Discussion on Creative Accounting
Summary
The flexibility in accounting allows companies to adopt creative accounting and fraud techniques to bolster profits. Such techniques has seriously eroded the currency of accounting so as to hinder the development of economy. This essay introduces various parties involved in creative accounting and illustrates how they are being affected. After that, another cause induced by the economic environment will also be listed following by recommendations on reducing the likelihood of creative accounting and fraud.
In general, there are a variety of parties who play a vital role in creative accounting. Some of them get benefit while others suffer. Managers, being as a gainer, regard creative accounting as a way to influence the accounts as well as deliver the 'right' result, using its flexibility and subjectivity to serve their own interest without being detected. Unless the company collapses, shareholders may also benefit from creative accounting since such techniques can present a more obsequious view of the firm which may then give rise to the increase of the share price. Meanwhile, merchant bankers can make a profit as well by ways of devising complex creative accounting schemes and selling them to companies. In comparison, however, some other parties are harmed and opposed to creative accounting. One of the objectors, regulators, dislike creative accounting for its usage of assisting in evading accounting rules insidiously which then debases the credibility of the accounts. If companies collapse, share holders are likely to be harmed as well. For auditors, there is the adding dilemma of deciding whether or not to qualify the accounts, since both situations will result in blame either from their clients or the society. In addition, other users of the accounts like suppliers and bankers may be misled by a company's result and end with incurring a loss. Besides, where creative accounting fails, fraud may then be adopted. As long as it happens, the prosecutors
The flexibility in accounting allows companies to adopt creative accounting and fraud techniques to bolster profits. Such techniques has seriously eroded the currency of accounting so as to hinder the development of economy. This essay introduces various parties involved in creative accounting and illustrates how they are being affected. After that, another cause induced by the economic environment will also be listed following by recommendations on reducing the likelihood of creative accounting and fraud.
In general, there are a variety of parties who play a vital role in creative accounting. Some of them get benefit while others suffer. Managers, being as a gainer, regard creative accounting as a way to influence the accounts as well as deliver the 'right' result, using its flexibility and subjectivity to serve their own interest without being detected. Unless the company collapses, shareholders may also benefit from creative accounting since such techniques can present a more obsequious view of the firm which may then give rise to the increase of the share price. Meanwhile, merchant bankers can make a profit as well by ways of devising complex creative accounting schemes and selling them to companies. In comparison, however, some other parties are harmed and opposed to creative accounting. One of the objectors, regulators, dislike creative accounting for its usage of assisting in evading accounting rules insidiously which then debases the credibility of the accounts. If companies collapse, share holders are likely to be harmed as well. For auditors, there is the adding dilemma of deciding whether or not to qualify the accounts, since both situations will result in blame either from their clients or the society. In addition, other users of the accounts like suppliers and bankers may be misled by a company's result and end with incurring a loss. Besides, where creative accounting fails, fraud may then be adopted. As long as it happens, the prosecutors