Financial reporting in times of crisis: The case of the Serbian developing economy during COVID-19

Abstract

This study examines the impact of the COVID-19 pandemic on financial reporting in Serbia from the perspective of preparers of financial statements. Notably, the pandemic affected financial reporting in Serbia and preparers faced more professional difficulties during than before the pandemic. Financial reporting problems regarding future expectations and uncertainty are an important source of concern for preparers. The preparers who apply International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs) perceive some more difficulties than those who apply full IFRSs. This study contributes to the scarce literature regarding the impact of the COVID-19 pandemic on financial reporting.

JEL Classification: M41, G01

1. Introduction

The COVID-19 pandemic caused by the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) emerged in 2020 and negatively affected the whole world. Governments worldwide were forced to implement non-clinical measures to limit the virus’ spread and mitigate the harmful effects of the pandemic in general. According to Balmford et al. (2020), those measures caused ‘unprecedented disruption to daily lives and economic activity’ (p. 525). COVID-19 has strongly and quickly affected economies and financial markets worldwide (Chen and Yeh, 2021), causing an exceptional decrease in aggregate demand (Hassan et al., 2021), an increase in the risk level and significant losses to investors in a short time (Zhang et al., 2020). For example, stock prices in Australia decreased by approximately 30% under the influence of COVID-19 pandemic (Smales, 2021: 530). Xu et al. (2021) found that the pandemic affected stock returns and the stock price sensitivity to firm-specific information. Huang and Yee (2021) pointed out that many companies borrow too much during the pandemic and, consequently, suffer from financial distress.

Moscariello and Pizzo (2021) argue that the economic effects of the COVID-19 pandemic have strongly influenced financial reporting. Carnegie et al. (2021) similarly point out that the COVID-19 pandemic is a wicked problem affecting accounting worldwide and that accounting’s potential to contribute to the solution of this problem has yet to emerge. This study provides insight, from the perspective of preparers of financial statements, into the impact of the COVID-19 pandemic on financial reporting in Serbia, a transitioning and developing economy that has been severely affected by COVID-19. This study investigates the influence of the COVID-19 pandemic on the financial reporting environment and practices in Serbia.

To examine the attitudes of preparers of financial statements in Serbia towards financial reporting in times of crisis caused by the COVID-19 pandemic, a questionnaire method is used. The sample consists of a hundred preparers of financial statements. Parametric and non-parametric methods are used to analyse our data. The results indicate that the COVID-19 pandemic affected financial reporting in Serbia and that the preparers of financial statements faced more professional difficulties during the pandemic than before it. The results are useful for national financial reporting regulators and professional accounting organisations, especially in developing and transitioning economies, as they point to the aspects of financial reporting requiring their attention and to actions during pandemics and similar crises.

This study contributes to the relevant literature in three important ways. First, it contributes to the still scarce literature regarding the impact of the COVID-19 pandemic on financial reporting. Some previous studies examine the influence of financial or economic crises on financial reporting (Kim and Shawn, 2022; Linsmeier, 2011), but this topic requires more attention. This is especially true in light of previous studies that has examined financial reporting as a factor contributing to or exacerbating financial or economic crises (Barth and Landsman, 2010; Pinnuck, 2012). More specifically, unlike previous studies on the influence of the COVID-19 pandemic on financial reporting (El-Mousawi and Kanso, 2020; Pham et al., 2023), this study is more focussed on the issues of accounting judgements and conservatism and the relationship between preparers and auditors of financial statements during the pandemic.

Second, in comparison to previous studies on the impact of the pandemic based on the questionnaire method (El-Mousawi and Kanso, 2020; Pham et al., 2023), this study focusses specifically on a European developing and also transitioning economy with a dynamic financial reporting environment. Filip and Raffournier (2010) argue that European transitioning economies should be studied separately from developed and other emerging economies. Čupić et al. (2022) provide evidence of specific characteristics of accounting information in the Serbian transitioning economy. In addition, financial reporting regulation in the Serbian transition economy is undergoing frequent changes, and the pandemic coincides with yet another significant reform, which makes Serbia a good fit for this study.

Third, as International Financial Reporting Standards (IFRSs) have relatively long been a key financial reporting base in Serbia, this study also contributes to the literature on the impact of the pandemic on IFRS application, that is, the applicability of IFRSs in times of crisis. Teixeira (2021) emphasises the need ‘to consider a broad range of circumstances, including extreme cases’ in the process of developing financial reporting standards (p. 243). This study, therefore, indicates the areas to which the International Accounting Standards Board (IASB), as an institution responsible for the development of IFRSs, should pay special attention to improve the ability of IFRSs to be an adequate financial reporting basis in a wide range of circumstances.

The remainder of this study is structured as follows. The next section reviews the regulatory framework for financial reporting in Serbia, with special attention to its reform process. Afterwards, the literature review regarding the impact of the COVID-19 pandemic on financial reporting is provided. After describing the study sample and methodology, the study results are presented and discussed. We present our conclusions in the last section.

