Analysis of the effects of conservatism in accounting information after the 2011 change in the basic conceptual pronouncement.
| Autor | Kronbauer, Clovis Antonio |
| Cargo | Texto en ingles - Ensayo |
1 Introduction
On December 2, 2011, the Accounting Pronouncements Committee (CPC) published the approval term of the Basic Conceptual Pronouncement (R1), confirmed by the Federal Accounting Council (CFC) by the Brazilian Accounting Standard (NBC TG), with changes applicable to the conceptual framework for the preparation and dissemination of accounting and financial reports. One of the amendments is the withdrawal of the characteristic prudence, or conservatism, from the condition of reliable representation, being it inconsistent with neutrality, as it promotes asset undervaluation and liability overvaluation (CPC, 2011).
The concept of conservatism is that profit should not be anticipated, but should anticipate the acknowledgement of all losses (Watts, 2003a). The dynamics of identification of the accounting information, presented in the seminal study of Basu (1997), verifies the reflection of good and bad news and its effect in the results. In the evolution of accounting concepts, although normative, regulation reveals the influence of conservatism (Crawford, Rountree & Price, 2010), providing new evidence and opportunities for studies (Watts, 2003b).
In Brazil, the change related to conservatism pronounced by the CPC may have influence on the companies' practices and, consequently, possible effects on asset and liability items, mainly in equity from the impact on profits. This argument, which is the basis for this study, is founded on the opportunism of managers and the ensuing associated risks (Hendriksen, 1982), arising from inconsistencies, arbitrariness, cover-ups and contradictions (Kan, 1990) in accounting disclosure. The effects on the accounting information in the absence of prudence can raise the levels of assets, net income and equity, and reduce liabilities, reflecting the interpretation of analysts of financial statements. therefore, it is necessary to identify whether the companies altered their accounting practices from 2011 onwards.
This study seeks to evaluate whether the change in accounting conceptual framework, removing the information's prudence (conservatism) characteristic, resulted in effects on the financial statements issued by public companies listed on the BM&FBovespa. This study follows up on the work of Santos et al. (2011) that aims to evaluate the effects of Law 11.638/07 on the conservatism of companies. From the change of perception on conservatism, it is necessary, or at least interesting, to obtain a new verification that may promote the comparability between different time scenarios.
This study has this initial section, with a review on conservatism literature, from its origin to the international and national previous studies, presenting data and results. Ending the study, the final considerations and references.
2 Theoretical reference
2.1 Conservatism in accounting theory and norms
The perception of conservatism in accounting dates back to ancient periods in the history of society, regarding its accounting organization. The first verifications occurred in the medieval period with the validation of the property owner's accounts by auditing as "faithful and prudent". Subsequently, they happened in Italy, with the valuation of assets, mainly inventories, with a lower cost or market value. They were inserted into accounting textbooks in the 17th century, and were hereafter required by the commercial code in France in 1673, Prussia, 1794 and Germany, 1884. Conservatism can be considered one of the oldest good auditing practices (Basu, 2009).
Matthessich (1964) perceived that conservatism, established informally in the accounting practices, where the base cost, representing the amount paid for the asset at the date of acquisition was subject to a reduction in its value due to use, depletion, obsolescence, among others, through periodic cumulative depreciation; such a decline was caused by conservative assessment, allowing for adjustment only in cases of original value decline. This allowed other occasional adjustments in asset value, generating significant changes when considering future losses in advance.
Hendriksen (1982) believes the uncertainties represent the basis for a concept of conservatism in traditional accounting. Although it is not an accounting principle, conservatism focuses on its operating medium, which serves as a restriction on the data. The term conservatism requires accounting professionals to report the lowest possible values for the assets and income, and the greatest possible values for liabilities and expenses, in the same way that the costs and losses must be recognized earlier than revenues and earnings.
