Creative Accounting Essay

825 words - 4 pages

Creative accounting is a growing issue of concern in the UK, threatening the credibility of both accounting and auditing auctions. The truth and fair view principal, which suggest that enterprises should give a truth and fair image of their operations, is now tolerated in favor of unethical practices. While a variety of definitions of the term creating accounting have been suggested, in this essay of mine I will use the definition suggested by Jones saying that creative accounting arises from the flexibility in accounting within the regulatory framework to manage the measurement and presentation of the accounts so that they give primacy to the interests of the preparers not the users ...view middle of the document...

Gearing shows how risky the firm is, so by undervaluing its value may hide some events, to attract more investors.

In contrast there are also constraining factors, which may influence the action of creating accounting. One of those it might be related with media that generate publicity of such uses. Managers doesn’t want to admit that their action are linked to the reaction media will bring but it affect it’s decision tremendously. After a lot of research we got to the point that media truly have a lot of influence as regards managers decision but since it is not a regulator with legal impact it can only bring in surface report abuses. Furthermore, analysts and auditors have the tendency to act in such way putting their personal interests first. Being biased is preventing them to exercise their responsibilities correctly.

Ijeoma and Aronu (2013) stated that creative accounting has been the cancer behind this new face of crime in the land involving the cooking or roasting of financial statements and conventional audit has been inadequate in handling it. By bringing a fresh view into the matter, there are several possible ways to eliminate financial engineering techniques. First of all there are two major influencers in this topic that must take action. Solutions can be taken by governments and professional bodies or the companies themselves.

One way that It would helped to eliminate creative accounting it could be to always include cash flow statements into the financial statements. Due to the fact that income statement is prepared...

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