Creative Accounting
Creative Accounting
Creative accounting is a term that often implies illegal or fraudulent practices in the U.S. (Moneyterms, 2006). The objective of the following paragraphs is to explore some definitions of creative accounting from different perspectives, discuss some advantages and disadvantages of creative accounting, and explain a real life example of creative accounting. Through these paragraphs I hope to also touch upon some of the ethical issues involved in engaging in creative accounting practices.
Definitions of Creative Accounting
From Different Perspectives
Blake (1998) provides four definitions of creative accounting provided from different perspectives. The first perspective was written by a business journalist:
“Every company in the country is fiddling its profits. Every set of published accounts is based on books which have been gently cooked or completely roasted. The figures which are fed twice a year to the investing public have all been changed in order to protect the guilty. It is the biggest con trick since the Trojan horse. . . In fact this deception is all in perfectly good taste. It is totally legitimate. It is creative accounting.”
The second perspective comes from an accountant:
“The accounting process consists of dealing with many matters of judgment and of resolving conflicts between competing approaches to the presentation of the results of financial events and transactions... this flexibility provides opportunities for manipulation, deceit and misrepresentation. These activities - practiced by the less scrupulous elements of the accounting profession - have come to be known as 'creative accounting '.”
The third perspective definition was provided by an investment analyst:
“We felt that much of the apparent growth in profits which had occurred in the 1980s was the result of accounting sleight of band rather than genuine economic growth, and we set out to expose the main techniques involved, and to give live examples of
Creative accounting is a term that often implies illegal or fraudulent practices in the U.S. (Moneyterms, 2006). The objective of the following paragraphs is to explore some definitions of creative accounting from different perspectives, discuss some advantages and disadvantages of creative accounting, and explain a real life example of creative accounting. Through these paragraphs I hope to also touch upon some of the ethical issues involved in engaging in creative accounting practices.
Definitions of Creative Accounting
From Different Perspectives
Blake (1998) provides four definitions of creative accounting provided from different perspectives. The first perspective was written by a business journalist:
“Every company in the country is fiddling its profits. Every set of published accounts is based on books which have been gently cooked or completely roasted. The figures which are fed twice a year to the investing public have all been changed in order to protect the guilty. It is the biggest con trick since the Trojan horse. . . In fact this deception is all in perfectly good taste. It is totally legitimate. It is creative accounting.”
The second perspective comes from an accountant:
“The accounting process consists of dealing with many matters of judgment and of resolving conflicts between competing approaches to the presentation of the results of financial events and transactions... this flexibility provides opportunities for manipulation, deceit and misrepresentation. These activities - practiced by the less scrupulous elements of the accounting profession - have come to be known as 'creative accounting '.”
The third perspective definition was provided by an investment analyst:
“We felt that much of the apparent growth in profits which had occurred in the 1980s was the result of accounting sleight of band rather than genuine economic growth, and we set out to expose the main techniques involved, and to give live examples of
References: Blake, J. & Dowds, J. (1998). The Ethics of Creative Accounting. Retrieved April 4, 2009 from econpapers.repec.org website: http://econpapers.repec.org/paper/upfupfgen/349.htm Retrieved April 4, 2009 from Bloomberg.com website: http://www.bloomberg.com/apps/news?pid=20601087&sid=asD2uxi8in4k&refer=home# Moneyterms (2006). Creative Accounting. Retrieved April 4, 2009 from Moneyterms.co.uk website: http://moneyterms.co.uk/creative-accounting/ Mulford, C. & Comiskey, E. (2002). The financial numbers game: detecting creative accounting practices. John Wiley and Sons.