Abstract This study explores revenue recognition and reporting expenses relevant to the stage of completion of the contract agreements. Literature suggests that the taxation effects financial reporting, realization of capital gains as well as revenue recognition. We argue that construction firms make use of these estimates to postpone revenue and value added tax recognition. The analysis grounds on the assumption that the value added tax effects timely recognition of revenues from construction agreements, where managers are incentivized to underestimating stage of completion and suppress recognition of gross earnings to better align emerging of the value tax related liability with contracted and expected inflows of cash. Results show that the revenue recognition is positively associated with reported income before tax and cost of material as a direct expense that can be allocated to the execution of construction agreements. These findings build baseline for future research that assesses effects of newly adopted standard IFRS 15 on real earnings management practice in construction industry of Bosnia and Herzegovina.

Earnings management literature extensively explores tax regime and debt contracting as possible incentives in financial reporting. Firms engage with aggressive financial reporting to bias earnings in periods when the need for external financing increases. Contrary to this, the tax burden represents incentive for more conserva tive reporting. We argue that the level of firm’s financial reporting aggressiveness is not constant but rather floating from period to period, directly affecting the quality of financial reports. We assume that firm’s management on its own discretion determines the level of conservatism, balancing between these two incentives. The prevailing of two incentives, the need for external financing and the tax burden, determines the level of conservatism in particular reporting period. We hypothesised that the reduction in tax burden incentive overcomes the debt contracting incentive in the years of decreasing external financing need, implying more conservative accounting to balance between economic and taxable income. The total accruals are used as a measure of earnings management reflected to working capital accruals. The data analysis conducted on financial reports of 297 firms in the time-series of five years shows a significant correlation between total accruals, external financing needs and difference between economic and taxable income. This study provides an evidence on the association between conditional conservatism and external financing needs against anticipated tax sheltering activities in the economy with rather weak legal enforcement and widely spread use of accoun-ting-based covenants in debt contracting, proposing that the conditional conservatism may rather not reduce the cost of debt with the diminishing role of accounting in the debt contracting.

This study investigates relations between debt contracting and asymmetries in timely recognition of firms' earnings in emerging market economy. The asymmetric timelines of earnings, as a measure that determines predictive power of financial reports, is observed proxy explaining borrowers' earnings management. This study use longitudinal research design to explore asymmetric timeliness of earnings and its association to debt contracting. The study result suggests that the change in asymmetric timelines of earnings is significantly associated with intention of long term debt contracting application that ends with the long term debt contract closure. In more particular, the positive (or negative) change in net income in previous period is associated with the decrease in net income change in consecutive periods for firm-years when no contract is closed. Vice versa, negative net income change in prior period, reported by firm-years prior long term debt application, is associated with an increase of net income change in consecutive period. On the other hand, there is no earnings management detected in years prior to long term debt application for the firms that have reported prior positive change in net income. The research is based on specific data set extracted from financial reports in Bosnia and Herzegovina.

Abstract This study investigates relationships between reported assets growth, human capital effectiveness, ability to do business with state and firms' growth. Longitudinal data were extracted from annual financial reports. Sample includes 80 companies in construction industry of Bosnia and Herzegovina from 2008-2013. Generalized estimating equations (GEE) approach is used for investigation of previously mentioned associations. We found that working with the state in Bosnian construction sector is dominant factor for outstanding increase in net reported income, while the human capital efficiency is negatively associated to its change. These findings support the theory of markets with asymmetric information, suggesting that the relational and social capital of the firm in the imperfect markets, where the state is dominant customer, drives the growth and that precedes firm’s investments into development of intellectual capital.

The paper surveys relevant accounting methods dealing with information asymmetry, uncertainties, and harmonization implications on less developed capital markets. The quality of accounting information is related to more aggressive or more conservative accounting policy approaches. A strong impact is assumed to be given by following factors: low market liquidity, underestimation of bad debt, pre-mature revenue recognition, transfers of risks and ownerships ; accounting oriented on tax purposes, introduction of maximum allowable depreciation rates, unadjusted differences in employees’ benefits relevant to labor legislation ; non recognition of contingency reserves for long term litigations. We draw special attention to recent International Financial Reporting Standards (IFRS) convergence to United States Generally Accepted Accounting Principles (US GAAPs), especially in harmonizing with the Financial Accounting Standards Boards statement (FAS) 130: Reporting comprehensive income (in revised IAS 1) and FAS 157 Fair value measurement. A Critical Accounting Policy Choices Index for Bosnia and Herzegowina (CAPCBIH) resulted in a very poor performance presenting significant gap in recognizing environment specifics. Furthermore, the importance of revised International Standards on Assurance Engagements (ISAE) and re-enforced role of auditors in assessing relevance of management estimates is stressed.

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 BH 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.

This paper presents empirical evidence on applied analysis interdependences with created accounting policies and estimates within Bosnia and Herzegovina (B&H) private commercial entities,in specific,targeting practice oriented relevance of financial indicators, non financial indicators, enterprise resource planning and management accounting insight frequencies. Recently, standard setters (International Accounting Standards Board and International Federation of Accountants) have published outcomes of an internationally organized research on financial reports usefulness,recommending enforced usage of enterprise relevant information, non-financial indicators and risks implications in assets and liabilities positions. These imply litigation and possible income smoothening. In regard to financial reporting reliability, many authors suggest accounting conservatism as a measure to compose risk assessment and earnings response ratio. Author argues that recently suggested financial management measures involving cash and assets management,liquidity ratios and turns do not directly imply accounting information quality,prior computed within applied accounting conservatism.

SUMMARY Accounting system in transitional economies generally relates to enabling true and fair picture of enterprises’ financial position and business performance. Great effort is invested in collecting, placing and valuating historical data using static models created in accordance with applicable standards. Complex structures and hard adjustability to strategic impact on business performance create significantly low cost-efficiency ratio. Correspondingly accounting loses on importance and moves towards administrational necessity fulfilling purpose of own existence. Developed economies engage in strengthening dynamic dimensions of accounting system aiming in developing invisible balance positions. Obeying strategy accounting principles author lightens certain focal points to bridge existing gaps.

International Accounting Standards applications in Bosnia and Herzegovina mostly deal with automatic data collecting and processing for financial accounting and inventory accounting purposes. Some of accounting functions like managing sales, banking, purchase, manufacturing, budgeting, financial management and customer relations, of considerable importance for business performance management, are not directly implicated. In narrower sense this fact leaves management blind in regard to measuring, planning and strategic decision making. Accountants and financial officers do not manage to create information out of collected data automatically or do so developing own ways of gathering information and preparing for strategic management decisions.