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Techniques used in creative accounting.


Despite the potential importance of the financial statemens and increasing the rigidity of normalization institutions accounting information fails to meet only part of its functions are assigned. The most obvious consequence of this is many failed financial scandals.


As a journalist, Griffiths, I. notes that the figures presented to investors were completely changed to protect the guilty. This is in fact a scam and a legitimate name creative accounting (Griffiths, 1995).

Jameson, M., states that "The accounting involves dealing with different views and resolve conflicts between them in order to present transactions. Such flexibility facilitates manipulation, deception and distortion (Jameson, 1988).

Trotman defines creative accounting as a technique aimed at improving communication of information provided to investors. On the same line, Colasse B. is of the opinion that the expression designates creative accounting "practices of accounting information, often at the limit of legality, practiced by some companies who have the advantage of normalization, seeking to beautify the image and financial position and economic performance and financial.

According to Naser K.: "process by which, given the existence of breach rules, handling accounting figures, and taking advantage of flexibility, choose those practices of measurement and information processing that allows financial statements from which should be in what managers want; process by which transactions are structured in such a way as to enable the "produce" the desired accounting result." (Naser, 1993).


The following deserve to be quoted, without an order of priority: intensity of competition in a context of crisis; degradation results and financial position; need financing: insufficient equity, the need to meet certain indicators (rate indebtedness, the result per share increased pressure on enterprises to communications the "elegant", especially coming from investors and analysts; desire to ensure a stable course to launch private companies wish to be given listed (Mulford & Comiskey, 1996). Accounting for pension reserves, capitalization of costs, investment accounts and short-term claims of customers, accounting for inventories of tangible and intangible assets and accounting for long-term debt is not an option and some creativity (Moeller & Landry, 2009). Therefore we can say, maybe in a provocative manner that in these circumstances, there is creative accounting. We will allow only the fact that for several years, the economic situation pushes companies to use more possibilities left by the legal text and doctrine (Naser, 1993).


4.1 Tangible assets

(a) The practice of "subjective depreciation" of assets creates proper field of creativity in accounting. In the exercise of professional reasoning, IAS 36 requires that at each balance sheet date to determine whether there are indications that the asset depreciation suffered analyzed. If management estimates that the recoverable value is lower than the net accounting assets are considered impaired for the difference. In this case the result will be affected by recording a depreciation expenses. On the opposite side, if the management company seeks an attitude "optimistic" about the outcome, will appreciate that there are no indications that the asset has suffered depreciation, thus avoiding diminishing results.

(b) The lease-back as they highlight the impact of a value that will be established in the year of sale, results. Charges will be recorded during the leasing contract (Jameson, 1988).

4.2 Goodwill

Underestimation assets purchased leads to increase goodwill. Cost of goodwill amortization resulting from the reduction outcome, with the exchange rate and competitiveness of the shares bids competitive. Charging goodwill to equity to reduce their lead, the result of years of future costs are not influenced by goodwill amortization (Griffiths, 1995).

4.3 Depreciation

Option for a particular method of depreciation or otherwise in connection with the accounting policy of the undertaking, the assignment in a systematic way the depreciation of an asset during its useful economic life has an impact on the profit and loss. Thus, a different method of depreciation has a different impact on the outcome (Moeller & Landry, 2009).

Depending on the method chosen is amended in time allocation of expenditure. An option on different useful life leads to different expenditure. Review of useful life lead to adjustment costs with current depreciation period and future periods. Deducting the residual value has the effect of reducing depreciation and therefore increases the outcome of exercise.

4.4 Inventories

The inventories provide sufficient opportunities for creative accounting and subjectivism. An error detected on a voluntary basis in determining the size of existing stock in assets at the end of exercise can lead to a practice of "polishing" of the result, meaning that the underestimation or supraevaluarea stock finally has an impact not only on the financial statements of the current year but also on the belonging the following year.

Inclusion in stock inventory or death is a moral waste handling method. If stocks or death moral waste will be removed from management, spending will be affected, with consequences on the outcome in the sense acestuia. La reduce the opposite side, the management company can show a atitutudine optimistic, considering that these stocks will be dead recovered, especially in the situation of an economic recession.

