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The name of the module is advanced financial reporting - Essay Example
Finance & Accounting
Pages 12 (3012 words)
THE NAME OF THE MODULE IS ADVANCED FINANCIAL REPORTING Table of Contents Creative Accounting and Earnings Management 3 Introduction 3 Key Elements of Creative Accounting 4 Motivation for creative accounting 5 Evidences of Practice of Creative Accounting 7 Effectiveness of Accounting Standards to prevent Creative Accounting 9 Conclusion 12 References 15 Bibliography 19 Creative Accounting and Earnings Management Introduction Financial statements are prepared by managers of a company or enterprise to represent the true and fair view of the affairs 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 (Lee, 2007, p.215). 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 (Akers, Giacomino & Bellovary, 2007). Earnings management makes use of accrual accounting. ...
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