At the heart of this practice lays the thought that pessimism is assumed to be better than optimism in financial information. Hendriksen (1982) presents three arguments for the existence of conservatism: (i) the tendency for pessimism is assumed to be necessary to counterbalance the natural optimism of managers and owners; (ii) the overstatement of profits and ratings are more dangerous for business; (iii) accounting professionals have access to much more information that can be communicated to investors and creditors, and these professionals assume two types of risk: the information passed on can be considered false later, or the information not passed on is true in the future.
The discussion of accounting conservatism reveals some of the features previously described, but also promotes the argumentation for some criticism. Kan (1990) presents six critical conservatism features: (i) inconsistency--may promote inconsistencies in the measurement of profit; (ii) arbitrariness--political interests can motivate a greater or lesser degree of conservatism, adjusting adequately to specific interests; (iii) cover-ups--there is no way to determine how conservative accounting is, and it places the investor at a disadvantage; (iv) contradiction with accounting principles, for example, regarding the timeliness of information; (v) bias--promotes a systematic bias in the accounting information damaging a realistic assessment; (vi) state of mind--conservatism is strongly present in the professional culture in their attitudes, more than in the uncertainties.
Kan (1990) in contrast to criticism establishes relevant arguments for the defense of conservatism. One of the arguments relates the relevance to dampen the effects of optimism; the second argument concerns the relevance of conservatism for the conformity of statement analysis, as it becomes a rational pathway for reducing information risks. For creditors, the relevance of conservatism is in the disclosure of pertinent information in the identification of adverse consequences.
In Brazil, Iudicibus (2009) points out two different approaches. In the first, considered nobler, conservatism should be understood as a vocational element of the profession, working in the discipline of enthusiasm; the other causes distortions that are based on the principle earlier presented of the cost ratio or market, whichever is lower. Additionally, Iudicibus (2009, p. 64) states that "the great problem of illogical and extreme application of conservatism is that there is a natural tendency among professionals to consider it as the freedom to always present users with the information or variant that presents the lowest profit or the highest liability." The author also emphasizes that the combined application of conservatism and objectivity can diminish relevance if misunderstood. Thus, the preferred critical test for the adoption of a standard should be relevance.
In the normative field, FASB (2008) characterizes conservatism as being the prudent reaction to try to ensure that the uncertainty and risks inherent to the business situation are adequately considered. IASB (2005) understands that conservatism is the inclusion of a degree of precaution in the necessary judgments in making the estimates of uncertainty, so that the assets or income are not overvalued and the liabilities or expenses are not underestimated.
In Brazil, the CFC determined prudence, a synonym of conservatism, as a qualitative characteristic of reliability. However, motivated by the considerations of the International Accounting Standards Board (IASB) and some theoretical studies such as Hendriksen (1982) and Kan (1990), the Brazilian Accounting Standard of Conceptual Framework (NBC TG) revoked this condition as it realized a direct conflict with what recommends the characteristic of neutrality (CFC, 2011).
2.2 Preliminary studies related to conservatism
In the academic field, one of the most cited papers in conservatism is Basu (1997), in which the author seeks to identify how the results reflect bad news (losses) more quickly than good news (earnings) in the accounting result. Based on a quantitative contribution, the study presents the following results: (i) through the actions of the companies it was verified that the sensitivity to negative news presents a ratio of two to six times the return of positive news; (ii) changes in negative gains are less persistent than the response to positive gains; (iii) Earnings Response Coefficients (ERCs) are greater for positive changes than for negative outcomes, generating asymmetric persistence.
The study by Santos, Lima, Freitas and Lima (2011) carried out an empirical-analytical research, with data collected in Economatica[R], with the non-financial companies listed on the BM&FBovespa during the period from the first quarter of 2005 to the third quarter of 2009 to investigate whether the enactment of Law 11.638/07 changed the degree of the sample's conditional accounting conservatism. For this verification, the authors used an adaptation of the model proposed by Basu (1997)...
Para continuar a ler
PEÇA SUA AVALIAÇÃOCOPYRIGHT GALE, Cengage Learning. All rights reserved.
