THE APPLICATION OF FAIR VALUE CONCEPT AS AN INSTRUMENT OF ACCOUNTING POLICIES - EMPIRICAL EVIDENCE FROM THE BANKING SECTOR OF SERBIA

<p>We examine the flexibility of financial reporting standards that affect the scope of fair value application and the extent to which this flexibility allows banks to use Fair value accounting (FVA) as an accounting policy instrument to adjust financial reporting to management's short-term needs and objectives. The sample consists of all banks actively operating in Serbia from 2005 to 2020. The study was based on a longitudinal approach and comparative analysis. The analyses show that there are no significant deviations in the average share of financial assets measured at fair value by banks in the US, EU, and Serbia during the 2005-2020 period, and that banks in Serbia, similar to those in the US and EU, have applied FVA mechanisms to mitigate the negative effects of capital market disruptions on financial statements. However, the extent to which these mechanisms limited the negative effects of declines in the fair value of financial instruments on the profitability and financial position of Serbian banks cannot be directly determined, since banks in Serbia did not disclose all information required by International Financial Reporting Standards (IFRS), similar to most US and EU banks, which also ignored the disclosure requirements of regulatory authorities.</p>