This thesis makes a literature review on the results of manipulation in unlisted Portuguese companies, which consequently affects the quality of information in its financial statements. The phenomenon of earning management is complex and difficult detection, which makes this controversial and relevant analysis theme, especially for readers of the financial statements. Within the earning management definition exists manipulation of actual transactions and handling of accrued expenses and revenues. The results consist of cash flows and accruals of expenses and revenues, and the handling of each of these components will affect the results. A manager can make operational decisions with an impact on financial numbers - cash flows, such as offering products with high discounts in the end of the year in order to anticipate sales to reach a goal or cut spending on research and development. The second form of managers achieve the desired results is to handle the increases in spending and revenues. In this method, the company does not change its activity, but rather opportunistically recorded profit of its existing activities. Examples that increase the results are the reduction of provisions, capitalize expenses and avoid depreciation of assets. Accrued expenses and revenues create the opportunity to manipulate results because there is a need for estimates, forecasts and judgments. This type of manipulation is derived from selective interpretation of accounting rules, since the company is free to choose between the existing methods in the standards. The reasons why individuals commit fraud can be several. To try to explain this event Donald Cressey created the so-called "Triangle of Fraud." In the first vertex includes financial need felt by the individual, characterized by felt own pressure or by need for financial liquidity either by integration into a social group whose sum of the possible gains and losses and the justification for their acts (rationalization) takes to decide to practice or not fraudulent acts. In this triangle is also considered that the opportunity may be characterized by internal control failures. Thus, this dissertation seeks to ascertain according to different degrees of profitability companies that are more likely to manipulate the results, taking into account the different objectives of these companies and their managers. Among several match-fixing detection methods was chosen that best applies the analysis in question, some of which are difficult to apply to large number of companies and different contexts. The model developed by Francis, La Fond, Olsson, Schipper 2004 from other models already created to establish a link between seven attributes, including the quality of accruals and deferrals, to check the quality of information in the financial statements and the impact it has on investor’s decisions. Through an econometric model that we use to calculate the quality of accruals and deferrals in our sample, this draws conclusions about the influence of the attributes as we explain below. Companies that have a better profitability thus have a greater incentive for tax evasion while, companies that have a lower profitability require increased funding and thus will have an incentive conflict when it comes time to make decisions. This is because they need to deliver better results to get better financing rates but at the same time want to pay less tax. It can be expected that most businesses to manipulate when they have a high yield in order to reduce the amount to deliver to the state. Through the analysis of regressions we concluded that companies are more likely to handle are those that have higher yields and lower in line with expectations.
Date of Award | 4 Jul 2016 |
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Original language | Portuguese |
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Awarding Institution | - Universidade Católica Portuguesa
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Supervisor | Ricardo Cunha (Supervisor) |
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- Earning management
- Quality information
- Incentives for earning management
- Auditing
- Audit results
- Mestrado em Auditoria e Fiscalidade
Qualidade de informação e a rentabilidade das empresas
Ribas, M. S. F. A. (Student). 4 Jul 2016
Student thesis: Master's Thesis