2. The regulatory framework for financial reporting in Serbia

The regulatory framework for financial reporting in Serbia was the subject of comprehensive reform immediately before and during the COVID-19 pandemic. Specifically, the new Accounting Law (together with the new Auditing Law) was adopted in October 2019 and came into force on 1 January 2020. It did not change the list of financial reporting bases in Serbia established by the Accounting Law of 2013 consisting of (a) full IFRSs, (b) International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs) and (c) the Ordinance of the Minister of Finance intended for micro-entities. It nevertheless changed the scope of full IFRSs, which (unlike the Accounting Law of 2013) are now optional for non-listed, non-financial, and non-parent small and micro-entities (non-listed, non-financial and non-parent medium-sized entities already had that option). Under the new Accounting Law:

• an entity that is either (a) classified as large, (b) listed, (c) parent or (d) financial applies full IFRSs;

• SMEs can choose between full IFRSs and IFRS for SMEs;

• micro-entities can choose between full IFRSs, IFRS for SMEs and the Ordinance.

The new Accounting Law is followed by the new accounting bylaws adopted in June 2020 dealing with the form and content of financial statements and chart of accounts, which are applied to the preparation of financial statements for reporting years ending on 31 December 2021 and later.

In November 2019, the Ministry of Finance adopted Serbian translations of the IASB’s documents representing full IFRSs – standards marked IFRS and International Accounting Standard (IAS), and interpretations marked International Financial Reporting Interpretations Committee (IFRIC) and Standing Interpretations Committee (SIC), except IFRS 16 (Leases). These translations were the first official translations of the IASB’s documents since March 2014. During the period between the two official versions of the translations (2014–2019), the IASB published several new and revised documents, and therefore, the difference between the original IFRSs and their Serbian translations was getting more substantial over time.

In 2016, the Serbian Ministry of Finance published an opinion allowing reporting entities to use new and revised IASB’s documents that were not officially translated. However, Obradović (2020) investigated the notes to the financial statements for 2016 of 100 randomly selected Serbian companies and found that this opinion did not significantly impact the practice of financial reporting of non-financial companies in Serbia. Specifically, almost all sample companies used Serbian translations when preparing financial statements. In contrast, banks in Serbia are legally obligated to use the documents representing full IFRSs from the date determined by the IASB regardless of whether their translations are published until that date.

The Serbian Ministry of Finance adopted a new set of translations in September 2020, containing the translation of IFRS 16 and putting the 2019 translations out of force except for preparing financial statements for reporting years ending on 31 December 2020.

It can be concluded that, in addition to the difficulties imposed by the COVID-19 pandemic, reporting entities in Serbia also face the need to adapt to new accounting regulations simultaneously. Specifically, many reporting entities have to adapt to the new and revised IASB’s documents and consequently reconsider their accounting policies, as well as adapt to the new chart of accounts and financial statement templates. Loyeung et al. (2016) express concern about the learning cost and the possibility of errors during the implementation of new accounting regulations.

The state of emergency was in force in Serbia from 15 March 2020 to 6 May 2020 due to the COVID-19 pandemic. In April 2020, the Government of the Republic of Serbia issued a decree that, among other things, postponed the deadline for submitting individual and consolidated financial statements to the Business Registry Agency and the Securities and Exchange Commission to a period between 60 and 120 days from the day of the state of emergency termination.

3. The impact of the COVID-19 pandemic on financial reporting worldwide

Previous studies suggest that the emergence of the COVID-19 pandemic, as a trigger of the new economic crisis, (1) increased the level of uncertainty of financial reporting, especially regarding forward-looking information, (2) made the development and application of financial reporting standards (such as IFRSs) more difficult, and (3) brought more challenges into the professional life of preparers of financial statements worldwide. These interrelated COVID-19 pandemic effects are discussed below.

3.1. Financial reporting under uncertainty

Currently, financial reporting relies significantly on future condition estimates (Littan, 2020), which causes uncertainty for the preparers of financial statements when exercising professional judgements. Uncertainty is one of the essential causes of the need for accounting conservatism (prudence) (Glover and Lin, 2018). Uncertainty and conservatism affect faithful representation, one of the fundamental qualitative characteristics of financial statements.

Balakrishnan et al. (2016) examine the impact of accounting conservatism during the crisis and reveal its importance in reducing underinvestment. Kim and Shawn (2022) found that firms were more conservative in financial reporting during the financial crisis, while Tibiletti et al. (2021) similarly stressed the need to give greater emphasis to the qualitative characteristics of financial statements, and, especially, to conservatism in the context of the COVID-19 pandemic. Cui et al. (2021) discover that during pandemic stock returns of Chinese-listed companies with more prudent financial reporting practices decline less rapidly.

The 2008 global financial crisis increased concerns regarding the use of fair value in financial reporting. Laux and Leuz (2010) point out that ‘some critics argue that fair-value accounting exacerbated the severity of the 2008 financial crisis’, but believe that this view is largely unfounded (p. 93). However, in times of crisis, market inputs for fair value estimations, as inputs of the first and second level, generally become less usable. Preparers of financial statements are, therefore, forced to rely on forward-looking inputs of the third level (such as future cash flow estimations), which are especially uncertain in times of crisis.

Using various methods and focussing on different problems, several authors investigated the influence of the COVID-19 pandemic on financial reporting. For example, Šušak (2020) examined the impact of regulatory changes in financial reporting deadlines caused by the pandemic in Croatia and found that financial difficulties and uncertainty make companies more inclined to manipulate financial statements. Jabbar et al. (2020) examined the data on adjusting financial reporting during the COVID-19 pandemic obtained from cybernetic systems through global search engines. Using qualitative analysis, they found that the pandemic affects the financial reporting of companies worldwide. Pham et al. (2023) used the case study method to examine the impact of the pandemic, the Big 4 audit firms, and internal control effectiveness on financial reporting quality in Vietnam. They found that all three factors significantly affect financial reporting quality and point out that the pandemic has strongly impacted the predictive value of financial statements. Using the questionnaire method, El-Mousawi and Kanso (2020) revealed that certified public accountants in Lebanon believe that the COVID-19 pandemic has a significant impact on financial reporting.

