Reversal of impairment losses and earnings management
a study with brazilian companies listed on B3
DOI:
https://doi.org/10.16930/2237-766220243441Keywords:
Impairment test, Reversal, Earnings management, Brazilian companiesAbstract
Although the impairment test is relevant to the quality of accounting information, it requires subjective estimates that allow discretion to manage companies and give rise to earnings management, especially when losses can be reversed. In this context, this research aimed to investigate whether there is a relationship between the reversals of impairment losses evidenced by Brazilian companies listed on B3 and the practice of earnings management between 2010 and 2019. For this, descriptive and quantitative research was conducted, which tested three hypotheses initially developed in the work of Duh et al. (2009) to analyze whether the companies that most recognize impairment losses reverse these losses in the future to avoid the decrease in accounting earnings and whether this behavior is more pronounced in higher levels of indebtedness or when their managers are paid for performance. The findings revealed that, although companies that recognize more losses conduct more significant reversals in the future, these reversals did not occur in the context of declining earnings and were not significantly influenced by indebtedness and the managers’ pay-performance sensitivity. Considering the scarcity of empirical evidence on this topic in Brazil and the need to observe this phenomenon in different institutional and regulatory environments, it is expected that this study will contribute to stimulating the conducting of other similar studies, as well as to foster discussions on how the possibility of reversing impairment losses affects the quality of accounting information.
References
Abughazaleh, M. M., Al-hares, O. M., & Roberts, C. (2011). Accounting Discretion in Goodwill Impairments: UK Evidence. Journal of International Management and Accounting, Dundee-Escócia, 22(3), 165-204. DOI: https://doi.org/10.1111/j.1467-646X.2011.01049.x
Alciatore, M., Easton, P., & Spear, N. (2000). Accounting for the impairment of long-lived assets: Evidence from the petroleum industry. Journal of Accounting and Economics, 29, 151-172. DOI: https://doi.org/10.1016/S0165-4101(00)00018-5
Amaral, A. C. F. do. (2017). Impairment test: um estudo sobre o reconhecimento da perda sob a influência do gerenciamento de resultados e mudança das firmas de auditoria. [Dissertação de Mestrado, Fundação Instituto Capixaba de Pesquisas em Contabilidade, Economia e Finanças].
Andrews, R. (2012). Fair Value, earnings management and asset impairment: The impact of achange in the regulatory environment. Procedia Economics and Finance, 2, 16-25. DOI: https://doi.org/10.1016/S2212-5671(12)00060-3
Avallone, F., & Quagli, A. (2015). Insight into the variables used to manage the goodwill impairment test under IAS 36. Advances in Accounting, incorporating Advances in International Accounting, 31(1), 107-114. DOI: https://doi.org/10.1016/j.adiac.2015.03.011
Ball, R., Robin, A., & Wu, J. S. (2003). Incentives versus standards: properties of accounting income in four East Asian countries. Journal of Accounting and Economics, 36, 235-270. DOI: https://doi.org/10.1016/j.jacceco.2003.10.003
Burgstahler, D. C., Hail, L., & Leuz, C. (2006). The importance of reporting incentives: Earnings management in European private and public firms. The Accounting Review, 81(5) 983-1016. DOI: https://doi.org/10.2308/accr.2006.81.5.983
Cao, T., Shaari, H., & Donnelly, R. (2018). Impairment Reversals: unbiased reporting or earnings management?. International Journal of Accounting & Information Management, 26(2), 245-271. DOI: https://doi.org/10.1108/IJAIM-08-2016-0084
Chen, S., Wang, Y., & Zhao, Z. (2009). Regulatory Incentives for Earnings Management through Asset Impairment reversal in China. Journal of Accounting, Auditing and Finance, 24(4), 589-620. DOI: https://doi.org/10.1177/0148558X0902400405
