creative accounting(redirected from Earnings management)
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The practice of recognizing revenue in a way that makes a company look better than it is while still conforming to the GAAP. Creative accounting seeks to inflate stock prices, for example, by selling assets at the end of a year to create a profit that offsets a loss. One could argue that creative accounting hides a company's true financial state, but, unlike aggressive accounting, creative accounting is generally legal. See also: Sarbanes-Oxley Act of 2002.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
The use of aggressive and/or questionable accounting techniques in order to produce a desired result, generally high earnings per share. Creative accounting may include selling assets with a low cost basis, shipping unusually large quantities of product near the end of the year, and failure to write down inventories that have declined in value.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
creative accountingthe use of discretion in the application of ACCOUNTING CONCEPTS so as to report profit and asset figures which are flattering to the company. By subtle use of different DEPRECIATION methods for fixed assets, or different STOCK VALUATION methods, or techniques like OFF-BALANCE SHEET FINANCING, a company's senior managers can ‘massage’ or ‘window-dress’ the profits for any trading period to impress shareholders. Such interpretations are legal, if somewhat dubious. Although the professional accounting bodies have issued Statements of Standard Accounting Practice and Financial Reporting Standards to try to curtail the scope for arbitrariness in the application of accounting concepts when measuring business income, considerable latitude still exists in the interpretation of accounting data and the reporting of accounting results. See ACCOUNTING STANDARDS.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson