Constructing Accounting Uncertainity Estimates Variable

This paper presents research results on the BIH firms’ financial reporting quality, utilizing empirical relation between accounting conservatism, generated in created critical accounting policy choices, and management abilities in estimates and prediction power of domicile private sector accounting. Primary research is conducted based on firms’ financial statements, constructing CAPCBIH (Critical Accounting Policy Choices relevant in B&H) variable that presents particular internal control system and risk assessment; and that influences financial reporting positions in accordance with specific business environment. I argue that firms’ management possesses no relevant capacity to determine risks and true consumption of economic benefits, leading to creation of hidden reserves in inventories and accounts payable; and latent losses for bad debt and assets revaluations. I draw special attention to recent IFRS convergences to US GAAP, especially in harmonizing with FAS 130 Reporting comprehensive income (in revised IAS 1) and FAS 157 Fair value measurement. CAPCBIH variable, resulted in very poor performance, presents considerable lack of recognizing environment specifics. Furthermore, I underline the importance of revised ISAE and re-enforced role of auditors in assessing relevance of management estimates.