According to Savova (2021), going concern is critical for many businesses in the context of extraordinary events, such as the pandemic. Albitar et al. (2021) also indicate the going concern issue as one of the most important financial reporting problems in the context of the pandemic, while International Organisation of Securities Commissions (IOSCO, 2021) emphasised that a reporting entity has to identify uncertainties that raise doubts over its ability to continue as a going concern. Carson et al. (2016) found that the frequency of auditors’ reports emphasising going concern issues increased after the global financial crisis. Hay et al. (2021) expected auditing reforms to occur due to COVID-19 and point out that, among other things, going concern issues would be an essential part of those reforms. El-Mousawi and Kanso (2020) also highlight going concern considerations and suggest that the new information regarding the potential impact of the pandemic should be included in the notes to the financial statements. They also emphasise the importance of interim reporting.

Given the theoretical and empirical background, we expect to find that the COVID-19 pandemic increased the importance of conservative financial reporting judgements, posted new challenges on the path to high-quality financial reporting, and caused more financial reporting difficulties in Serbia than was the case before the pandemic. Fair value and going concern issues could also be expected to be especially important during the pandemic.

3.2. Challenges to the development and application of IFRSs in times of crisis

The IASB shows significant resilience and adaptability in times of crisis. For example, Mala and Chand (2012) found that the IASB has been improving the reporting requirements in light of the global financial crisis of 2008. Similarly, Kusano and Sanada (2019, p. 278) argue that the global financial crisis was a turning point in the IASB’s work on revising its accounting standards and conducting organisational reforms aimed at enhancing its public accountability. The COVID-19 pandemic can be considered another turning point in the development of IFRSs.

Tokar and Kumar (2020) pointed out that the majority of those attending the panel on the impact of COVID-19 on applying IFRSs in 2020 at the IFRS Virtual Conference agreed that disclosure requirements in IFRSs are ‘satisfactory but that improvements are needed in their application’. López-Espinosa et al. (2021) stressed that the pandemic has intensified the concern that IFRS 9 could exacerbate the economic crisis, while Barnoussi et al. (2020) argue that the pandemic affects the assessment of impairment of financial assets recognised by banks based on loans.

Moscariello and Pizzo (2021) pointed out that ‘the IASB has gradually shifted its legitimation strategy from an expertise-based, moral approach to a more pragmatic approach’, causing an increase in the number of practical expedients and making IFRSs more flexible and their application less costly, but jeopardising the relevance and comparability of financial information (p. 164). According to Jabbar et al. (2020), the uncertainties and negative effects of COVID-19 will expose preparers of financial statements to financial reporting problems, which may necessitate additional changes to the IFRSs.

The review of global accounting firms’ publications (BDO, 2020; Deloitte, 2020; EY, 2020; Grant Thornton, 2020; KPMG, 2020; PwC, 2020) shows that impairment of non-financial assets, financial instruments, going concern, leases, provisions, employee benefits, measurement of inventories, revenue recognition, deferred taxes, government grants, materiality judgements and disclosures are the most important practical problems in IFRSs application during the COVID-19 pandemic. Most of the mentioned problems are associated with the use of forward-looking information. Given that Obradović et al. (2018) identify some of these problems by surveying the preparers of the financial statements in Serbia in the years before the COVID-19 pandemic, we expect that they are even more pronounced during the crisis caused by the pandemic.

Given the theoretical background and results of the previous studies, we expect to find that, in times of the crisis caused by COVID-19, preparers of financial statements in Serbia faced difficulties in the application of IFRSs in many areas, especially those in which forward-looking information is of great importance. In addition, we expect to find that the COVID-19 pandemic increased the need for additional information in financial statements in comparison to the IFRS requirements.

3.3. The job of preparers of financial statements in times of crises

The theoretical background and results of the previous studies on financial reporting uncertainty and the application of IFRSs during the pandemic suggest that the preparers of financial statements confront more difficulties during the crisis than in non-crisis periods. However, additional theoretical and empirical studies suggest that those are not the only problems that preparers of financial statements face during the pandemic.

The pandemic has changed the accounting profession (Rosenberg, 2020) and caused a reconsideration of the role of professional accountants (IFAC, 2020). In a qualitative study with an action research approach and relying on semi-structured interviews and the active participation of a co-author in a professional organisation under investigation, Carungu et al. (2021) found that the COVID-19 pandemic ‘contingently shapes the working approach of accountants with both short- and long-term organisational implications’ (p. 1388). Using a desk study method, Albitar et al. (2021) found that the pandemic would be the biggest challenge for auditors and their clients since the global financial crisis.

The survey of the New York State Society of Certified Public Accountants (CPAJ Staff, 2020) reveals that the pandemic has affected accountants’ work environment – more than half of the respondents believe that the pandemic makes their job more difficult; over one-quarter of them face a decline in demand for their services; and more than a half face difficulties in communication with colleagues. Using a questionnaire, Jabin (2021) found that the pandemic influenced the accounting profession in Bangladesh – remote working, adapting to new technologies, virtual meetings and training, and providing data security became more important during than before the pandemic, while jobs became less secure.

