Determinants of creating provisions and their effect on the balance sheet and income statement on the example of companies listed on the Warsaw Stock Exchange
Journal Title: Zeszyty Teoretyczne Rachunkowości - Year 2015, Vol 2015, Issue 81
Abstract
Provisions are an instrument of accounting policy by means of which companies may shape the reported picture of their assets and financial position. Empirical studies have been performed on a sample of financial statements of companies whose shares are traded on the Warsaw Stock Exchange. The studies have shown that the factor influencing the level of provisions disclosed in the statement is the quality of external audit. The level of reported reserves is not affected by changes in the management and the presence of incentive programs in the form of management options. Research indicates that provisions are accounting policy tools used to smooth the financial result and to avoid showing its decrease. There is no evidence that provisions are used in order to apply the strategy of „big bath” and to avoid disclosing smalllosses. Spearman’s rank correlation and Kendall’s Tau correlation show that there is a statistically significant positive correlation between the change in provisions and adjusted profitability ratio, adjusted return on equity, adjusted return on sales, and adjusted financial result.
Authors and Affiliations
MAGDA CHRAŚCINA
Keywords
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