Provision for doubtful debts as a tool for managing accounts receivable in conditions of martial law

Abstract

The article provides a comprehensive study of the theoretical foundations and practical aspects of forming a reserve for doubtful debts by domestic enterprises in conditions of market instability. It provides a detailed analysis of the regulatory requirements of national accounting regulations (standards) 10 “Accounts Receivable” and 25 “Simplified Financial Reporting” are analyzed in detail in terms of the criteria for recognizing debts as doubtful and determining the categories of business entities that have the right not to create the specified reserve. A critical comparative analysis of traditional methods of forming a reserve for doubtful debts is carried out: the method of the absolute amount of doubtful debt, based on subjective expert assessments, and the method of the doubtfulness coefficient, which uses accounting data for previous reporting periods. It was found that the key drawback of the current approaches is their focus on past events, which negates the possibility of adequately forecasting financial risks in an unstable environment. Particular attention is paid to the alignment of the national accounting system with the requirements of International Financial Reporting Standard 9 “Financial Instruments” through the introduction of the expected credit loss (ECL) model. The scientific novelty of the study lies in the development of an author's integrated methodology that allows standardizing the process of accruing provisions. The proposed model is based on the relationship between the amount of debt and the probability of debtor bankruptcy, determined using the adapted discriminant models of James Olson (logit regression) and Alexander Tereshchenko (multivariate discriminant analysis). Additionally, a loss adjustment factor has been introduced, which is differentiated depending on the availability of collateral (pledge), credit risk insurance, and the specific factor of the territorial location of the counterparty's assets, which is critically important for Ukrainian business today. The practical significance of the results obtained lies in providing practical recommendations for automating financial monitoring of debtors through integration with modern counterparty verification services. It has been proven that the implementation of the proposed methodology ensures compliance with the principle of prudence, avoids artificial overstatement of the value of assets in the balance sheet, and significantly increases the level of investors' confidence in the quality of the company's financial reporting information.