Creative Accounting: Analysis of Techniques and Ethical Considerations

This essay delves into the multifaceted world of creative accounting, exploring its definition, techniques, and ethical implications. It examines how creative accounting, also known as aggressive or innovative accounting, is employed in the context of increasing economic competition and changing business environments. The essay outlines various methods of financial statement manipulation, such as manipulating depreciation charges, off-balance-sheet financing, and revenue recognition. It discusses the motivations behind these practices, including attracting investors and maintaining capital levels. Furthermore, it analyzes the ethical considerations, highlighting the potential for misrepresentation and the importance of ethical standards and corporate governance in mitigating the risks associated with creative accounting. The essay also addresses the question of whether creative accounting should be used, considering both its potential benefits, such as increasing stock prices, and its drawbacks, such as misrepresentation and potential legal consequences. The essay emphasizes the need for a balanced approach, advocating for the use of creative accounting within legal and ethical boundaries, and ensuring transparency in financial reporting to protect the interests of stakeholders.

In this blog we understand the concept of creative e accounting and should you use it. With the
help of this blog, you can understand how creative accounting use in the ethical and unethical
way in business. As the economic environment and competition in the business increased
rapidly, creative accounting plays its necessary role in this pace. The objective of this blog is to
cover the concept of creative accounting and to understand the numerous techniques of creative
accounting. The use of creative accounting in the management has become consists of the
practices of overestimation of assets, price of a share and so on. Creative accounting is unethical
but not illegal since it does not achieve the major objective of the financial reporting that is to
present a true and fair picture of the business. The main aim of this writing is to show the use of
financial information in manipulated practices and whether the company should use this practice
in the business. It highlights both the issues of whether to use creative accounting or not. Entities
follow the accounting standard procedures and also use the loopholes to enhance the company's
performance in the market.
What is Creative Accounting?
The financial statement reflects the company’s position. Creative accounting indulged in
manipulation as the economic environment cause change and the increasing competition.
Creative accounting termed as an imaginative way of financial accounts presentation. This
accounting is also known as aggressive accounting, window accounting, and innovative
accounting. The concept of creative accounting is to provide financial information, one of the
important information to the decision-makers and outsiders of the company. The main objective
is to present a true and fair picture of the business to the stakeholders of the company. Investors
expect reliable accounting information helps them incorrect decision making the unethical
technique for earning is also used by the company as the increasing competition in the market
and economic condition. Methods of manipulation of the financial statements included changes
in financial statements and those who manipulate the date are the creative accountants and the
managers of the company. Creative accounting described the practices of inappropriate
accounting or entering into complex or special purpose transactions. Creative accounting
misrepresents the reality which may mislead the users of financial statements information. That’s
why usually this accounting considered as unethical, the deviation from the accounting laws and
regulation. This does not mean that the violation of accounting standards undertaken in the
creative accounting policy. This is important to refer that creative accounting is unethical but not
illegal since it does not achieve the major objective of the financial reporting that is to present a
true and fair picture of the business. This information of creative analysis contributes to the
minimization of creative accounting impact. The basic ethical standards to implement in the
business, encourage the companies in its use.
The motive of creative accounting is to show the financial health conclusively on the basis to
find out the loopholes in accounting standards and laws. The intention is to enhance the
financial statement presentation in a positive impact. This accounting show positivity when it