Chen, V. Y. S., Keung, E. C., & Lin, I. (2019). Disclosure of Fair Value Measurement in Goodwill Impairment Test and Audit Fees. Journal of Contemporary Accounting & Economics, 15(3), 100-160. DOI: https://doi.org/10.1016/j.jcae.2019.100160
Comitê de Pronunciamentos Contábeis. (2018). CPC 01 (R1) – redução ao valor recuperável de ativos. http://static.cpc.aatb.com.br/Documentos/27_CPC_01_R1_rev%2012.pdf
Costa, C. M., Matte, A. M., & Monte-Mor, D. S. (2018). Endividamento e decisões contábeis: a relação não linear entre dívida e qualidade dos lucros. Revista de Contabilidade e Organizações, 12, 1-15. DOI: https://doi.org/10.11606/issn.1982-6486.rco.2018.137077
Damasceno, F. S., & Funchal, B. (2015). Valuing the Impairment Reverse Loss Effect on Firm’s Debit Financing. Anais do IX Congresso Anpcont, Curitiba, PR, Brasil. DOI: https://doi.org/10.2139/ssrn.2539042
Deming, D., Xinshu, M., & Fan, D. (2007). A research on impairment of assets in listed firms with negative earnings in China. Frontiers of Business Research in China, 1(3), 351-364. DOI: https://doi.org/10.1007/s11782-007-0020-1
Devalle, A., & Rizzato, F. (2012). The quality of mandatory disclosure: the impairment of goodwill: an empirical analysis of European listed companies. Procedia Economics and Finance, 2, 101-108. DOI: https://doi.org/10.1016/S2212-5671(12)00069-X
Dias Filho, J. M., & Machado, L. H. B. (2004). Abordagens da pesquisa em contabilidade. In Teoria avançada da contabilidade. Atlas, 15-69.
Dudycz T., & Praźników, J. (2020). Does the Mark-to-Model Fair Value Measure Make Assets Impairment Noisy?: A Literature Review. Sustainability, 12(4), 1504. https://doi.org/10.3390/su12041504 DOI: https://doi.org/10.3390/su12041504
Duh, R., Lee, W., & Lin, C. (2009). Reversing an impairment loss and earnings management: The role of corporate governance. The International Journal of Accounting, 44(2), 113-137. DOI: https://doi.org/10.1016/j.intacc.2009.03.001
França, J. A. (2017). Fundamentos da redução ao valor recuperável de ativos - teoria e prática. Elevação.
Giannini, E. (2007). Impairment of assets or impairment of financial information. The Honors Program. Senior Capstone. Project. https://pdfs.semanticscholar.org/a236/1d47ad17879571fbfddb88fca9844c5ec591.pdf?_ga=2.20214776.1398391316.1595287556-930068665.1595287556
Gox, R. F., & Wagenhofer, A. (2009) Optimal impairment rules. Journal of Accounting and Economics, 48, 2-16. DOI: https://doi.org/10.1016/j.jacceco.2009.04.004
Gujarati, D., & Porter, D. C. (2011). Econometria Básica (5a ed.). AMGH Editora LTDA.
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13, 365-383. DOI: https://doi.org/10.2308/acch.1999.13.4.365
Hilton, A. S., & O’Brien, P. C. (2009). Inco Ltd.: Market Value, Fair Value, and Management Discretion. Journal of Accounting Research, 47(1), 179-211. DOI: https://doi.org/10.1111/j.1475-679X.2008.00314.x
Hong, P. K., Paik, D. G., & Smith, J. V. D. L. (2018). A study of long-lived asset impairment under U.S. GAAP and IFRS within the U.S. institutional environment. Journal of International Accounting, Auditing and Taxation, 31, 74-89. DOI: https://doi.org/10.1016/j.intaccaudtax.2018.05.001
Huang, C. J. The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence (2010). Journal of Economics and Finance, 34 (3), 308-325. DOI: https://doi.org/10.1007/s12197-008-9034-6
International Accounting Standard. (2013). IAS 36 – Impairment of assets. http://www.iasplus.com/en/standards/ias/ias36.
Jensen, M., & Meckling, W. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. DOI: https://doi.org/10.1016/0304-405X(76)90026-X
Jordan, C., & Clark, S. J. (2004). Big Bath Earnings Management: The Case of Goodwill Impairment Under SFAS No. 142. Journal Of Applied Business Research, 20(2), 63-70. DOI: https://doi.org/10.19030/jabr.v20i2.2206
Kieschnick, R., & Mccullough, B. D. (2003). Regression analysis of variates observed on (0, 1): percentages, proportions and fractions. Statistical Modelling, 3, 193-213. DOI: https://doi.org/10.1191/1471082X03st053oa
Laili, N., & Khairi, K. F. (2014) Accounting for Assets Impairment: Creative Impairment Strategy on Discount Rate Disclosure. Wulfenia, 21(2), 136-159.
