An essay about the effect of vague accounting standards on the decision making process of auditors

Vague words and expressions are present throughout the standards that comprise the accounting and auditing professions. Vagueness is considered to be a significant source of inexactness in many accounting decision problems and many authors have argued that the neglect of this issue may cause accounting information to be less useful. On the other hand, we can assume that the use of vague terms in accounting standards is inherent to principle based standards (different from rule based standards) and that to avoid vague terms, standard setters would have to incur excessive transaction costs. Auditors are required to exercise their own professional judgment throughout the audit process and it has been argued that the inherent vagueness in accounting standards may influence their decision making processes. The main objective of this paper is to analyze the decision making process of auditors and to investigate whether vague accounting standards create a problem for the decision making process of auditors, or lead to a better outcome. This paper makes the argument that vague standards prompt the use of System 2 type processing by auditors, allowing more comprehensive analytical thinking; therefore, reducing the biases associated with System 1 heuristic processing. If our argument is valid, the repercussions of vague accounting standards are not as negative as presented in previous literature, instead they are positive.

Taylor principle and inflation stability in emerging market countriesw

The goal of this paper is to evaluate the validity of the Taylor principle for inflation control in 12 developing countries that use inflation targeting regimes: Brazil, Chile, Colombia, Hungary, Israel, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. The test is based on a state-space model to determine when each country has followed the principle; then a threshold unit root test is used to verify if the stationarity of the deviation of the expected inflation from its target depends on compliance with the Taylor principle. The results show that such compliance leads to the stationarity of the deviation of the expected inflation from its target in all cases. Furthermore, in most cases, non-compliance with the Taylor principle leads to nonstationary deviation of the expected inflation.

Processo decisório em contabilidade sob efeito da vaguidade.

O modelo racional de decisão tem sido objeto de estudo constante na academia de vários países, contribuindo para evolução do ser racional como importante tomador de decisão. A evolução destes estudos tem aberto questionamentos quanto à capacidade de racionalidade que temos como tomadores de decisão, deleitando assim em várias teorias novas que pesquisam estas limitações no decidir. Especialmente aplicadas a teorias econômicas, estudos como Inteligência Artificial, Contabilidade Mental, Teoria dos Prospectos, Teoria dos Jogos entre outras se destacam neste cenário de estudo das finanças comportamentais. A contabilidade como ferramenta de apoio as decisões financeiras ocupa posição de destaque. Esta tem em seu escopo de trabalho normas (aquilo que deveria ser feito) que regulam sua atuação, em alguns casos esta regulamentação não é precisa em suas especificações, deixando janelas que levam seus profissionais a erros de interpretação. A imprecisão contábil pode causar viés em suas classificações. Os profissionais, deparados com este legado podem se utilizar de heurísticas para interpretar da melhor maneira possível os acontecimentos que são registrados na contabilidade. Este trabalho tem a intenção de análise de alguns pontos que consideramos importantes quando temos imprecisão contábil, respondendo as seguintes perguntas: a imprecisão de normas contábeis causa viés na decisão? O profissional que se depara com imprecisão contábil se utiliza de Heurística para decidir? Quais os erros mais comuns de interpretação sob incerteza contábil? Para que o assunto fosse abordado com imparcialidade de maneira a absorver retamente quais são as experiências dos profissionais que atuam na área contábil, foi elaborado um questionário composto por uma situação possível que leva o respondente a um ambiente de tomada de decisões que envolva a prática contábil. O questionário era dividido em duas partes principais, com a preocupação de identificar através das respostas se existe imprecisão contábil (sob a luz do princípio da prudência) e quais heurísticas que os respondentes se utilizam com mais freqüência, sendo o mesmo aplicado em profissionais que atuam na área contábil e que detenham experiências profissionais relacionadas à elaboração, auditoria ou análise de demonstrações contábeis. O questionário aplicado na massa respondente determinou, através das respostas, que existe, segundo os profissionais, interpretações diferentes para os mesmos dados, caracterizando assim zona cinzenta, segundo Penno (2008), ou seja, interpretações que podem ser mais agressivas ou mais conservadoras conforme a interpretação do profissional. Já quanto às estratégias simplificadoras, ou heurísticas, que causam algum tipo de enviesamento no processo decisório, alguns foram identificadas como: associações pressupostas, interpretação errada da chance, regressão a media e eventos disjuntivos e eventos conjuntivos, que reforçam a pesquisa dando indícios de que os respondentes podem estar tomando decisões enviesadas. Porém, não se identificou no estudo tomada de decisões com enviesamentos como recuperabilidade e insensibilidades ao tamanho da amostra. Ao final do estudo concluímos que os respondentes têm interpretações diferenciadas sobre o mesmo assunto, mesmo sob a luz do princípio contábil da prudência, e ainda se utilizam de estratégias simplificadoras para resolverem assuntos quotidianos.

