Identifying Discretionary Actions Taken by Managers in Credit Unions: An Application of Benford's Law

• Autor(a) principal: Theodoro, Ricardo
• Data de Publicação: 2021
• Outros Autores: Bonacim, Carlos Alberto Grespan, de Moura Costa, Davi Rogério
• Tipo de documento: Artigo
• Idioma: eng; por
• Título da fonte: Contabilidade, Gestão e Governança
• Texto Completo: https://revistacgg.org/index.php/contabil/article/view/2714
• topic: Contabilidade bancária; cooperativas de crédito; regulação; ações discricionárias; Lei de Benford; Bank Accounting; Credit Unions; Regulation; Discretionary Actions; Benford’s Law.

Objective: To investigate whether Benford’s Law can be a tool to improve the credit union supervision process performed by Brazil’s Central Bank. That is, we will determine whether its application will increase the bank’s assertiveness in identifying credit unions whose managers have taken discretionary actions which diverge from regulatory standards Method: Benford’s Law was applied to all singular Brazilian credit unions from 2006 to 2017 – which is a relevant timeframe due to regulatory changes - for Operating Income, Operating Expenses, Cash, and LPCSL (Loss Provisions for Client/Credit accounts which have Suspicious Liquidations) accounts over various timeframes. Relevance: The discussed evidence offers elements that can improve regulation mechanisms, and it can also indicate whether managers are using their discretionary power to influence singular credit union performance Results: Time is an important factor in the use of this tool. Applications applied over a long period of time do not capture discretionary actions taken by managers due to potential adjustments made to variations over time. An annual timeframe makes it possible to use this technique to capture potential discretionary actions taken in the examined accounts. In addition, this technique generates a consistent list of credit unions which require more intense surveillance and/or investigation. It also indicates that the norms revised in 2015 have helped reduce incentives to manage earnings and/or commit fraud in these organizations. Methodological Contributions: This study fills a gap in the credit union literature because there are few studies of discretionary actions in these organizations such as accounting choices, earnings management, fraud, or errors. Our findings may also indicate adjustments made by credit unions to comply with the sector standard due to the adoption of Resolutions No. 4,434 and No. 4,454. Benford’s Law is useful as a tool in selecting audit samples, and it can also improve the work of supervisory bodies.