Earnings management and valuation of biological assets

The use of fair value to measure the worth of biological assets allows discretionary choices when using discounted cash flow in the absence of an active market, influencing the quality of accounting information. The objective of this study was to investigate evidence of earnings management among Bra...

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Bibliographic Details
Published in:BBR Brazilian business review (Portuguese ed.) 2015-07, Vol.12 (4), p.1-26
Main Authors: Menezes da Silva, Ricardo Luiz, Nardi, Paula Carolina Ciampaglia, de Souza Ribeiro, Maisa
Format: Article
Language:Portuguese
Subjects:
agricultural products
Assets (Accounting)
biological assets
earnings management
fair value
Financial disclosure
Financial statements
ias 41
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Summary:The use of fair value to measure the worth of biological assets allows discretionary choices when using discounted cash flow in the absence of an active market, influencing the quality of accounting information. The objective of this study was to investigate evidence of earnings management among Brazilian companies that have adopted fair value based on the discounted cash flow method. The firms were investigated with regard to: a) disclosure of the discount rate, b) BM&FBovespa corporate governance levels; and c) adherence to disclosure requirements in the Brazilian accounting standard CPC 29 (IAS 41). We analyzed 31 firms with significant biological assets from 2010 to 2012. The earnings management measurements were calculated according to the modified Jones, the Teoh, Welch and Wong (1998), and the KS models. The Mann-Whitney test of the means was applied and revealed evidence of greater earnings management for companies that use discounted cash flow, and the ones that least meet CPC 29 disclosure requirements, considering the KS model estimates. Regarding the other proposals, testing did not offer enough evidence of differences in discretionary accruals. In this sense, only hypotheses 1 and 4 are partially accepted, demanding more research in this area. We also present evidence in favor of adopting Exposure Draft ED/2013/08 Agriculture: Bearer Plants, Proposed amendments to IAS 16 and IAS 41, which proposes to measure biological assets at cost, because firms already following these rules showed lower earnings management in this study.
ISSN:1807-734X
1807-734X