Lapointe-Antunes, P., Cormier, D., & Magnan, M. (2009). Value relevance and timeliness of transitional goodwill-impairment losses: Evidence from Canada. The International Journal of Accounting, 44(1), 56-78. DOI: https://doi.org/10.1016/j.intacc.2008.12.006
Laskaridou, E. C., & Athanasios, V. (2013). Fair Value, Earnings Management and Asset Impairment: The Impact of a Change in the Regulatory Environment. Procedia Technology, 8, 493-497. DOI: https://doi.org/10.1016/j.protcy.2013.11.065
Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69(3), 505-527. DOI: https://doi.org/10.1016/S0304-405X(03)00121-1
Lipper, L., & Porter, G. (1997). Understanding CEO PayA Test of Two Pay-to-Performance Sensitivity Measures with Alternative Measures of Alignment and Influence. Journal of Business Research, 40, 127-138. DOI: https://doi.org/10.1016/S0148-2963(96)00283-4
Martinez, A. L. (2001). Gerenciamento dos resultados contábeis: estudo empírico das companhias abertas brasileiras. [Tese de Doutorado em Ciências Contábeis, Programa de Pós-Graduação em Ciências Contábeis, Departamento de Contabilidade e Atuaria Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo. São Paulo].
Martinez, A. L. (2006). Minimizando a variabilidade dos resultados contábeis: estudo empírico do income smoothing no Brasil. Revista Universo Contábil, 2(1), 09-25.
Martinez, A. L. (2008). Detectando earnings management no Brasil: estimando os accruals discricionários. Revista de Contabilidade & Finanças, 19(46), 7-17. DOI: https://doi.org/10.1590/S1519-70772008000100002
Martínez, R. O. (2008). Modelos de regressão beta inflacionados. [Tese de Doutorado em Estatística, Programa de pós-graduação em Estatística da Universidade de São Paulo, São Paulo].
Martinez, A. L.; Cardoso, R. L. (2009) Gerenciamento da informação contábil no brasil mediante decisões operacionais. REAd - Revista Eletrônica de Administração, 15(3), 1-27.
Matsunaga, S. R., & Park, C.W. (2001) The Effect of Missing a Quarterly Earnings Benchmark on the CEO’s Annual Bonus. The Accounting Review, 76(3), 313-332. DOI: https://doi.org/10.2308/accr.2001.76.3.313
Mckee, T. (2005). Earnings management: an executive perspective. Thomson.
Moehrle, S. R. (2002) Do firms use restructuring charge reversals to meet earnings targets? The Accounting Review, 77(2), 397-413. DOI: https://doi.org/10.2308/accr.2002.77.2.397
Pereira, T. L. (2010) Regressão beta inflacionada: inferência e aplicações. [Tese de Doutorado em Estatística, Programa de pós-graduação em Estatística da Universidade de Pernambuco, Recife].
Ponte, V. M. R., De Luca, M. M. M., Sousa, H. V., & Cavalcante, D. S. (2012). Práticas de Divulgação do Teste de Redução ao Valor Recuperável de Ativos Pelas Companhias Abertas Listadas na BM&F Bovespa. Revista Contabilidade Vista e Revista, 22(4), 113-144.
Reinstein, A., & Lander, G. H. (2004). Implementing the impairment of assets requirements of SFAS No. 144: An empirical analysis. Managerial Auditing Journal, 19(3), 400-411. DOI: https://doi.org/10.1108/02686900410524409
Rennekamp, K. M., Rupar, K., & Seybert, N. (2015). Impaired Judgment: The Effects of Asset Impairment Reversibility and Cognitive Dissonance on Future Investment. The Accounting Review, 90(2), 739-759. DOI: https://doi.org/10.2308/accr-50879
Riedl, E. J. (2004). An examination of long-lived asset impairments. The Accounting Review, 79(3), 823-852. DOI: https://doi.org/10.2308/accr.2004.79.3.823
Schipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3, 91-102.
