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Determining the Level of Accounting Conservatism through the Fuzzy Logic System

Čičak Josip and Vašiček Davor
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Čičak Josip: Faculty of Economics and Business, University of Rijeka, Rijeka, Croatia
Vašiček Davor: Faculty of Economics and Business, University of Rijeka, Rijeka, Croatia

Business Systems Research, 2019, vol. 10, issue 1, 88-101

Abstract: Background: Using a variety of alternative accounting policies brings about different effects on the stated business results and the value of the company. Objectives: The objective of this paper is to develop a fuzzy logic solution for determining bias in financial reports on low-activity financial markets, and to find a method applicable to unquoted entities. Methods/Approach: A fuzzy logic system was developed using data on Croatian companies, the MatLab software, and the Mamdani fuzzy inference method. Results: The paper provides the summary of results obtained using a fuzzy logic system, and they indicate that the model has relevant validity. Conclusions: The model can serve as a stimulus for more detailed studies of biased financial statements elements. The fuzzy logic model should be further tested on a larger sample of companies classified based on their activity and under different business conditions.

Keywords: accounting conservatism; aggressive accounting; fuzzy logic (search for similar items in EconPapers)
Date: 2019
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DOI: 10.2478/bsrj-2019-0007

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