Given the theoretical background and results of the previous studies, we expect to find that, in times of the crisis caused by COVID-19, preparers of financial statements in Serbia face more professional challenges in communication and education during than before the crisis, and that, therefore, they need more professional and regulatory support.

4. Research sample and methodology

To examine the attitudes of preparers of financial statements in Serbia towards financial reporting in times of crisis caused by the COVID-19 pandemic, a questionnaire method was used. The questionnaire consisted of four sections. The first section was related to the information on respondents (the questions and offered answers are given in the first column of Table 1). The second section of the questionnaire asked respondents to enter the information on the reporting entity for which they work (the questions and offered answers are presented in the first column of Table 2).

Table 1.

Description of respondents.

	Number and percentage share a
Work experience in accounting
< 5 years	11
5–10 years	15
10–20 years	36
> 20 years	38
Education level
High school degree	7
College degree	14
BSc degree	59
MSc degree	19
PhD degree	1
The professional licence of the AAAS b
No	56
Accountant	9
Independent accountant	8
Certified accountant	27
English language proficiency
No knowledge	9
Basic level	28
Intermediate level	39
Advanced level	24
Total	100

^aSince the number of respondents is 100, all absolute numbers presented in the table are equal to corresponding percentage shares.

^bThe Association of Accountants and Auditors of Serbia.

Table 2.

Description of respondents’ reporting entities.

	Number and percentage share a
Size (applicable for financial reporting in 2019) b
Micro	8
Small	25
Medium-sized	38
Large	29
Parent
Yes	42
No	58
Listed entity (Belgrade Stock Exchange)
Yes	11
No	89
Audited financial statements for 2019
Yes	79
No	21
Financial reporting basis in 2019
Full IFRSs	62
IFRS for SMEs	32
Ordinance of the Minister of Finance	6
The version of full IFRSs/IFRS for SMEs used
Serbian translation(s) only	41
Dominantly Serbian translation(s) and also original document(s)	25
Original document(s) and Serbian translation(s) evenly	20
Original document(s) only	1
No answer	13
Total	100

IFRS: International Financial Reporting Standard; SME: small and medium-sized entities.

^aSince the number of respondents is 100, all absolute numbers presented in the table are equal to corresponding percentage shares.

^bBased on the 2013 Accounting Law.

The third section of the questionnaire, provided respondents with 21 statements (shown in Table 4) regarding financial reporting under uncertainty, challenges to the development and application of IFRSs, and the job of respondents during the pandemic, and they were asked to indicate the level of their agreement with each statement. For that purpose, a 7-point Likert-type scale was used, where 1 denotes complete (absolute) disagreement with the statement and 7 denotes complete (absolute) agreement.

Table 4.

Descriptive analysis of the attitudes of preparers of financial statements.

Statement	Mean a	Std. dev.	n	Median	f 1	f 7	t
Financial reporting under uncertainty
1. The crisis increases the importance of financial statements for making economic decisions	4.99	1.59	99	5	3	20	6.204 b
2. Different information (as compared to the information already reported in financial statements) would be more relevant to the users of financial statements during the crisis	4.14	1.65	100	4	9	8	0.848
3. The faithful representation of the information in the financial statements is compromised during the crisis	3.20	1.78	100	3	25	4	–4.506 b
4. The comparability of financial statements in time is compromised during the crisis	5.10	1.80	100	5	6	30	6.128 b
5. The crisis has increased the need for accounting judgements	4.55	1.79	100	5	8	16	3.065 b
6. The crisis has increased the need to apply the principle of prudence (conservatism)	5.11	1.48	100	5	2	20	7.518 b
Challenges to IFRS development and application in times of crisis
7. The crisis has made it difficult to apply full IFRSs/IFRS for SMEs	3.87	1.91	83	4	11	9	–0.573
8. The conditions for the application of full IFRSs/IFRS for SMEs will worsen in the future under the influence of the crisis	3.85	1.79	82	4	10	5	–0.611
9. The emergency measures taken by the authorities in the Republic of Serbia, applied in the context of the crisis, have facilitated the application of full IFRSs/IFRS for SMEs	3.08	1.54	83	3	15	3	–5.298 b
10. The recognition and measurement guidelines in full IFRSs/IFRS for SMEs are applicable in the crisis	4.53	1.44	83	4	1	9	3.345 b
11. My entity’s financial statements for 2020 will provide additional disclosures regarding the impact of the crisis on operations and financial reporting than required by full IFRSs/IFRS for SMEs	5.41	1.81	83	6	3	33	7.162 b
12. Full IFRSs/IFRS for SMEs should be amended to adapt to the crisis	4.07	1.81	83	4	9	10	0.425
13. All amendments to full IFRSs/IFRS for SMEs made shortly before and during the crisis should take effect after the crisis is over	5.58	1.63	83	6	2	37	8.975 b
The impact of the pandemic on the job of preparers of financial statements
14. The economic crisis caused by the pandemic negatively affects my entity’s business	4.57	1.64	100	4	3	20	3.474 b
15. The regulatory framework for financial reporting in the Republic of Serbia needs to be changed to adapt to the crisis	4.64	1.77	100	5	8	22	3.611 b
16. More support is needed from professional organisations than was the case before the crisis	4.07	1.88	100	4	15	13	0.373
17. The deadline for submitting financial statements during the crisis should be longer than in regular circumstances	4.66	2.30	99	5	17	34	2.841 b
18. The conditions for professional training of accountants are more difficult during the crisis than was the case before the crisis	5.18	1.86	99	6	6	33	6.306 b
19. During the crisis, all reporting entities in the Republic of Serbia should be given the right to freely choose between full IFRSs, IFRS for SMEs, and the Ordinance of the Minister of Finance	3.87	2.26	98	4	23	22	–0.581
20. Communication with the auditors of our financial statements is more difficult during the crisis	4.13	2.27	78	4	16	17	0.670
21. Misunderstandings with the auditors of our financial statements occur more often during the crisis	3.13	2.05	78	3	24	8	–4.027 b

