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Creative Accounting Practices in Cash-Flow Reporting: Case of Croatia

Notwithstanding International Accounting Standard 7 (IAS 7) regulates the preparation and presentation of a Statement of Cash Flows thoroughly, there are still many „shadow items“ that provide significant opportunity for creative accounting. The aim of our research is to investigate cash flow reporting practices in Croatia and to identify areas and techniques of creative accounting used in the preparation of the Statement of Cash Flows. A survey is made on the sample of randomly selected Croatian accountants. Respondents' standpoints on the relevance of the data provided by the Statement, as well as their opinions on efficiency of existing accounting legislation in preventing creative accounting were researched. Results indicate that IAS 7 enables the use of creative accounting techniques in preparation of Statement of Cash Flows. Furthermore, manipulation of cash flows from operating activities was determined as the most common goal of creative accounting application and the stretching out payables was identified as the most common way of boosting operating cash flow. Although many empirical studies in the field of creative accounting have been conducted, only a few have concentrated on cash flow reporting, especially in macro-oriented accounting system economies like Croatia, which can be found as contribution of our research.

Financial statements, Cash flow reporting, Creative accounting

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