Internal Audit Risk Assessment in the Function of Fraud Detection

We are witnessing an increasing frequency of illegal actions and fraud in the business of legal entities, which directly reflects on the quality of information presented in financial statements. Internal audit does not primarily deal with the audit of financial statements, but through verifying the application of accounting policies and procedures it helps to gain reasonable assurance that the financial statements are reliable and that they are presented fairly. The role of internal audit in the fraud detection process is reflected in the fraud risk assessment in the internal audit planning process, and through performing work engagements to detecting them. In this paper, we will present risk assessment techniques, which the internal auditor can apply in quantitative and qualitative assessment of fraud risk, and in identifying priority areas/audit processes. The aim of this paper is to point out the importance of the role of internal audit, through the application of techniques, tools and prescribed responsibilities for risk assessment, in the process of detecting fraud in companies that cause incalculable damage on a daily basis.

Revenue Recognition and Real Earnings Management in Bosnian Construction Industry

This study explores revenue recognition and reporting expenses relevant to the stage of completion of the contract agreements. Literature suggests that the taxation effects financial reporting, realization of capital gains as well as revenue recognition. We argue that construction firms make use of these estimates to postpone revenue and value added tax recognition. The analysis grounds on the assumption that the value added tax effects timely recognition of revenues from construction agreements, where managers are incentivized to underestimating stage of completion and suppress recognition of gross earnings to better align emerging of the value tax related liability with contracted and expected inflows of cash. Results show that the revenue recognition is positively associated with reported income before tax and cost of material as a direct expense that can be allocated to the execution of construction agreements. These findings build baseline for future research that assesses effects of newly adopted standard IFRS 15 on real earnings management practice in construction industry of Bosnia and Herzegovina.

Benford’s Law in Forensic Analysis of Registered Turnover

Forensic accounting in scientific sense is the part of accounting that assumes the practice of scientific techniques and methods in conducting investigations and detecting criminal activities in financial statements, business statements and companies. One such tool in detecting anomalies in accounting records is the Benford’s Law, which gives the expected pattern of digit frequencies in numeric data sets according to their position in numbers. Because of this property, Benford’s law has become a significant forensic tool for the detection of anomalies, especially in financial business. One of the most important sources is account turnover data in the observed period, which has a debt and credit side. A classic way of analyzing these liabilities is to merge them and then look for a pattern of leading digits. In such approach, it is not possible to properly determine the source of anomalies, which are a guide to deeper analysis. For such purposes, a variant of the Hosmer-Lemeshow test is designed.

A Bibliometric Overview of Business Ethics

The field of business ethics has received considerable attention from the corporate, academic, and public sectors over the past several decades. A key purpose of this paper is to examine existing research and knowledge creation in the field of business ethics. The paper includes systematic literature review using bibliomteric analysis which covers 50 articles, published in 11 peer-reviewed journals from 1994 to 2019, examining the methodological and theoretical approaches, as well as the main research focus areas. We found significant amount of studies concerning business ethics appeared mostly in business ethics journals. We identified seven areas of research covered by numerous authors in the observed period, of which three predominate: corporate culture; education; and national (cultural) approach to business ethics.

Groups of Companies and Liability within the Group

Groups of companies have existed ever since the early 20th century in the legal and economic terms. Over time, their concept was complemented, both in legislation and in the corporate practice. The issue of establishing and managing groups of companies is regulated by the corporate legislation. It particularly regulates the concept of the controlling and subsidiary company, company with mutual shares, holding, concern, association of companies and other forms of company associations. In terms of the legal definition, these are associated companies composed of two or more companies that are affiliated to each other as follows: by share in equity or membership interests (equity-related companies), by contract (contract-related companies); by equity and contract (mixed-related companies). These associated companies include a parent company and one or more subsidiary companies, which may be related by equity, contract or both. Besides the general concept of the associated companies, the author aims to point to the liability in a common activity as a group of companies. A particular attention is drawn to the legal treatment and obligations resulting from the International Accounting Standards and binding financial statements related to them.