Creative Accounting and Earnings Management - Essay Example

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Creative Accounting and Earnings Management

According to the research findings it can therefore be said that financial statements are prepared by managers of a company or enterprise to represent the true and fair view of the affairs of the company. They are then used by the shareholders and other users of financial statements for the decision making process. It is a very critical part of financial accounting because it provides information for the users of financial statements to interpret and come to a conclusion about the performance of the company. Creative accounting practices are such malpractices in accounting which may be legal and in accordance with the existing accounting standards but may not be in line with the true spirits of the rules laid down under accounting standards. In other words, when financial statements are prepared by the relevant managers of a company that is inconsistent with the purpose or intention of the existing accounting standards, then it is said to be a practice of creative accounting. The managers do so by taking advantage of the flexibilities available in the letter of the rules in accounting standards practices. Earnings management is a term which acts as a substitute for creative accounting. Trying to manipulate the earnings which are reported by the managers of a company, by taking help of some specific accounting process, is termed as earnings management. The company does so to influence its earnings in a short term horizon. Earnings management makes use of accrual accounting. ...
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This research is being carried out to evaluate and present creative accounting and earnings management. This paper takes a glance at the three elements that can be regarded as key elements of creative accounting. They are: flexibility; account management; interests of managers…
Author : ireichert

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