Journal of Accounting and Management Information Systems (JAMIS)

Creative accounting in the perspective of European Union accession

Supp/2006 ,   p657..664


Keywords:   Creative accounting, IAS/IFRS, devoted image, ethics

The accounting process consists of dealing with many matters of judgment and of resolving conflicts between competing approaches to the presentation of the results of financial events and transactions; this flexibility provides opportunities for manipulation, deceit and misrepresentation. These activities - practiced by the less scrupulous elements of the accounting profession - have come to be known as 'creative accounting'. (Michael Jameson)
Over the past five decades, accountants have changed from watchdogs to advocates and salespersons. Auditing has become one of a number of services, including consulting and tax advice, in which accountants "sell" creative tax avoidance and financing structures. Accountants enable their clients to account for transactions under generally accepted accounting principles while reducing transparency and aggressively maximizing earnings and debt.
Like it or not, accounting decisions have a profound impact on the way we view the economic world. Consequently, those who have insight into the nuances of the language of accounting have a more significant advantage in the world of business than those who don't. Investors should be able to answer two questions when reading a statement: one, how the company makes money, and two, how they are accounting for it
However more often than not creative accounting is used to: hide a particularly bad year for the company; force an exceptionally good year or continue the pressure to always be the best; smooth out results to give an impression of stability or sustained improvement; hide large profits by monopolies under anti-trust threat; boost assets to avoid take-over.