Abstract
Earnings management has become an important topic in accounting and finance in recent decades. This practice is possible due the existence of alternative accounting criteria for recognition, measurement and/or demonstration of earnings, creating opportunities for managers to choose one of the available options in order to reflect information in the desired form. This can sometimes distort the analysis of the company’s performance. There are various ways to manipulate accounting information. This paper investigates whether there was earnings management in Brazil through deferral of losses due to exchange rate variations in 1999 and 2001, as well as through the respective amortization of these losses in following years. We analyze the companies that carried out such deferral in one or both years, and the respective amortization from 1999 to 2003, utilizing histograms and nonparametric methods, and find strong indications that the companies that chose such deferral did so to manage their earnings, in order to avoid showing decreased earnings or even losses.
Highlights
Earnings management has become an important topic in accounting and finance in recent decades
The question analyzed by this article is as follows: Is there evidence of earnings management by the companies that deferred exchange rate losses, in such a way that it significantly changed their earnings results?. This question is addressed through an empirical study to verify whether the earnings alterations through deferral of currency variation losses by these companies were significant or not
We do not discuss the theoretical questions on earnings management and the main fundamentals and concepts of accountancy, or the accounting treatment to be adopted for such losses, since these themes have already been debated in various works (MARTINS, 2001; MARTINEZ, 2002; SZUSTER, 2002; SZUSTER and SZUSTER, 2003), besides being outside the scope of this study
Summary
T contribution in the past few decades (LOPES, 2002; LOPES and MARTINS; 2005). The works on accounting in the positive line of research under an opportunistic perspective formulate their hypotheses under the optic of WATTS and ZIMMERMAN; (1986): a. This enabled some companies that suffered losses because of currency variations in these years to defer them and present more desirable accounting results Against this backdrop, the question analyzed by this article is as follows: Is there evidence of earnings management by the companies that deferred exchange rate losses, in such a way that it significantly changed their earnings results?. This question is addressed through an empirical study to verify whether the earnings alterations through deferral of currency variation losses by these companies were significant or not To answer this question, we conducted tests of hypotheses about the differences in the results, with and without deferral of exchange rate losses, in 1999 and 2001, as well as on the effects of the respective amortizations on earnings in subsequent years. We do not discuss the theoretical questions on earnings management (manipulation of accounting information) and the main fundamentals and concepts of accountancy, or the accounting treatment to be adopted for such losses, since these themes have already been debated in various works (MARTINS, 2001; MARTINEZ, 2002; SZUSTER, 2002; SZUSTER and SZUSTER, 2003), besides being outside the scope of this study
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