Assessing Earnings Quality of Greek Public Hospitals

3 LIST OF PICTURES 6 LIST OF TABLES 6 INTRODUCTION 7


INTRODUCTION
In this dissertation, we investigate whether exist indications that Greek public hospitals violate main accounting principles at the preparation of their financial statements and at the accounting policies that they have adopted.
We decide to investigate this topic as there is not equal research in literature.
Generally, the literature around this topic is poor because the data of the Greek public hospitals became free to public, mainly by creation of web platform "diavgeia".
Diavgeia, in Greek is written «Διαφγεια» and it is synonym with clarity.
Diavgeia, is an innovative web platform that created in 2010 according to Greek law 3861/2010 and there uploaded the decisions and other data from almost all public organizations. These decisions could refer to financial expenses or payments that they perform or changes to their operation.
Expect from diavgeia in 2011 created another web platform with called "Esynet".
Esynet is about only for the Greek public hospitals which import their financial and operation data in almost 20 tables of data, in monthly basis. Nowadays this platform named "Bi-Forms" and contain some changes in comparison to Esynet but maintain to the initial purpose and philosophy. All of these data would be very useful for researchers but unfortunately are published, a part of that. In

Accounting principles
The following principles have been defined by the Canadian Institute of Chartered Accountants.
 Going concern concept. The financial statements are prepared in accordance with the principle that the company continues to operate and will continue in the future for an indefinite period of time (Siotis).
 Principle of Accrual Concept. Each income and expense should be recognized and considered in the period that it occurs.
 Stability of monetary unit assumption. Accounting gives information about the financial sizes that are permissible to be expressed in monetary units which has a constant market value.
 Conservatism principle. Costs or losses that are recognized at once, even if they have not been realized but there is a provision, while profits should be considered and calculated only when they have occurred.  Principle of periodicity. Accounting measures periods of time that are smaller than the life of the business to determine its financial condition and also to calculate the profits or losses that may occur.
 Principle of accrual of the unit of account principle. The business is considered to be a separate independent entity due to its own assets and liabilities.
 Matching Principle. The revenue must be correlated with the corresponding costs to generate revenues and gain or loss is determined by the correlation of revenue with expenses.
 Revenue realization principle. Revenue is recognized when it is realized and not when it is expected to occur.

 Principle of objectivity and verifiability (Objectivity and Verifiability
Concept).According to this principle, the various accounting measurements and the results obtained from them should be impartial and verifiable.
 Principle of consistency in the application of accounting methods. A fixed asset in a management use is valued at cost and in the next fiscal year is valued at current prices, the company's assets will be impaired.
 Principle of Material Consideration. Accounting does not deal with the recording of information and numerical data that the cost is not offset by the benefit of that information, and secondly, the degree of detail and analytically of the accounting information is limited by the inability of users of the financial statements to understand and appreciate its importance.
 Adequate or full disclosure principle. According to this principle, complete and sufficient information on the activity of the entity should be provided. The information is quantitative and qualitative, but in any case, the exact and real situation of the company should be demonstrated.
 The principle of the fair value. In order to evaluate the certain assets IFRS used the principle of actual or current value or recovery. The Purpose of Financial Statements The financial statements give the whole image of the economic unit with its financial position and its performance on a short and long-term basis. The financial statements of the entity present data that is relevant for the structure of the company's assets and as well as the financial situation of the company. Generally, we can say that the financial statements present the image of an entity.
The main purpose of the analysis of the financial statements is to facilitate decisionmaking on the efficient allocation of financial resources. These decisions directly affect their financial interests of groups that use a company's accounting records, such as shareholders, creditors, administrators, employees, the state, of customers, etc. Taking these decisions requires an appreciation of it long-term and short-term survival capacity as well as profitability of the business being analyzed. The analysis of the financial statements allows the assessment of both risk and profitability of an enterprise in order to get one decision on the allocation of financial resources  Also, the appendix plays a significant role in the financial statements because it provides useful and explanatory information. This information makes it easier for the stakeholders to understand the content of the financial statements and to find out the true financial situation and the exact results. Moreover, the appendix includes:  The methods applied for the valuation of elements of financial statements.
 Depreciation of fixed assets.
 Information on shares of the economic unit with other companies. This attempt to manipulate profits and, more generally, the attempt to alter the quality of financial information, leads to incorrect outsourcing of information, thus increasing the risk of asymmetric information between managers and investors whether they are existing or potential.

ACCRUALS CONCEPT
Accruals is the main element for measuring the quality of financial reporting of accrual accounting as it is considered the most important measure for estimating accounting profits and is the difference between the accounting profits of a company and its cash flows. As administrations increase their profits above their cash flows, the more accruals are accrued. Based on the accrual principle, the transactions are recognized at the time they occur and relate to the fiscal years to which they relate. The accrued principle excludes the cash flow statement that exists on a cash basis.
In fact, accounting accrual management enables both management and senior executives to address the issue of corporate performance and overcome cash flow weaknesses. Accruals improve the ability of profits to measure the company's performance in finite time, which the cash flow situation cannot do. Accruals include expenses that are accounted for but have no cash, income and expense for subsequent periods that are not recognized in the current accounting period but subsequently.
All the above information comes from the accrual principle that the accounting

CONSERVATISM CONCEPT
The principle of conservatism is one of the oldest and most discussed accounting The accounting statements, as it is known, display the information not directly, we would say, but late. This is because many business-related information is not at once  in medical equipment and due to crisis, lack of funds.

