Current Issues in Accounting: Examining Creative Accounting Methods Used by Origin Energy

Running head: CURRENT ISSUES IN ACCOUNTING 1
Current Issues in accounting
Student’s (Name)
Institution

CURRENT ISSUES IN ACCOUNTING 2
Executive summary
This report examines the annual report of Origin energy to determine the creative
accounting method that they have used in preparation of their financial statement which is done
by financial preparers in section A, in section B it examines the opportunistic behaviors in the
decision that is made by the managers and the reason for this opportunistic behavior.
There is continuous increase of accounting standards globally and in Australia (Billings,
2016), this standard is legally recognized and some have been passed by the legislature. There
are also several policies on the operation of the organization and how it should prepare its
financial statement, this policy has different view and element on the preparation of financial
statement hence a choice should be made in picking the best policy (Bhasin, 2016).
In making the choice of the best policies some financial preparers have opted to use some
‘creative ’mean of preparing financial statements so that they can deceive or provide a false
perception in their reports.
The report provides findings from various sources that are reliable and accurate mostly
obtained from the google and google scholar databases, some of the articles that re key in this
report are Australian Accounting standards, Origin energy company annual report 2017 and
Australian Professional code of conduct Standards.
This report will in generally indicate that Origin energy has engaged in creative
accounting for several reasons that will be drawn from three hypothesis s learnt during study, the
three areas that it will study in determining the creative accounting of Origin energy are choice
of accounting policy, biased prediction and disclosure for influencing predictions (Bhasin, 2015).

CURRENT ISSUES IN ACCOUNTING 3
Introduction
Accounting methods are a set of regulations and rules that are used by an organization
during the preparations of its financial statement which entails the manner it reports the
revenues, expense and any other relevant financial recording. Accounting methods can be
categorized into two accrual accounting methods and cash accounting method, the choice
between those accounting methods depend on the organization management and the laws that are
dictated by IRS.
There is need for choice between the available accounting policies and standards that is
best for the company or organization without engaging on illegal activities (Jones, 2011). The
choice between accounting policies will depend on the decision of accountants, shareholders and
management by the organization either during its foundation or as it continues to operate. In
some pubic institution the choice is dictated by the government.
Financial statement has engaged in creative accounting where the financial statements
and annual reports especially in finance provide false information with the aim of deception or
providing a false perception which could be due to various reasons. Henderson et al. provides
hypothesis for this reason.
The choice of the best accounting policy is always on managers and financial preparers
and as mentioned they might engage in certain opportunistic behaviors for their own benefit in
the expense of the shareholders and other stakeholders but this could be prevented using contract
as this paper will explain in the second part.
Most small organizations go for cash accounting method because it is simple and because
of how the statements are recorded, in this method expenses are considered in the year that they

CURRENT ISSUES IN ACCOUNTING 4
are paid unlike in accrual accounting method where the timing of revenues and expenses is
according to the year the contract is signed.
Once the choice of accounting policy is made it is very difficult for changes to be made
to another accounting method or policy unless authorized by IRS because changes in accounting
policy could affect the whole organization operation. This paper examines Origin Energy limited
in orders to identify creative accounting policy and its reasons while identifying the opportunistic
behaviors by mangers and their causes.
Origin Energy company is a public energy company which was founded in the year
2000.With its headquarters in Sydney it provides services such as electricity, solar panels,
naturals gas, electricity, cooling and heating and vehicle charging.
It has employed above 6000 employees in 2016 and it has had a difficult time regarding
losses with the largest one being on 2015 where they recorded a loss of $658million and a net
income of $12.174 million.
Accounting Policy Choice and Creative Accounting
Creative accounting is the occurrence of generation of statements from accounting
policies in producing a certain impression to the shareholders and the stakeholders (Khaneja &
Bhargava, 2017). This creative accounting methods produce unreliable and inaccurate financial
statement but has not yet been classified as being illegal. Accounting policy are regulations that
entails how a company prepares its financial statement. In Origin energy limited I will lock at the
three examples of accounting creativity which are: estimates or perdition of the future events,
disclosure of events and accounting policy choice.