Auditing and earnings management in Brazilian HMOs

Abstract

This paper examines whether external auditing minimizes the propensity for manipulation of accounting information (MAI) by health maintenance organizations (HMOs), with respect to financial information disclosed to the Brazilian Health Care Agency (ANS). The results of univariate and multivariate analyses and robustness tests indicated no statistically significant differences in the propensity to MAI between audited and unaudited financial reports in the analyzed information. The empirical regularities shown in this study provide useful insights to foreign regulators and international auditors. Our study sheds light on the effectiveness of the recent reporting and auditing regulations in Brazil, suggesting that – in regard to the HMO industry – auditing has not begun to play a more effective role yet.

Earnings management in Brazil: a survey of the literature

“…Possible variations on this equation mainly entail the inclusion of amortizations. In turn, other models concentrate only on current accruals, to the exclusion of long-term accruals (Ferreira et al, 2011).…”

“…This model has been used in the international and Brazilian literature as a proxy for earnings management. Martinez & Reis (2010) and Ferreira et al (2011) have used this model in their studies.…”

Earnings management by health insurance companies in Brazil

“…For example, Cardoso (2005) verified the impact of health insurance regulation on incentives to choose accounting practices using data from 2001 to 2003. Guimarães and Alves (2009) tested a prediction model for estimating the probability of insolvency, and Ferreira et al (2011) examined whether external audit minimizes the propensity to engage in earnings management. Sancovschi et al (2014) examined the relationship between HICs’ IDSS ranking and their likelihood of being subject to special regimes.…”