Public Hospitals Accounting
In the current economic environment, public health systems play a vital role. Hospitals manage millions of euros in order to provide people with the best possible health services. This is achieved, by the efficiency and the effectiveness of public health in hospital management, operationally and financially, especially in tough fiscal times. Apart from its social work, it is also a distinct economic and productive entity, and one of the largest in our country. To achieve their goal, they use materials (e.g. raw materials, stocks, fixed assets) and intangible assets (e.g. rights or claims from insurance funds). These instruments, in particular, come from state budget subsidies and insurance funds. It is therefore necessary to monitor the above means used by Public Hospitals when they are consumed, moved, or destroyed.

Evaluation of the Double-entry System
The assessment of the implementation of Double-entry system in the public hospitals is considered to be modest, due to the inability to produce reliable financial statements, which arises from the following reasons:

Introduction
To this point, we will briefly present some surveys that are related to the accounting policies used in public sector hospitals. These surveys will contribute in order to export some important conclusions.
The following paragraphs are referred to the principle researcher -scholar of each survey, are describing the subject matter, then it indicates the methodology that has been followed and finally entered the conclusions reached by each survey.

Literature Review
In addition, the survey of Nikolaos Eriotis, Filippos Stamatiadis and DimitriosVasiliou

METHODOLOGY RESEARCH
In this section the proposed empirical research methods for this study will be described including the sample selection and the explanation for such selection. Also in this part, will be discussed the specification model, variables details, and the model estimation method.

Sample
The Unfortunately, the notes of financial statements, usually are not published from the hospitals.

Division of Sample
We created the sample of 107 hospitals in order to investigate which aspects influence the Net Income of Greek public hospitals. Then, we divided the initial sample in order to examine how are influenced the Net Income of hospitals in comparison with the level of accounting conservatism that they apply.
In order to divide the sample, we take into consideration an accounting event. In We should note that we conclude to sum up these three accounts because according to notes of balance sheet, many hospitals recorded there either part or all the amount of specific grants which have received from the state the period 2012-2014. Existed As we can see in Figure 1, Net Income is resulting by the operating profit (or loss) plus the extraordinary and non-operating profit (or loss). It is obvious that defers from the P&L Statement that prepared according to IFRS.

Independent Variables
In

Model Specification
To examine which aspects influence the Net Income of Greek public hospitals, we used a regression model in order to perform analysis regarding the independent variables that we have set. We estimate the following regression model: Net Income i t = α i + β 1 Operating Profit i,t + β 2 Earnings of Previous Years i,t + β 3 Expenses of Previous Years i,t + β 4 Provision of year i,t + β 5 Number of Hospitalized Patients i,t + Write Off dummy + Type of Hospital dummy + ε i,t The subscripts i and t denote hospitals and year respectively. A is the constant term, β 1 toβ5 are slopes to be estimated and ε is the error term of model.
The method we will use for the panel analysis is the OLS method (Ordinary Least Squares). The method of OLS requires taking each vertical distance from the point to the line of regression, squaring it and then, minimizing the total sum of the areas of squares (least squares). The statistical software that have been used, was the Stata.

Findings -Data Analysis
In this chapter, we will present the results of linear regression analysis about our three samples. We named the first sample "All Data" as contains whole of the 107 hospitals which investigate. The second sample is named "More Conservatism Hospitals" and contains 51 hospitals which had recorded equal or higher amounts in contra accounts than the received grants during 2012-2014. The third sample is named "Less Conservatism Hospitals" and contains 56 hospitals which had recorded equal or higher amounts in contra accounts than the received grants during 2012-2014. For our analysis, we set the significance level at 5%.

