<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

Revenue Recognition and Real Earnings Management in Bosnian Construction Industry

Journal of Forensic Accounting Profession

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This study explores revenue recognition and reporting expenses relevant to the stage of completion of the contract agreements. Literature suggests that the...

Revenue Recognition and Real Earnings Management in Bosnian Construction Industry

Published Online: Jul 17, 2021

Page range: 21 - 34

Received: May 08, 2021

Accepted: May 30, 2021

DOI: https://doi.org/10.2478/jfap-2021-0002

Keywords
Real Earnings Management, Forensic Examination, Revenue Recognition

© 2021 Nino Serdarevic et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Revenue Recognition and Real Earnings Management in Bosnian Construction Industry

Published Online: Jul 17, 2021

Page range: 21 - 34

Received: May 08, 2021

Accepted: May 30, 2021

DOI: https://doi.org/10.2478/jfap-2021-0002

KeywordsReal Earnings Management, Forensic Examination, Revenue Recognition

© 2021 Nino Serdarevic et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Real Earnings Management, Forensic Examination, Revenue Recognition