IFRS: International Financial Reporting Standard; SME: small and medium-sized entities.

n indicates the number of respondents who expressed their attitude towards the specified statement, while f₁ and f₇ indicate the number of respondents who expressed absolute disagreement or absolute agreement with the specified statement, respectively.

^aOn a 7-point Likert-type scale where 1 denotes complete (absolute) disagreement with the statement and 7 denotes complete (absolute) agreement.

^bThe difference between the mean and a neutral attitude (4.00) is statistically significant at 0.05 (two-tailed).

To formulate the statements, we referred to (a) the review of the literature regarding financial reporting in times of the COVID-19 pandemic and (b) the specifics of financial reporting in Serbia. Unlike El-Mousawi and Kanso (2020), who also used a questionnaire based on the Likert-type scale, our statements were more focussed on the issues of accounting judgements and conservatism, the influence of the pandemic on the qualitative characteristics of financial statements and the relationship between preparers and auditors of financial statements during the pandemic. In addition, our study does not only include accountants with a professional licence but also those without one, given that the regulation in Serbia applicable at the time of the study allowed preparers of financial statements to not have any professional licence.

The fourth section of the questionnaire asked the respondents about the specific financial reporting problems during the COVID-19 pandemic. The respondents were provided with a list of 13 accounting topics affecting both financial position and performance (shown in Table 7), selected based on the literature review. They were asked to mark the problems that are more difficult to solve during the pandemic as compared to the situation before the pandemic in the context of financial reporting for their entity.

Table 7.

Financial reporting problems that cause more difficulties during the crisis.

Problem	Number of respondents
Estimating the fair value of property, plant, and equipment	36
Accounting for provisions	33
Accounting for impairment of inventories	31
Accounting for employee benefits	31
Estimation of credit losses on financial assets	29
Accounting for deferred taxes	25
Testing for impairment of non-current assets	24
Revenue recognition	22
Testing of materiality	20
Assessing the fulfilment of the going concern assumption	16
Lease accounting	14
Consolidation of financial statements	9
Foreign currency translation	6

The questionnaire was available online in November and December 2020 and the potential respondents were invited by e-mail (containing the questionnaire link) to participate in the study. Approximately, 1500 e-mails were sent to companies in Serbia (both financial and non-financial). In the invitation letter, we emphasised that the questionnaire was intended for a respondent with a key role in preparing financial statements regardless of the name of his or her workplace. A total of 104 (completely or partially) filled-out questionnaires were received, but four logically inconsistent ones were eliminated. Therefore, our final sample consists of 100 respondents. The sample structure is presented in Tables 1 and 2.

Umesh and Mahesh (2016) considered the arguments for and against the use of parametric methods in association with the Likert-type scale and concluded that opponents of parametric methods rely on theoretical assumptions, although compelling evidence justifies the robustness of these methods, even for small samples and distributions that do not approximate to normal. This study, therefore, used both parametric and non-parametric methods to analyse the data.

The analysis of the data obtained by the questionnaires consists of five parts. The first part was based on descriptive statistics of the answers in the third section of the questionnaire. The fact that we used a 7-point Likert-type scale implies that a mean less than 4.00 denotes predominant disagreement, a mean higher than 4.00 indicates predominant agreement, and a mean at the level of 4.00 indicates a neutral attitude. To reveal whether the difference between the arithmetic means and the level denoting neutral attitude (4.00) is statistically significant, a one-sample t-test for each statement was performed. A one-sample Wilcoxon test as a corresponding non-parametric test was also performed.

The second part of our analysis refers to the correlation analysis of the answers in the third section of the questionnaire to find if they are interrelated. For this purpose, the parametric Pearson correlation coefficient and the non-parametric Spearman rank correlation coefficient were calculated for each pair of statements. To determine the strength of correlation, we used the criteria recommended by Cohen (Pallant, 2010: 134), according to which the absolute value of the correlation coefficient in the range from 0.5 to 1.0 represents a strong correlation.

In the third part of the analysis, we performed group comparison statistical tests – parametric independent sample t-test and non-parametric Mann–Whitney U-test – to examine the homogeneity of the respondents’ attitudes, that is, to find out whether there are statistically significant relationships between the groups of respondents and attitudes towards financial reporting during the pandemic. This study defined four pairs of groups, shown in Table 3, based on respondents’ and reporting entities’ descriptions (provided in the first two sections of the questionnaire and presented in Tables 1 and 2).

Table 3.

Groups of respondents.

