creative accounting

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Creative Accounting

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

creative accounting

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 accounting

the 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
References in periodicals archive ?
Second, the extent of IFRS adoption differs widely among countries in the Asia-Pacific and thus likely affects earnings management differently.
Our research also examines whether national culture explains variations in earnings management in the Asia-Pacific region.
Previous research has focused on the influence of family ownership concentration on earnings management (Anderson et al., 2002; Bartholomeusz and Tanewski, 2006; Lopez and Saona, 2005; San Martin-Reyna, 2012; Stiglitz, 1985;Warfield et al., 1994).
To what extent institutional or significant blockholders are able to reduce earnings management, and how the level of family ownership moderates this influence?
In view of these conflicting perspectives on earnings management, we attempted to gain an understanding of how this knowledge gap influences the way in which managers perceive the ethicality of earnings management.
The most important types of EM are: (i) accrual earnings management (AEM); and (ii) real earnings management (REM).
The study documents less earnings management, higher going-concern reporting accuracy, and higher audit fees after the change.
In this sense, the abnormal accruals, also termed as discretionary accruals, can capture both the earnings management and the estimation errors.
One of most significant value enhancing managerial decisions is Discretionary Earnings Management (DEM).