Level of usage of income smoothing as a creative accounting tool by Balkan banks

Abstract

The main objective of this study is to find out if Balkan banks use income smoothing (IS) as a creative accounting practice. The IS level is analyzed to see whether banks are focused on these practices as a tool to produce a better picture of financial views in the sight of decision makers. The data are provided from the audited financial reports presented on the banks’ web pages. Eckel’s modified equation was used to find out if banks use the technique of IS. As a result, the findings showed that banks use IS, and the factors that influence the use of this practice are analyzed. The factors studied are: age of banks, profitability, and loan provision. Of a total of seven banks in Kosovo, only three use income smoothing. In Albania, of a total of 11 banks, only one uses income smoothing. Surprisingly, the results show that none of the variables measured affect the usage of income smoothing. The study contributes to understanding the practice of IS on the one hand, and on the other hand, to opening the eyes of investors and depositors promoting vigilance when they make decisions about investing their funds in banks.