applied positively. The certain thing is that creative accounting harms financial reporting.
Creative accounting is complex in its design by using the words from the novel.
Management is responsible for the manipulation of financial reporting. The instructions are
followed by the creative accountant for financial reporting. The main objective is the application
of creative accounting is:
 Management obtained personal profits by doing so.
 The changing competition in the market
 To attract the investors reflect the financial report in an effective manner
 Increasing and maintaining the capital level of an organization.
 Beating the analyst s estimation about the future performance of the company.
The accounting done with the help of creative accounting is unethical, it does not provide a true
and fair view of the company. The aim of creative accounting attempts to show higher
profitability. This is the manipulation by accountants with the assets and liabilities of the
company. Creative managers involve boosting their bonuses, the debt can be organized by
convincing lenders, to increase the sale s of the company. Avoid paying taxes resulted in lower
income tax. This practice can be used to decrease the reported profitability in the financial
statements. Undesirable accounting deals with many judgment matters. These techniques for the
accounting parameter cause changes from the actual results.
Creative accounting uses various accounting tools and different practices for manipulation. The
wide use of creative accounting techniques discussed below:
 To reduce the depreciation charge for the related period.
 The manipulation of off-balance-sheet financing items
 Manipulation of income and expense statement
 Cause changes in the present value of money.
 Recording the fictitious sales revenue to overestimate the revenues
 Manipulation of accrual basis of accounting and receivables write-offs.
 The current profits can be overestimated by avoiding the provisions for reserve doubtful
debts and the legal obligation.
 The cost of goods sold(COGS) can be understated by the overvaluation of closing stock
thereby that shows the profit has been increased which shows an increase in the total
assets in the right side of the balance sheet.

 The items of financial statements can be overstated and understated the debits and the
credits wisely.
 The buyback of its assets at an inflated price shows the increment on the left side of the
balance sheet.
 All these ways and various practices are at the disposal of the creative accountant through
which the accountant can attempt to attain those objectives.
In an unethical way the creative accounting used resulted in most scandals with heavy
consequences, it is necessary to establish effective methods that will minimize the manipulated
activities in an organization. The adaptation of accounting standards based on the limited use of
future forecast and constant application of accounting method in the accounting practice. The
organization recognizes and insists on the role of the external auditor and internal auditor to audit
the financial reports to identify and report the unfair forecast and also for the prevention of
accounting manipulation in numerous ways. The efficiency can be also applied in a change of
audit services from one financial year to another. It is necessary to hire independent directors and
members of the audit committee regularly quarterly and annually. The basic function of
corporate governance in financial reporting is to determine the compliance with policies of an
accounting standard. The establishment of efficient corporate governance controls the
organization. The company also indulged in developing a whistleblower policy. Placing
attention on the development and application of forensic accounting leads to efficient working.
The code of ethics in the company’s policy continuously makes awareness among the
employees. The main working is to make investors aware of the practices of manipulation takes
place in financial information. The penalties consistency to enforce by the national authorities.
The benefits of creative accounting are to reduce the risk of the company by increasing the prices
of stock and on the other side to increase the profit trend for an organization. Numerous benefits
of creative accounting included capital raising by the issue of shares to the investors, disregard
takeover by the other companies in the market and offering of own shares in bids to takeover
bids are in favor of creative accounting. When it comes to the reduction of variation of the
company's income, this helps the company to achieve a good image in the open market, in return,
this indicates that the company helps in many issues to face directly or indirectly.
Main elements of Creative Accounting are:
GAAP often allows various methods of accounting that can choose by companies, public
companies using for the disclosures of the financial information. With the complex trading
practices, new accounting standards introduced to mitigate unethical activities. The ramifications
of these activities are increased alternatives that a company used to achieve the goals. The real
operational results hide and the true financial position of the company the audit held to find out
the resulted consequences difference. In various accounting scandals, the unethical decision of
management led to adverse consequences. These consequences of a manager's decision affect the
entire society as well. That's why managers are responsible for the re-examination of financial