Criteria	Groups	Number of respondents
Work experience	1. Respondents with less than 20 years of experience	62
	2. Respondents with more than 20 years of experience	38
Education level	1. Respondents who do not have an academic degree (high school or college degree)	21
	2. Respondents who do have an academic degree (BSc, MSc, or PhD degree)	79
Financial reporting basis a	1. Respondents in entities applying full IFRSs	62
	2. Respondents in entities applying IFRS for SMEs	32
The professional licence of the AAAS b	1. Respondents who do not have a licence	56
	2. Respondents who do have a licence	44

IFRS: International Financial Reporting Standard; SME: small and medium-sized entities.

^aRespondents applying the Ordinance of the Ministry of Finance are excluded due to their modest share in the sample.

^bThe Association of Accountants and Auditors of Serbia.

The fourth part of the analysis relies on the frequencies of answers provided in the fourth section of the questionnaire, while the fifth part is based on group comparison statistics performed to find out whether there are statistically significant relationships between the groups of respondents (presented in Table 3) and the financial reporting problems they face during the pandemic. For that purpose, chi-square independence tests were used.

5. Research results and discussion

Table 4 shows the average level of the respondents’ agreement with each of the statements provided in the third part of the questionnaire, together with the standard deviation of responses, the frequency of extreme positions, that is, absolute disagreement (f₁) and absolute agreement (f₇), and the results of one-sample t-tests. The significance of the one-sample Wilcoxon test was consistent with the significance of the one-sample t-test in each of the 21 cases and indicated that a statistically significant and positive difference between the mean attitude and the neutral attitude (4.00) coincides with more than half of accountants agreeing with the statement, while a statistically significant and negative difference between the mean attitude and the neutral attitude (4.00) coincides with less than a half of accountants not agreeing with the statement.

The results presented in Table 4 indicate that preparers of financial statements in Serbia overwhelmingly perceived the increased importance of financial statements for making economic decisions. However, there is no evidence that the preparers perceived that different information (as compared to the information already reported in financial statements) would be more relevant to the users of financial statements during the pandemic. They perceived comparability but not faithful representation to be compromised in times of crisis. The respondents overwhelmingly recognised the need for more accounting judgements during than before the crisis and considered accounting prudence a very important principle in times of crisis caused by the pandemic.

The preparers generally did not believe that the crisis has made it challenging to apply IFRSs and did not expect that the conditions for their application will worsen under the influence of the crisis. They did not perceive the significant positive impact of the measures taken by the Serbian government during the pandemic on applying IFRSs. The preparers overwhelmingly believed that the recognition and measurement guidelines in IFRSs are applicable in a crisis. However, they generally recognised a strong need to provide more disclosures than required by IFRSs to reflect the impact of the crisis, which was in accordance with the results of the study conducted by Da Silva et al. (2021). The preparers mostly did not feel a strong need to change IFRSs to adapt them to the crisis condition and did not support the implementation of the new and amended IASB’s documents until the crisis was over.

The preparers of financial statements in Serbia overwhelmingly perceived the adverse effects of the pandemic on their reporting entities. They were generally dissatisfied with the regulatory framework for financial reporting in Serbia. In other words, they overwhelmingly perceived that the regulatory framework was not well suited for an actual crisis. They perceived a higher need to change the national regulatory framework for financial reporting than to improve IFRSs. In general, the preparers need approximately the same level of support from professional organisations as before the crisis. They overwhelmingly supported the deadline extension for submitting financial statements during the pandemic, but it is important to note that about half of the respondents opted for the extreme answers (absolute disagreement or absolute agreement). The overall satisfaction of respondents with their opportunities to improve their accounting competencies under the pandemic conditions was at a relatively low level. On average, the respondents disagreed with the idea of allowing all entities to freely choose a financial reporting basis during the crisis, although not a small number of them supported this idea. The crisis did not significantly impact the communication between preparers and auditors of financial statements, and misunderstandings between them did not occur more often.

The correlation analysis revealed statistically significant, positive, and strong relationships between ten pairs of statements according to both Pearson’s and Spearman’s coefficients (in two additional cases, only the Pearson coefficient revealed a strong relationship). Table 5 shows these ten relationships. Preparers of financial statements who believe that the regulatory framework for financial reporting in Serbia should be adapted to the current crisis believed that the current information in financial statements is insufficiently relevant for financial statement users and that professional organisations should provide more support. Preparers who expect the conditions for the application of the IASB’s documents to worsen under the influence of the pandemic also need more support from professional organisations. These findings emphasised the importance of the Association of Accountants and Auditors of Serbia (an important source of professional support in Serbia according to Obradović et al., 2018) in times of crisis, especially for preparers with a pessimistic view of the financial reporting environment.

Table 5.

Strong correlations between the attitudes of preparers of financial statements.

Pairs of statements with strong correlations	n	Pearson’s coefficient a	Spearman’s coefficient a
2 and 15	100	0.594	0.549
5 and 6	100	0.633	0.643
7 and 8	82	0.708	0.701
7 and 19	83	0.536	0.545
7 and 12	83	0.700	0.692
8 and 12	82	0.530	0.519
8 and 16	83	0.541	0.520
12 and 19	84	0.595	0.605
15 and 16	100	0.548	0.541
20 and 21	85	0.724	0.726

^aStatistically significant at 0.01.

