Accounting Window Dressing and Template Regulation: A Case Study of the Australian Credit Union Industry

Abstract

This paper highlights the response of cooperative institutions that are required to adhere to new capital adequacy regulation traditionally geared for profit-maximizing organizations. Using data from the Australian credit union industry, we demonstrate that the cooperative philosophy and internal corporate governance structure of cooperatives will lead management to increase capital adequacy ratios through the application of accounting window dressing techniques. This is opposite to the intended purpose of template regulation aimed at efficiently increasing operating margins and lowering risk. Our results raise several debatable issues regarding the ethics of accounting management and the imposition of one-shoe-fits-all external regulation.

Evitar Divulgar Perdas: Foi Uma Estratégia Utilizada na Última Década pelas Cooperativas de Crédito Filiadas ao Sicredi?

“…No âmbito internacional, estudos como o de Hillier et al (2008) e Brown e Davis (2008) abordaram a questão de práticas de gerenciamento de resultados aplicadas às cooperativas de crédito australianas. Os autores encontraram resultados divergentes no que tange à conclusão a respeito da utilização, por parte das instituições financeiras, de práticas contábeis para gerenciamento de resultados.…”

Income smoothing: a study of the health sector’s credit unions

“…130, 20094403, 20114403, , Resolution 4143, 2013. Hillier et al (2008) highlight the differences in background, philosophies and operational procedures between credit unions and other financial and banking intermediaries. The authors emphasize the philosophy adopted, which differs through the development of mutual collaboration, with the purpose of providing services to its members, based on the equitable treatment of members and the principles of cooperativism.…”

“…These entities are not for profit; however, specific factors of the financial system may encourage cooperatives to improve their profitability, to meet market demands, including in their statements, which can be an important indicator of efficiency in relation to their membership ( Hillier et al, 2008).…”

“…In order to verify whether financial conglomerates operating in Brazil use the allowance for doubtful accounts, the unrealized gains or losses on the Securities to manage their results, Zendersky (2005) In international literature, studies by Hillier et al (2008) and Brown and Davis (2008), addressed the issue of performance management in Australian Credit Unions, having as main analytical data the minimum capital requirement. These authors prove that there is no convergence in the results of the research, even though it is treated in the same country and evaluated the same practice.…”

“…The results found by Hillier et al (2008) identified earnings management by credit unions that were at risk, seeking to gain time in the adequacy of the proportion of their net worth in relation to the assets weighted by the risk. Brown and Davis (2008) obtained different results from the study by Hillier et al (2008). The use of Earnings Management was not identified; the possible explanation for this is the loyalty of its members, since credit unions present more advantageous options in relation to other financial institutions.…”