Exemplifying the Effect of Big Bath Accounting in the Pandemic

Valentin Burca, Dorel Mateș and Oana Bogdan
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Valentin Burca: West University of Timișoara
Dorel Mateș: West University of Timișoara
Oana Bogdan: West University of Timișoara

CECCAR Business Review, 2021, vol. 2, issue 2, 3-16

Abstract: Currently, the economic environment is significantly affected by the COVID-19 pandemic. The effects are visible in the area of accounting and financial reporting policies and practice as well. The aim of this article is to show how accounting estimates can be affected by the current macroeconomic context and the COVID-19 crisis. The discussion focuses especially on the area of accruals reported to cover the risk of uncollectable receivables, as addressed in IFRS 9 Financial Instruments. The example illustrates specific risks generated by the higher uncertainty in the economic environment caused by the COVID-19 crisis and by the customers’ issues with liquidity in these times. The overall conclusion is that financial statements related to the pandemic period have to be carefully reviewed as they are subject to accounting measurement estimates that could be significantly affected by discretionary professional judgment or by the lack of suficient guidelines provided by enforcement authorities.

Keywords: financial reporting; big bath accounting; business models; COVID-19 (search for similar items in EconPapers)
JEL-codes: G32 H12 M41 M49 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ahd:journl:v:2:y:2021:i:2:p:3-16

DOI: 10.37945/cbr.2021.02.01

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