Preparers who perceived a greater need for accounting judgements also perceived a greater need for prudence, which confirms the tight relationship between these accounting concepts. Preparers who experienced difficulties applying IFRSs during the crises believed that these documents should be amended to adapt to the current crisis, and they support the idea of allowing all reporting entities to freely choose the financial reporting basis. In addition, preparers who experienced difficulties in applying IFRSs also expected these difficulties to be more pronounced during the pandemic. In addition, preparers who experienced difficulties in communicating with auditors also had misunderstandings with them.

Table 6 shows the excerpts from the results of group comparison tests, referring to the cases in which both the one-sample t-test and Mann–Whitney U-test indicate statistically significant differences between the groups of respondents. The results of these tests were not consistent only in the case of the impact of working experience on the attitude towards delaying the implementation of the amendments to the IASB’s documents. The results indicated that an extension of the deadline for submitting financial statements is more important for preparers who apply IFRS for SMEs than for those who apply full IFRSs. In addition, preparers that apply IFRS for SMEs more firmly believed that different information would be more relevant to the users of financial statements. In both of these cases, the impact of financial reporting basis on the attitudes is small according to Cohen’s criteria (Pallant, 2010: 230 and 243), since r as the measure of size effect is in the range 0.1–0.3, while eta squared is in the range of 0.01–0.06. These findings suggest that full IFRSs are slightly better suited to a crisis than IFRS for SMEs.

Table 6.

Analysis of respondents’ answers segmentation.

Statement	Groups	n	Mean	Median	Independent sample t-test	Mann–Whitney U-test
Financial reporting basis
2	Full IFRSs	62	3.90	4.0	–1.833* (0.035)	–2.238* (0.231)
	IFRS for SMEs	32	4.63	5.0
17	Full IFRSs	61	4.36	5.0	–2.136* (0.048)	–2.075* (0.215)
	IFRS for SMEs	32	5.41	6.0
Education level
13	Non-academic	17	6.47	7.0	–4.220* (0.178)	–2.079* (0.227)
	Academic	67	5.37	6.0
Professional licence
21	No	50	3.58	3.0	–2.608* (0.076)	–2.600* (0.282)
	Yes	35	2.46	2.0
Work experience
13	< 20 years	54	5.35	6.0	1.864 (0.040)	–2.050* (0.224)
	> 20 years	30	6.03	7.0

IFRS: International Financial Reporting Standard; SME: small and medium-sized entities.

n indicates the number of respondents in each group. Eta squared for independent samples t-tests and r for Mann–Whitney U-tests are in parentheses.

^*Statistically significant at 0.05.

Delaying the application of the amendments to full IFRSs and IFRS for SMEs would be more important for preparers who do not have an academic degree than for those who do, wherein the effect size can be considered as a medium (i.e. small according to the Mann–Whitney U-test and large according to the t-test). The results also show that a professional licence plays an important role in avoiding misunderstandings with auditors in times of crisis, where the effect size can be considered as a medium. These findings suggest that better-educated accountants with a professional licence have better potential to cope with professional challenges during pandemics.

Of the 100 respondents, 86 marked at least one accounting problem listed in the fourth section of the questionnaire, while two respondents marked as many as ten problems each. The average number of problems per respondent was approximately 3 (2.96). This study concludes that the pandemic has made financial statement preparation more difficult for the vast majority of accountants in Serbia. Table 7 reveals that the concern of preparers of financial statements in Serbia increased the most for the problem of fair value estimation regarding items of property, plant and equipment. Depending on available inputs, fair values of the items of property, plant and equipment can be estimated using the income approach based on discounting future amounts, which are especially uncertain in times of crisis. As a result, it is not surprising that the problem of estimating the fair value of property, plant and equipment is exacerbated during times of crisis.

Uncertainty regarding the future is also pronounced in accounting for provisions, accounting for employee benefits and estimation of credit losses, which are highly positioned on the list of problems causing more difficulties during the pandemic. The significance of the problem of impairment of inventories on the list is consistent with the view of Deloitte (2020) that the fall of net realisable value below cost is very evident in the pandemic and that the estimation of this fall may require more detailed assumptions and methods and therefore cause more difficulties.

Table 7 suggests that preparers of financial statements in Serbia are more concerned with financial reporting problems associated with the recognition and measurement of the specific items of the statement of financial position (such as property, plant and equipment, provisions, inventories, and financial assets) than with underlying financial reporting problems, that is, problems that pervade many financial statement items (such as going concern, materiality, deferred taxes, consolidation and foreign currency translation).

The analysis of the answers given in the fourth section of the questionnaire also suggests that the perceptions of preparers of financial statements regarding difficulties in solving accounting problems in times of the pandemic are not equally distributed. In other words, different preparers are faced with difficulties in different accounting areas, which is due to the fact that not all entities are exposed to the crisis in the same way and with the same intensity.

In contrast to the expectations based on the relevant literature (e.g. Albitar et al., 2021; IOSCO, 2021; Savova, 2021), preparers in Serbia do not place going concern considerations at the top of the list of areas in which difficulties are more pronounced than was the case before the crisis. This finding could be explained by the fact that going concern considerations are always important in developing countries. Therefore, accountants do not perceive them as especially important during a crisis. In addition, the same finding indicates that not all companies are equally exposed to bankruptcy risk in times of a pandemic. In any case, accountants in Serbia are more concerned about going concern assumption than they were before the pandemic.