The inclusion of financial costs in the cost of production of stocks has the effect of the increase in the outcome in which the inclusion of expenses. On the opposite side, where the management has a pessimistic vision of the outcome, the result will apply the method, treating interest expense as an element of the power exercised.

4.5 Provisions for liabilities and charges

Practice provisions (increase, reduction) is an effective tool for "leveling" outcome. Establishment of provisions in the years where the profit result leads to the decrease, while the resumption of the provisions in the income year in which the registers deficit increase leads to the result.


Mechanisms that have an impact on the balance sheet are listed in table 2.


a) Reducing the number of permitted accounting methods or by specifying the circumstances under which each method should be used;

b) Trading links will be considered as a whole (substance over form);

c) Recourse to regular review (revaluation of the assets); Creating an arbitration institution; The Court has the authority to require managers to review the financial and charged to their costs;

d) Auditors should to intensify their efforts to identify the possible manipulation of information supplied by the financial statements. In this regard, the audit should include an assessment of internal control of the company to prevent cases of creative accounting or fraud. To provide an extensive surveillance and more stringent, the auditors should be prepared to fight against their clients.


Freedom of choice of accounting policies by management companies, resulting in an increase or a bed and schedules of income, are in our view one of the main limits informational account profit and loss. Moreover, in practice there are cases where accountants, on grounds concerning the power conferred by the existing rules to make estimates and forecasts or to turn to alternative accounting treatments permitted use in some creative accounting techniques that are often limit laws and regulations.


Griffiths, I. (1995). New Creative accounting, Palgrave MacMillan, ISBN 0333628659, UK

Jameson, M. (1988). A practical guide to creative accounting, Kogan Page, ISBN 1850413013, UK

Mulford, Ch.; Comiskey, E. (1996). The Financial Number Game: Detecting Creative Accounting Practices, Prentice Hall, ISBN 0471370088, UK

Moeller, L; Landry, E. (2009) How to Maximize Creativity, Accountability, and ROI, McGraw-Hill, ISBN 0071615059, UK

Naser, K. (1993). Creative financial accounting: its nature and use, Prentice Hall, ISBN 0130617636, UK
Tab. 1. Opportunities, solutions and accounting traditions
regarding creative accounting on the balance sheet

 Opportunities for Solutions that stops Accounting traditions,
creative accounting creative accounting where solutions are
 easy to apply

 Options regarding Reducing the number Western accounting
 the accounting of accounting model
 methods methods permitted

Trends to estimate Minimize the Western accounting
 opportunity for model

 Entering into a "Substance over form" Anglo-Saxon
 transaction Accounting
 artificial model

 Planning Prescribing Anglo-Saxon
 transactions revaluations Accounting
 authentic model

Tab. 2. Mechanisms that have an impact on the balance

 Elements Mechanisms Impact on balance sheet

Tangible assets Lease-back: the sale of --Improvement
 fixed assets, followed by revolving fund;
 taking them in the --Improve cash.
 immediate location

Tangible assets Revaluation of tangible --Increased asset
and equtiy assets value (increase in
 depreciation expenses)
 --Increased equity

Minority Inserting in equity, --Change indebtedness and
Interests debt, or between the two equity.

Loans In substance defeasance --Reduced rate
 arrangement by which the indebtedness;
 transferred assets to a --Increase rate financial
 trust, which incorporates autonomy;
 the same time and --Increase financial
 management of debt. profitability.

Customer Claims Discounting of ticket --Reducing the need
 orders for working capital;
 --Increased Treasury

 Assignment of claims from --Slight decrease of
 a pool of receivables for working capital
 obtaining cash (from the difference
 between price and value
 of transaction);
 --Decreased need for
 working capital
 --Increased Treasury
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Author:Lungu, Ionut; Potecea, Valeriu; Rotaru, Horatiu
Publication:Annals of DAAAM & Proceedings
Article Type:Report
Geographic Code:4EUAU
Date:Jan 1, 2009
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