Constructing Accounting Uncertainity Estimates Variable
This paper presents research results on the BIH firms 'financial reporting quality, utilizing empirical relation between accounting conservatism, generated in created critical accounting policy choices, and management abilities in estimates and prediction power of domicile private sector accounting. Primary research is conducted based on firms' financial statements, constructing CAPCBIH (Critical Accounting Policy Choices relevant in B&H) variable that presents particular internal control system and risk assessment; and that influences financial reporting positions in accordance with specific business environment. I argue that firms' management possesses no relevant capacity to determine risks and true consumption of economic benefits, leading to creation of hidden reserves in inventories and accounts payable; and latent losses for bad debt and assets revaluations. I draw special attention to recent IFRS convergences to US GAAP, especially in harmonizing with FAS 130 Reporting comprehensive income (in revised IAS 1) and FAS 157 Fair value measurement. CAPCBIH variable, resulted in very poor performance, presents considerable lack of recognizing environment specifics. Furthermore, I underline the importance of revised ISAE and re-enforced role of auditors in assessing relevance of management estimates. (original abstract)
- Ahmed, A. S., Morton R. M., Schaefer, T. F. (2000). Accounting Conservatism and the Valuation of Accounting Numbers: Evidence of the Feltham-Ohlson (1996) model, Journal of Accounting, Auditing & Finance, 15 (3), 271.
- Andreas, H. H., Andreas, W. (2006). Comparative Analysis of Strategic Management Accounting, Schmalenbach Business Review, vol. 58, July 2006, 234-258.
- Ball, R., Shivakumar, L. (2005). Earnings Quality in UK Private Firms: Comparative Loss Recognition Timeliness, Journal of Accounting and Economics 39 (1), 83- 128.
- Ball, R., Kothari, S. P. (2007). Econometrics of the Basu Asymmetric Timeliness Coefficient and Accounting Conservatism, Working paper, University of Chicago and Massachusetts Institute of Technology.
- Basu, S. (1997). The Conservatism Principle and the Asymmetric Timeliness of Earnings. Journal of Accounting and Economics, 24 (1), 3-37.
- Benston, G. J. (2006). Fair-Value Accounting: A Cautionary Tale from Enron. Journal of Accounting and Public Policy, 25 (4), 465-484.
- Bewley, K. et al (2009). Evidence on the Economic Consequences of Fraudulent Forecasts used in Accounting Estimates of Financial Reporting. York University.
- Cristensen, H., Nikolaev, V. (2009). Who Uses Fair Value Accounting for Non-Financial Assets after IFRS Adaptation? University of Chicago Booth School of Business, Working paper No. 09- 12.
- Gietzmann, M. B., Trombetta, M. (2001). Disclosure Interactions: Accounting Policy Choice and Voluntary Disclosure Effects on the Cost of Capital, University of Bristol & Carlos III University.
- Givoly, Hayn (2000). The Changing Time Series Properties of Earnings, Cash Flows and Accruals: has Financial Reporting Become More Conservative. Journal of Accounting and Economics, June 2000, Vol. 29/3, 287-320.
- Financial Stability Forum - FSF (2010). Thematic Review on Risk Disclosures by Market Participants, Obtained from: http://www.financialstabilityboard.org/press/pr_100721.pdf, (accessed: August 04, 2010).
- FBIH Official Gazette 83/09 (2009). FBIH Law on Accounting and Auditing, ISSN 1512-7079, Obtained from: http://www.sllist.ba/secure/2009s/federacija/broj83/broj83.htm, (accessed: March 26, 2010).
- IFAC (2008). Handbook of International Auditing, Assurance, and Ethics Pronouncements, 2008. Edition (Part I and Part II), ISBN: 978-1- 934779-06-4. Obtained from: http://web. ifac.org/publications/international- auditing-and-assurance-standards-board, (accessed: August 12, 2010).
- IFAC (2009). Financial Reporting Supply Chain, Current Perspectives and Directions, http:// web.ifac.org, (accessed August 12, 2010).
- IFAC (2009). Developments in the Financial Reporting Supply Chain - Results from a Global Study among IFAC member Bodies, ISBN: 978-1-934779-89-7. Obtained from: http://web. ifac.org/publications, (accessed: September 02, 2009).
- Kothari, S. P. (2000). The Role of Financial Reporting in Reducing Financial Risks in the Market, [In:] Eric Rosengren and John Jordan (editors). Building an Infrastructure for Financial Stability (Federal Reserve Bank of Boston).
- Mrsa, J. (2010). Nova Rjesenja u Medunarodnom Financijskom Izvjestavanju, Zbornik Rada Sa XIMedunarodnog Simpozija "Evropski put BIH u Funkciji Razvoja". ISBN 978- 9958757-25-9, COBISS.BH-ID 18074118.
- Srivastava, A., Senyo, Y. Tse. (2009). A New Approach to Measuring Accounting Conservatism and the Contribution of Accelerated Loss Recognition vs. Delayed Gain Recognition to Trends in Conservatism. Department of Accounting, Mays Business School, Texas A&M University, 4353 TAMU.
- Sterling, R. R. (1967). Conservatism: The Fundamental Principle of Valuation in Traditional Accounting. Abacus, 3 (2), 109- 132.
- Watts, R. L. (1993). A Proposal for Research on Conservatism. Working paper, University of Rochester (presented on American Accounting Association national meeting in San Francisco, CA).
- Watts, R. L. (2003). Conservatism in Accounting, Part I: Explanations and Implications. William E. Simon Graduate School of Business Administration The Bradley Policy Research Centre Financial Research and Policy Working Paper No. FR 03-16