Silva, J. P., Bonfim, M. P., Niyama, J. K., & Silva, C. A. T. (2017). Impairment test e qualidade da informação contábil: a utilização do teste de recuperabilidade de ativos nas empresas brasileiras de capital aberto. Anais do XVI Congresso Internacional de Contabilidade e Auditoria (CICA), Aveiro-Portugal.
Sincerre, B. P., Sampaio, J. O., Famá, R., & Santos, J. O. (2016). Emissão de Dívida e Gerenciamento de Resultados. Revista de Contabilidade e Finanças, 27(72), 1-15. DOI: https://doi.org/10.1590/1808-057x201601660
Sorros, J., Belesis, N., & Karagiorgos, A. (2015). The reliability of Impairment Tests: The case of Vessels. Procedia Economics and Finance, 32, 1787-1793. DOI: https://doi.org/10.1016/S2212-5671(15)01482-3
Tan, H. C., & Trotman, K. T. (2018). Information Processing Biases in Impairment Decisions: Effect of Reversibility of Impairment Losses and Disclosure Transparency. Behavioral Research in Accounting, 30(2), 77-94. https://doi.org/10.2308/bria-52042 DOI: https://doi.org/10.2308/bria-52042
Trottier, K. (2013). The Effect of Reversibility on a Manager's Decision to Record Asset Impairments. Account Perspect, 12, 1-22. https://doi.org/10.1111/1911-3838.12005 DOI: https://doi.org/10.1111/1911-3838.12005
Uliano, A. L. P., Doná, A. L., & Gonçalves, M. N. (2014). Disclusore da perda por impairment aplicado ao ativo imobilizado: análise nas companhias do IBrX-50. Enfoque: Reflexão Contábil, 33(1), 1-18. DOI: https://doi.org/10.4025/enfoque.v33i1.21557
Vanza, S., Wells, P., & Wright, A. (2018). Do asset impairments and the associated disclosures resolve uncertainty about future returns and reduce information asymmetry? Journal of Contemporary Accounting & Economics, 14(1), 22-40. DOI: https://doi.org/10.1016/j.jcae.2018.02.003
Vogt, M., Pletsch, C. S., Morás, V. R., & Klann, R. C. (2016). Determinantes do Reconhecimento das Perdas por Impairment do Goodwill. Revista de Contabilidade e Finanças, 27(72), 349-362. DOI: https://doi.org/10.1590/1808-057x201602010
Wang, C., Tung, S., Chen-Chang, L., Lan-Fen, W., & Ching‐Hui, L. (2010). Earnings management using asset sales: Interesting issues for further study under unique institutional settings. International Journal of Accounting & Information Management, 18(3), 237-251. DOI: https://doi.org/10.1108/18347641011068983
Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. Prentice-Hall.
Wu, Y. (2011). Are asset impairment reversals under IAS 36 being used as an earnings management tool?. [Master thesis Department Accountancy, Faculty of Economics and Business Studies, Tilburg University].
Zhang, R., Lu, Z., & Ye, K. (2010). How do firms react to the prohibition of long-lived asset impairment reversals? Evidence from China. Journal of Accounting and Public Policy, 29(5), 424-438. DOI: https://doi.org/10.1016/j.jaccpubpol.2010.09.010
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Revista Catarinense da Ciência Contábil
This work is licensed under a Creative Commons Attribution 4.0 International License.
The copyright for articles published in this journal belongs to the author (s), with first publication rights assigned to Revista Catarinense da Ciência Contábil. Due to appearing in this publicly accessible journal, articles are free to use, with mandatory recognition of the original authorship and initial publication in this magazine and for educational and non-commercial applications. The magazine chose to use published works for non-commercial purposes, including the right to submit or work for publicly accessible databases. The content of published articles is the sole and exclusive responsibility of the authors. - The author (s) authorize (s) a publication of the article in the journal; - The author (s) guarantee (s) that a contribution is original and unpublished and that it is not being evaluated in another magazine (s); - A magazine is not responsible for the opinions, ideas and concepts emitted in the texts, for the full responsibility of the author (s); - It is reserved to the editors or the right to make textual adjustments and to adjust the article to the publication rules.
This work is licensed under a Creative Commons Atribuição-NãoComercial-CompartilhaIgual 4.0 Internacional.