All Data
First, we will analyze our results for the sample "All Data" which represent the data of 107 Greek public hospitals for the period 2012-2015. We have 341 observations and the results of linear regression analysis can be shown in the Table 1. confidence interval, we need a p-value lower than 0.05 (5%). In our case the p value (Prob>F) = 0.0000 so, there is a statistically significant relationship between dependent and independent variables.
The adjusted R-squared is 0.06057. That means, the 60.57% of the variance of dependent variable, is explained by independent variables or in other words that the model explains 60.57% of the variance in Net Income. We should note that the adjusted R-squared shows the same as R-squared but adjusted by the number of cases Then we calculate the Variance Inflation Factor (VIF) and the results are shown at Table 2. The VIF measures the extent of multicollinearity within the model.
Multicollinearity reduces the predictive power of the model. Indication for significant multicollinearity issue exists when VIF be high which means over 5. In our model the numbers of VIF are around 2, so there is no indication for significant multicollinearity. The correlation is according to Spearman's correlation coefficient.
From the data of Table 3, are remarkable the high coefficient between Net Income and earnings of previous years. In addition the difference in coefficients between earnings of previous years and expenses of previous years maybe indicate violation of matching principle.  As we have set 95% confidence interval, we need a p-value lower than 0.05 (5%). In our case the p value (Prob>F) = 0.0000 so, there is a statistically significant relationship between dependent and independent variables. Then we calculate the Variance Inflation Factor (VIF) and the results are shown at Table 5.. In this model the numbers of VIF are between 1 and 2, so there is no indication for significant multicollinearity. In the following table are shown the correlation coefficients between the variables.
The correlation is according to Spearman's correlation coefficient.
From the data of Table 6, are remarkable the high coefficient between Net Income and operating income because it is much higher that the number of the sample All Data. It is reasonable these amounts to be highly correlated, as the public hospitals have not other activity except from the provision of health services.   The results seems to reinforce our assumption that hospitals of this sample applying less conservative accounting than the hospitals of the sample more Conservatism Hospitals, as their Net Income influenced from the writing off receivables that happened in 2013.
In the following table are shown the correlation coefficients between the variables.
The correlation is according to Spearman's correlation coefficient.
From the data of Table 9, are remarkable the significantly lower coefficient between Net Income and operating income than these of sample "More Conservatism Hospitals". It is reasonable these amounts to be highly correlated, as the public hospitals have not other activity except from the provision of health services.

Assessing Earnings Quality of Greek Public Hospitals
Chatzisavvidis Christos

Assessing Earnings Quality of Greek Public Hospitals
Chatzisavvidis Christos 39 To examine how a more/less conservative accounting affects the Net Income, we divide the initial sample into two subsamples. The first sample includes 51 hospitals that seems to apply more conservative accounting and the second sample includes 56 hospitals that seems to apply less conservative accounting. Running two linear regression models, we obtain results that verify our hypothesis. The first sample of hospitals is not influenced by writing off receivables happened in 2013. Probably, these hospitals either recorded the appropriate amounts as provision for bad receivables or created a kind of contra account which reduced the amount of that year that happened the writing off. Further, the Net Income of these hospitals is influenced by the number of hospitalized patients, a result that verifies our expectations.
In contrast, hospitals that belong to the second sample are significantly influenced by the writing off receivables in 2013.Σhe coefficient of the dummy variable "write off'' takes the value of "-5.373.243,00", it is statistically significant and strongly supports this argument. Additionally, the Net Income of these hospitals is not influenced by the

Assessing Earnings Quality of Greek Public Hospitals
Chatzisavvidis Christos 42 number of hospitalized patients. One possible explanation might be that because the amounts of specific grants are recorded as revenues and the writing off receivables are recorded as losses, there is a cancelation between these two and thus the correlation between Νet income and operating activity disappears.
Further, using these two samples, we investigate the amounts that were recorded in the account called "other operating revenue''. We find that for the first sample the average percentage of [(other operating revenues -received grants for salaries from the state) / sales] is almost 12% and for the second sample the figure is almost 60%.
These indicators reinforce the assumption that the hospitals belonging to the second sample, record grants as revenues. Because the public hospitals have specific operations, a comparison between the amount in the account called ''other operating profits'' with the amount in the account ''sales'', gives a difference which is irrationally high.
In fact, these specific grants operated like a cash payment from the state to Public Hospitals for the receivables of National Insurance Organization of Greece. For that receivables obviously had recorded respectively the revenue in the fiscal year that occurred. So, the recording of specific grants as revenue, means that these amounts recorded twice as revenue.
Taking into consideration all the above and the fact that different accounting policies have been applied, we conclude that possibly the financial data such as the Net Income and the Operating Profit of Greek public hospitals, are not comparable between each other.

Recommendations for Future Research
Through our investigation about the earnings of Greek public hospitals we find some points that should be corrected or improved. Firstly, for special cases like that we studied about grants and the writing off account receivables, the ministry of health or the responsible authority, should give instructions in order to apply all the hospitals the same accounting policies.
In financial statements that prepare the public hospitals in Greece, except from balance sheet and P&L statement, included the Appendix which is relevant to Notes of In 2011 created a web platform that was called "Esynet" and all the public hospitals of Greece imported there monthly, their financial and operating data. The latest years this platform has changed name and called "BI-Forms" but maintain to the initial purpose and philosophy. The "Bi-Forms" contain almost 20 tables where the hospitals import their data. Unfortunately, are published a part of these data. We consider that all the data should be free to public as they referred to public organizations. In addition, all of these data will be very useful for researchers who could study and combine all these operating and financial data of "Bi-Forms", with data of IFRS financial statements, and to conduct integrate evaluation of Greek public hospitals.
Because until now the majority of researches are based mainly to financial data but it would be more interesting and valid, if are used in parallel data like mortality rates, readmission rate, employees/patient rate. Maybe such investigations indicate fields that could be improved or hospitals that they have special needs or problems.