Firms reaction to environmental regulation

International agreements arising from the need to deal with the global warming promoted by countries decided to embrace a climate change policy bring on the debate of the impacts on firms in a global competitive market. Facing, therefore, different environmental standards accordingly to firm’s physical location. Once European Union is taking the lead in adopting stringent environmental regulation, this study aims to assess the impact of environmental regulations on firms in Europe. A novel database was constructed providing firm-level air pollution emission information in the European Union. Using difference-in-difference model, the effect of the intervention of EU environmental policy change suggests a negative response in fixed assets among EU firms due to the 2006 EU policy. The evidence to the hypothesis that firms in European Union have been decreasing its firms fixed assets, as a proxy of production capacity, with the change in environmental regulation, provides general support for the PHH, however, it doesn’t remain in robustness checks. The contribution of this work is bringing a revisited view of the actual effect of environmental regulation based on Kyoto Protocol directives on European firms.

Regulation and wage adjustment patterns : non parametric evidence from longitudinal data

This paper gives a first step toward a methodology to quantify the influences of regulation on short-run earnings dynamics. It also provides evidence on the patterns of wage adjustment adopted during the recent high inflationary experience in Brazil.The large variety of official wage indexation rules adopted in Brazil during the recent years combined with the availability of monthly surveys on labor markets makes the Brazilian case a good laboratory to test how regulation affects earnings dynamics. In particular, the combination of large sample sizes with the possibility of following the same worker through short periods of time allows to estimate the cross-sectional distribution of longitudinal statistics based on observed earnings (e.g., monthly and annual rates of change).The empirical strategy adopted here is to compare the distributions of longitudinal statistics extracted from actual earnings data with simulations generated from minimum adjustment requirements imposed by the Brazilian Wage Law. The analysis provides statistics on how binding were wage regulation schemes. The visual analysis of the distribution of wage adjustments proves useful to highlight stylized facts that may guide future empirical work.

Brazilian equity mutual funds: A general outlook based on performance

This dissertation main goal is to overview the Brazilian equity mutual funds returns. We find that active management is not effective for Ibovespa index, since Ibovespa active funds do not outperform the Ibovespa referenced funds. However, for IBrX index, active management do outperform the passive strategy. We found that Sustainable funds returns do not outperform the market, Endowment funds show poor performance, which could indicate strong regulation imposition over endowment funds portfolios. The size of a fund shows positive correlation to mean average returns and alphas. A fund’s lifetime is positively correlated to returns and to alphas, which could be related to more risk-taking by younger managers in order to pursue higher expected returns and, consequently, bigger inflows. Younger funds tend to have lower performance probably because, in taking more risks, they do not perform as expected. In addition, we find that the decreasing trend of the alpha evolution along the time is a sign of the industry decreasing returns of scale, which entails that managers have more difficulties to beat the market portfolio. Top 10s rankings show that funds appear more than once on the top 10s, which shows persistence of funds’ performance. Finally, concerning the deciles and quartiles rankings, the frequency of appearances changes among performance measures. There are measures which, when compared to others, strongly change the top and bottom for the decile and quartile members.