Table 8 shows the excerpts of the results of Chi-square tests performed to find out whether the groups of respondents specified in Table 3 equally express concern regarding the accounting problems specified in Table 7. Only the cases in which the difference between groups is statistically significant are presented. Respondents who have an academic degree perceived increased difficulties in accounting for the impairment of inventories more often than those who did not have an academic degree. On the other hand, respondents who did not have an academic degree perceive increased difficulties in accounting for employee benefits more often than those who have an academic degree. Respondents who apply IFRS for SMEs more often perceived increased difficulties in this area than those who apply full IFRSs. In all three cases, the impact is small according to Cohen’s criteria (Pallant, 2010: 220) and the condition regarding expected frequency is fulfilled (no cell has expected frequencies less than 5).

Table 8.

Homogeneity analysis of the answers regarding the accounting problems.

Problem	Groups	n	No a	Yes b	Chi-square c	p	Cramer’s V
Financial reporting basis
Accounting for employee benefits	Full IFRSs	62	48 (77.4%)	14 (22.6%)	4.756	0.029	0.249
	IFRS for SMEs	32	17 (53.1%)	15 (46.9%)
Education level
Accounting for impairment of inventories	Non-academic	21	20 (95.2%)	1 (4.8%)	7.073	0.008	0.292
	Academic	79	49 (62.0%)	30 (38.0%)
Accounting for employee benefits	Non-academic	21	10 (47.6%)	11 (52.4%)	4.486	0.034	0.238
	Academic	79	59 (74.7%)	20 (25.3%)

IFRS: International Financial Reporting Standard; SME: small and medium-sized entities.

^aNumber of respondents in the group who do not mark the problem and their percentage share in total respondents of the group.

^bNumber of respondents in the group who mark the problem and their percentage share in total respondents in the group.

^cYates’ continuity correction.

The results indicate that education influences accountants’ ability to cope with difficult accounting problems (such as accounting for employee benefits), and also that IFRS for SMEs, as the document that is less detailed in comparison with full IFRSs, is less suitable for the conditions of a crisis than full IFRSs. However, the findings regarding the distribution of accounting difficulties should also be viewed considering the previous finding of an unequal distribution of accounting problems between entities. Therefore, these findings should be accepted with reservations.

6. Conclusion

The results indicated that the COVID-19 pandemic affected financial reporting in Serbia. They are, therefore, consistent with the results of studies conducted in some other countries (El-Mousawi and Kanso, 2020; Jabbar et al., 2020; Jabin, 2021; Pham et al., 2023). It was found that the preparers of financial statements faced more professional difficulties during than before the pandemic.

Preparers of financial statements in Serbia perceived their jobs as more important during the pandemic, as they overwhelmingly believed that the importance of financial statements increased. In general, they were not satisfied with the regulatory framework for financial reporting in Serbia during the pandemic, but they were not dissatisfied with the IASB’s documents (IFRSs) as a part of that framework. They did not feel ready to implement amendments to those documents until the crisis is over. Preparers overwhelmingly believed that accounting judgements and prudence were more important during than before the pandemic. They perceived a partial impact of the pandemic on the qualitative characteristics of financial statements and a great need to disclose additional information to better explain the effects of the crisis.

The results indicated that preparers of financial statements in Serbia who had a pessimistic perception of the financial reporting environment during the crisis also expected the IASB and national institutions dealing with financial reporting to take appropriate actions to help them face the challenges. These preparers needed more support from professional accounting organisations.

The vast majority of preparers in Serbia perceived more difficulties in solving accounting problems during than before the pandemic. The most sensitive question for preparers during pandemic in Serbia was determining the fair value of property, plant and equipment. The problems regarding accounting for provisions, impairment of inventories, employee benefits and credit losses on financial assets were also pronounced in the same context. Therefore, the study confirms that financial reporting problems dealing with future expectations and uncertainty are an important source of concern for preparers of financial statements. However, this study shows that going concern considerations are not at the top of the list of sensitive areas for preparers in Serbia.

The preparers who apply IFRS for SMEs perceived slightly more difficulties than those who apply full IFRSs. This finding implies that the IASB should pay more attention to the ability of IFRS for SMEs to be an adequate financial reporting basis in the crisis conditions. In addition, the results suggest that standard-setters, such as the IASB, should pay more attention to accounting problems related to future expectations to make financial reporting standards more adequate to disturbances in economic conditions. Standard-setters should pay special attention to the role of accounting conservatism (prudence) in solving financial reporting problems.

A key limitation of this study is the modest response rate of preparers of financial statements, which was also the case in other studies in Serbia conducted using the questionnaire method (e.g. Obradović et al., 2018). Another limitation is the inability to fully identify and neutralise the answers that, intentionally or unintentionally, do not reflect respondents’ attitudes and facts about them. Further studies on financial reporting during the pandemic should be directed towards the attitudes of preparers of financial statements in countries with different financial reporting environments, especially in the most developed countries, as well as towards other participants in the financial reporting process (e.g. auditors and users of financial statements). Furthermore, because the findings of this study show that financial reporting challenges during a pandemic are not evenly distributed among entities, future studies could focus on specific financial reporting challenges in different industries. Future studies should be more focussed on the specific challenges in solving financial reporting problems in times of crisis, disclosures on the effects of the crisis, internal controls, and internal and external audits in times of crisis.