reporting and role in providing financial information. The audit is must to evaluate the
performance undertaken in the management to use ethical creative accounting. The auditor is the
main authority to find out the true and fair picture of the business. An external auditor needs to
find out the creative practices so that will easy for him to conclude the practices and conduct an
efficient and qualified audit to provide a true and fair view with accuracy. To show how accurate
the report of financial statements is. The expectation gap can be minimized in this way. This also
contributes to increasing trust in financial statements and audit services.
Should we use creative accounting?
The research finds out that in today’s accounting practices and policies of creative accounting
plays an important role. The organization believes by adopting creative accounting techniques
they can meet the daily challenges. There are pros and cons to its use. For an organization
creative accounting proves to be most important. The stakeholders and the various parties
directly or indirectly influenced by the company's performance. Creative accounting may help to
maximize and maintain the variation in the price of shares. This can do so by decreasing the debt
of an organization resulted in profitability. Due to the increased price of shares a company can
raise new share capital. Also, attempt to avoid the situation of the takeover. The creative
accounting users sometimes become late to provide financial information to the market, this
leads to the market. Such a type of practice does not harmful impacted to the interest of
shareholders and such doing cannot be unethical. Whereas there are demerits also in its use in
daily practicing that most of the time they are not controlling the practices of according to laws
and regulations. The creative accounting techniques manipulate the financial situation leads to
misrepresentation. Those who are affected are included employees, investors, and creditors. The
misuse and unscrupulous activities are done by creative accountants, to show false company's
performance. While some of the activities can attempt leads to uncontrollable situations
imposing a threat to the very existence of the company. Creative accountants use to hide the poor
performance of the company face in a year and show the exceptionally good year. The annual
and quarterly reports presentations dive heavily into the theoretical parameter
Creative accounting should be used if it is within the complication of the law and achieve the
company's ultimate goal of increasing stock value. In the sector of creative accounting, the
research explained its effects over the business. The impact on the stock prices in the market.
Company use accruals efficient techniques for prevention of such companies in the future. The
practices of creative accounting must provide benefit to the company in the short run and long

run. Only the main motive is not to mislead the employees, investors, and creditors which are
users of financial statements.
According to the demonstrated information of an organization, it has to meet many expectations
from external parties. The company faces the expectation of higher return from the stakeholders,
the employees and the customers expect the long run of business for their benefit and suppliers
want the payments. Almost the company wants to show the consistency in the business to show
steady income to keep the company's stock prices constant and to attract the investors. All these
desires of the company lead in finding out the creative accounting practices. As the complexity
and dynamic nature of the business financial statement and the liberty available in the accounting
standards, it is difficult for the organization to control the accounting procedures. Now it is the
responsibility of the creative accountants and the managers to see the creative accounting
procedures whether to use the process intentionally proper or mislead the financial report to
mislead the users of financial information. But the only conclusion and solution that its misuse
cannot be completely stopped.
Conclusion
Financial statements are used to report the business transaction, derived in figures,
communication of business to the stakeholders. The objective of financial reporting provides a
true and fair picture of the business undertaken by the fundamental accounting principles. An
organization should use creative accounting with the following policies. Therefore the
accounting standards also to necessary to apply and allow various accounting to require forecast
which can lead to the manipulation of financial information.
Managers creatively used loopholes and exploit them and vagueness in accounting standard
represents the financial achievements in a biased manner. The terms determine that short term
manipulation of financial information can have a positive effect on the business. In the long
term, it generally falls in the prices of shares and insolvency. The main reason for the
manipulation of financial information is managers, the instruction to the employees guides
creative accounting in the reports. Creative managers involve boosting their bonuses, the debt
can be organized by convincing lenders, to increase the sales of the company. Avoid paying
taxes resulted in lower income tax. This practice can be used to decrease the reported
profitability in the financial statements. Undesirable accounting deals with many judgment
matters. These techniques for the accounting parameter cause changes from the actual results, for
the presentation of ethical financial information companies can use numerous methods in the
report, to reduce the depreciation charge for the related period, the manipulation of off-balance-
sheet financing items, manipulation of income and expense statement, cause changes in the
present value of money, recording the fictitious sales revenue to overestimate the revenues and
manipulation of accrual basis of accounting and receivables write-offs.

The implementation in a minimum scope and ethical intent creative accounting technique can be
considered one of the good practices. This is based on the procedure in a positive light that lies in
future forecasts that are permitted within accounting standards. The adaptation of accounting
standards based on the limited use of future forecast and constant application of accounting
methods in the accounting practice. The organization recognizes and insists on the role of the
external auditor and internal auditor to audit the financial reports to identify and report the unfair
forecast and also for the prevention of accounting manipulation in numerous ways. The
efficiency can be also applied in a change of audit services from one financial year to another. It
is necessary to recognize the role of audits in the identification of reports and unfair forecast.
Moreover, it is desirable to use the procedure according to law and regulation of accounting and
not to mislead the stakeholders in the long run or short run. The use of creative accounting is not
illegal but it can not be entirely removed, but it can be used with the different solutions with the
pros and cons of its impact on the business.
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