EARNINGS MANAGEMENT IN ENGLISH NHS HOSPITAL TRUSTS

Authors

  • Joan Ballantine,

    1. Queen's University Belfast
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  • John Forker,

    1. Queen's University Belfast
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  • Margaret Greenwood

    1. Queen's University Belfast
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    • *

      The first and second authors are from the School of Management & Economics, Queen's University Belfast. The third author is from The Business School, University of Gloucestershire. They gratefully acknowledge financial support from the Belfast office of KPMG and the School of Management, Queen's University Belfast, the research assistance of Gareth Campbell and David Leonard, the helpful comments and suggestions received from two anonymous referees and from Peter Dunne, Philip Hamill and Irem Tuna when presented at Queen's University Belfast and the EAA 2006 Annual Conference, Dublin.


Address for correspondence: John Forker, Queen's University Belfast, Belfast BT7 1NN, Northern Ireland, UK.
e-mail: j.forker@qub.ac.uk

Abstract

In this paper we review the financial reporting incentives associated with the requirement to breakeven for English NHS Trusts. We also investigate the distribution of reported income and estimate discretionary accruals thereby contributing to the limited literature on earnings management in not-for-profit hospitals. We find that Trust managers use discretion over accruals to report income within the target range around zero. The results are robust to recent challenges to earnings management explanations arising from the use of distributional and aggregate accruals methodologies. Our findings indicate that a precise and challenging financial breakeven target based on current cost residual income is associated with wide-spread use of discretionary accruals to an extent that weakens the accountability of NHS Trusts.

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