Earnings management in the brazilian rental property industry

Abstract

The accounting choices provided in CPC 28 (IAS 40) may affect the financial statements of the firms and consequently influence external users that use them for decision-making purposes because they present a change in the accounting procedure for the measurement of investment properties: fair value or cost historic. Since the activities of these real estate companies are based on investment properties, it is assumed that they are the main stakeholders in the accounting choices provided for in CPC 28. The objective of this study is to measure the discretionary accruals of Brazilian real estate properties firms, using the model of Pae (2005). In order to achieve this objective, the analysis uses the accounting information from the annual financial statements of the Brazilian publicly traded companies for the years 2010 to 2017, totaling a sample of 9 companies with 7 periods each. The results suggest that companies with historical cost tend to have lower accruals than the fair value option. In addition, analyzes are made comparing the level of net income and the level of discretionary accruals returned by the econometric model, and such comparisons raise the possibility that fair value companies have greater potential for manipulation of results than firms that choose to measure by historical cost.