Main Article Content
Company's stakeholders make business decisions based on information presented by management. The quality of decisions, among other things, depends on the quality and reliability of information in the financial reports. Business practice demonstrates that managers tend to present a false picture of the financial position and profitability of the company, often in cooperation with the owners of the capital. Procedures that management and investors take, in order to create a false impression about the performances of the enterprise, the contemporary literature defines as creative financial reporting. Presentation of better financial performance than realistic one provides misleading signals about the company, while the users of information are misinformed.
The goal of this paper is the analysis of opportunities to implement creative cash flow reporting and the factors that encourage the company’s management and the owners of the capital to wrong and misleading interpretation of performance items. After the presentation of the main motive of creative financial reporting, we shall focus on examples of erroneous classification of cash flows. Earnings management and the shaping of cash flows may be realised within and beyond the boundaries of accounting regulations on several ways, but a special review in the paper is dedicate to creative reporting procedures of cash inflow and outflow related to receivables, investments, liabilities, and expenses. Consequences of creative reporting on cash flow and other performances could be serious both for stakeholders and for survival of the company, which is discussed in the last part of the paper.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Once the manuscript is accepted for publication, authors shall transfer the copyright to the publisher. If the submitted manuscript is not accepted for printing by the journal, the authors shall retain all their rights. The following rights on the manuscript are transferred to the publisher, including any supplementary materials and any parts, extracts or elements of the manuscript:
- the right to reproduce and distribute the manuscript in printed form, including print-on-demand;
- the right to print prepublications, reprints and special editions of the manuscript;
- the right to translate the manuscript into other languages;
- the right to reproduce the manuscript using photomechanical or similar means including, but not limited to photocopy, and the right to distribute these copies;
- the right to reproduce and distribute the manuscript electronically or optically using and all data carriers or storage media, and especially in machine readable/digitalized form on data carriers such as hard drive, CD-ROM, DVD, Blu-ray Disc (BD), Mini Disc, data tapes, and the right to reproduce and distribute the article via these data carriers;
- the right to store the manuscript in databases, including online databases, as well as the right to transmit the manuscript in all technical systems and modes;
- the right to make the manuscript available to the public or to closed user groups on individual demand, for use on monitors or other readers (including e-books), and in printable form for the user, either via the Internet, online service, or via internal or external networks.
Authors reserve the copyright to published articles and have the right to use the article in the same manner like third parties in accordance with the licence Attribution-Non-Commercial-Non-Derivate 4.0 International (CC BY). Thereby they must quote the basic bibliographic data of the source article published in the journal (authors, article title, journal title, volume, pagination).
International Accounting Standard 39: Financial Instruments: Recognition and Measurement. 2011. www.ec.europa.eu (accessed February 2, 2013).
Malinić, Dejan. 2008. Kreativno finansijsko izveštavanje: motivi, posledice i etički izazovi, in Tranzicija i posle u regionu nekadašnje Jugoslavije, Belgrade: The Serbian Association of Economists.
Milojević, D. 2006. Revizija finansijskih izveštaja, Belgrade: Faculty for Trade and Banking and Belgrade Banking Academy.
Mulford, C., and Comiskey, E. 2005. Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance, New Jersey: John Wiley & Sons.
Stevanović, N. and Malinić, D. 2009. Fenomenologija bilansa: informaciona moć, rizici i posledice, Ekonomika preduzeća, special issue Tajne bilansa: menadžerski pristup, Belgrade: The Serbian Association of Economists.
White, G., Sondhi, A., Fried, D. 2003. The Analysis and Use of Financial Statements, New Jersey: John Wiley & Sons Inc.
Wild, J., Subramanyam, K.R. and Halsey, R. 2007. Financial Statement Analiysis, New York: McGraw-Hill/Irwin.