RELATIONSHIP BETWEEN THE RELEVANCE OF DERIVATIVE FINANCIAL INSTRUMENTS IN BRAZILIAN BANKS AND THE MENTION OF THESE INSTRUMENTS IN THE AUDITORS’ REPORT

Abstract

This work aimed to verify if there is a relationship between the relevance of derivative financial instruments for the main Brazilian financial institutions and their mention in the reports of independent auditors. The relevance of this study is given by the importance of analyzing and verifying the fluctuation of derivative financial instruments, not simply by recording, but in relation to the variations existing in the period. In addition, the complexity of financial instruments, especially derivatives, as well as the subjectivity implicit in the process of measuring fair value in cases where there is no active secondary market, increase the risks of material distortions for the audit. In order to carry out this research, the IFRS financial statements and the respective reports of the external auditors, from 2014 to 2017, were collected from the 20 largest financial institutions in Brazil, by total asset value. Logit regression was applied to assess the association with the mention of derivative financial instruments in the audit reports and the relevance of these instruments in the banks’ equity structure. The results show that few audit reports mention derivatives or financial assets at fair value. The regression estimation showed that there was no statistically relevant relationship between the variables. Additionally, it was found that the increase in the mention of derivative financial instruments in the audit report coincided with the implementation of the so-called New Audit Report (NRA), starting in 2016, in particular with the implementation of the Main Audit Matters (PAA).