Advanced Financial Reporting - Prevalence of Creative Accounting

Finance & Accounting
Pages 11 (2761 words)
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Introduction. Creative accounting is an innovative yet unethical practice that converts the sense of an accounting treatment while being within the scope of treatment prescribed by accounting standards.


This report will be evaluating the reasons that give rise to creative accounting by organizations; the grounds for the nativity of this practice will also be discussed. The evaluation of the efforts made by existing standards and accounting practices in controlling and reducing aggressive accounting will be catered in the report. The levels of success achieved by regulatory bodies will also be discoursed. Increasing the complexity of accounting treatments in such a creative and aggressive way, actually results in deviation from the actual spirit of the suggested treatment. Transactions are treated with a high level of quibble and in a complex manner so as to obtain desired misrepresentation of items present in financial statements, such as assets, liabilities, expenses, revenue, and stock options. It is generally successfully applied over the transactions of inherently complex items of financial statements, for example Derivatives, Hedge accounting, leases, insurance contracts, construction contracts, financial instruments, impairment of assets, revenue recognition and manipulation can easily be made. Reasons for using Creative Accounting Creative accounting aims to manipulate ultimate shareholder’s wealth, showing high paper profits, and hiding right earning figures from stakeholders (Farlex 2011). ...
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