five control
variables in this study (SIZE, DAR, ROA, PBV, and GDP), only the control variable Size
affects financial statement fraud. Chen [19] revealed that XBRL would increase the
accountability and transparency of business and financial information. Better accountability
and transparency will reduce the level of fraudulent financial statements. Fraudulent
financial statements through accounting policies can be made by utilizing accrual accounts.
According to agency theory [20], the difference in interests between the principal and the
agent causes the agent to try to make accounting policies that will benefit the agent. Accrual
management motivation is grouped into opportunistic and signalling motives. Opportunistic
motivation encourages management to present financial reports (especially earnings reports)
higher than they are. Whereas in signalling motivation, management tends to manage
accruals which leads to earnings persistence. This result can be done by improving the
quality of financial reports through accounting numbers that lead to earnings quality. XBRL
implementation reduces the risk of fraudulent financial statements.
This result is in line with the research conducted by Kaidi [16] and Kim et al. [17], which
supports this research. XBRL gives a pretty good effect in minimizing earnings management
actions by reducing discretionary accruals. Leow [15] also stated that companies that
implement XBRL experience a decrease in the level of earnings management because the
company's discretionary accruals decline. When XBRL can reduce the level of fraudulent
financial statements, the information gap between the agent and the principal will also be
reduced. Thus, there will be better information exchange if information asymmetry can be
overcome through the application of XBRL.

4.4 Differences of fraudulent financial statements before and after implementing XBRL
The paired T-test results show that there are differences in fraudulent financial statements
before and after implementing XBRL. The positive mean value indicates that financial
statement fraud before the implementation of XBRL is higher than financial statement fraud
after XBRL. Several indicators of risk that can trigger fraudulent financial statements include
the recording of more bad debts in a profitable year. The company lost market share and
reduced its bad debt expense in the loss year to smooth profit. The company is less profitable
than its competitors—the accounting policies that generate relatively high income. The
company is experiencing temporary performance problems and low taxable income
accounting policy with a high proportion of off-balance sheet transactions. Frequent changes
in auditors or delays in issuing financial statements [21], These risks can be reduced by
implementing XBRL. The business and financial information collected in the XBRL format
is machine-readable and operable, thereby increasing the ease of dissemination and public
analysis to determine whether there is a fraud.
The results of this study are supported by research conducted by Kim et al. [17], that
states that the post XBRL period has a lower discretionary accrual rate than the pre-XBRL
implementation period. Liu et al. [18] prove XBRL can reduce earnings management by
reducing the company's discretionary accruals. Also, XBRL can reduce information
asymmetry so that it can minimize an agent acting fraudulently or harming the principal and
other parties.
4 Conclusions

The research results prove that the application of Extensible Business Reporting
Language (XBRL) has a negative effect on fraudulent financial statements. The more the
company implemented XBRL, the lesser the fraudulent financial reporting. There are
differences in fraudulent financial statements before and after implementing XBRL. The
fraudulent financial statement is higher before than after the implementation of XBRL Even
though the empirical result of this study supports the hypotheses, at least two limitations
should be carefully considered. First, the data were collected only in Indonesia that may have
different capital market characteristics with other countries.
These differences may include the capital market regulation, economics condition, tax
law, or investment opportunity. Hence, the present result should not be assumed to represent
the general case in the world. However, this study may provide a primary reference for other
countries whose environment and type of industries are similar to those in Indonesia. Second,
even though this study controls the hypothesis testing with five control variables, the result
indicates that these control variables may not influence the relationship among variables.
Only one control variable (SIZE) can change the effect.

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