The ethics of creative accounting

The third area is management has large extent of estimation in discretionary areas, such as assumption in bad debts provision.

Recognize issues in accounting that have ethical implications. Slotting is not an acceptable accounting treatment in company practices. Since stock prices reflect earning reports, stock options could be most profitably exercised when income is exaggerated, and the stock can be sold at an inflated profit.

Motivation for Creative Accounting There are several motivations have been identified in stimulating the behavior of creative accounting in the organization. The scandals were the result of creative accountingmisleading financial analysisas well as bribery. The terms "innovative" or "aggressive" are also sometimes used.

Accordingly, ethical improprieties by accountants can be detrimental to society, resulting in distrust by the public and disruption of efficient capital market operations. According to critic David Ehrensteinthe term "creative accounting" was first used in in the film The Producers by Mel Brooks.

The Ethics of Creative Accounting

The increase or decrease in value should be stated in the account each year the revaluation occurs. To restrict the use of timing of genuine transaction, item in account should be regularly revaluated. Since stock prices reflect earning reports, stock options could be most profitably exercised when income is exaggerated, and the stock can be sold at an inflated profit.

The opponents believe that creative accounting is used when managers and accountants want to manipulate the financial statements to show a certain outcome. They are characterized by excessive complication and the use of novel ways of characterizing income, assets, or liabilities and the intent to influence readers towards the interpretations desired by the authors.

The first area is regulatory flexibility, whereby changes in accounting policy are permitted by accounting regulation. Fifthly, to manipulate balance sheet amounts by using artificial transaction.

Reasons for Creative Accounting: The result is less harm to investors, quickly holding offenders responsible, and to maintain the integrity of the U. Failure to comply with the guidelines could have caused an accountant to be barred from practicing.

These problems usually come to light eventually and could ruin not only the company but also the auditors for not discovering or revealing the misstatements.

Develop "a sense of moral obligation" or responsibility. Proponents of creative accounting argue that all the examples given are done in an ethical capacity. Under local and international law, a professionally experienced accountant has a responsibility to meet the terms, a corporation has a legal responsibility to meet the terms, and auditors have a legal responsibility to give some species of judgment on compliance.

Opponents of creative accounting use this case as an example of why creative accounting should not be employed. It is extremely difficult to draw an ethical line on creative accounting when the generally accepted accounting principles often allow multiple accounting methods that a company can choose from when calculating certain items.

Companies generally prefer to report a steady trend of growth in Profit rather than to show volatile profits with a series of dramatic rises and falls. When developing an accounting curriculum, it is solution to connect both students and professionals with situations that require ethical responses.

The ethics of creative accounting

Creative accounting, can be defined in a number of ways also called aggressive accounting, Creative accounting is a process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business.

Accounting ethics is primarily a field of applied ethics and is part of business ethics and human ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics. Creative accounting is a euphemism referring to accounting practices that may follow the letter of the rules of standard accounting practices, Ethics and creative accounting: Some empirical evidence on accounting for intangibles in Spain.

UPF Economics and Business Working Paper, (). Furthermore, the paper considers the various ways in which creative accounting can be undertaken and summarizes some empirical research on the nature and incidence of creative accounting.

The ethical dimension of creative accounting is discussed, drawing evidence from several empirical studies. It examines and rejects the arguments for considering creative accounting, in spite of its deceptive intent, as not being a form of lying.

It then examines the ethical issues raised by creative accounting, in the light of the literature on the ethics of lying. Creative Accounting: Creative accounting, can be defined in a number of ways also called aggressive accounting, Creative accounting is a process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business.

Creative Accounting – Definition, Techniques and Ethical Considerations The ethics of creative accounting
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The Ethics of Creative Accounting