Creative Accounting in Income Statement: the Case of Entrepreneurs in Serbia

Abstract

Financial reports represent the main base for the decision-making process taken from users of financial statements. When financial statements contain wrong information, or they do not contain pieces of information at all, that can result in wrong decisions. Quality of financial reporting implies that the financial statements need to be compiled by with applicable legal, professional, and internal regulations. Creative accounting techniques include increasing or decreasing expenses, overstating assets, or early recognition of income.
 The primary purpose of this paper is to identify the existence of creative financial reporting and its main techniques used by entrepreneurs in Serbia. Considering the unique way of the financial reporting of the entrepreneurs in Serbia, in the paper were analyzed income statements from ten entrepreneurs containing men and women. The research included a horizontal analysis of the income statements, sales growth index, which shows the possibility of creative accounting among the entrepreneurs and the analysis of average financial costs for five years. The central hypothesis is the existence of creative accounting, but not to create or show better results, but to show worse financial results to minimize tax liability.