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.

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.

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.
References in periodicals archive ?
2008) identified earnings management by credit unions that were at risk, seeking to gain time in the adequacy of the proportion of their net worth in relation to the assets weighted by the risk.
Since in international literature the inference about management of results in credit cooperatives is still inconclusive, and that in Brazil Earnings Management studies to assess the smoothing of results have indicated this practice for cooperatives affiliated with SICOOB and SICREDI, this article tries to answer the following research question: Do credit unions affiliated to UNICRED also use smoothing in their accounting results?
The current study replicates Thomas' (1989) twenty-year old research to ascertain if this type of earnings management continues today, particularly in light of the heightened scrutiny managers now face to present fair financial reporting.
Earnings management to avoid earnings decreases and losses.
Earnings management observed via board interlocking has a contagion effect on companies; that is, the participation of some members in other companies leads to good and bad management practices being shared between companies (Chiu, Teoh & Tian, 2013).
Studies demonstrate a connection between earnings management practices and interconnections between board members (Carrera, 2013; Chiu et al.
Linck, Netter, and Shu (2013) find that financially constrained firms can use earnings management to signal profitable investment opportunities and help attract investor funds for those investments.
The manipulation of the cash component falls under real earnings management.
Results: Hospitals with higher profit margin, current ratio, working capital, days of patient receivables outstanding and total wage are associated with more earnings management, whereas those with larger size and higher debt level, asset turnover, days cash on hand, fixed asset age are associated with lower level of earnings manipulation.
They find that IFRS firms exhibit less earnings management, less earnings smoothness, more timely recognition of losses and greater value relevance.
Previous studies find evidence of country-specific characteristics that affect the relation between IFRS adoption and earnings management (e.
It is believed that banks have used earnings management in the past and in the lead up to the 2008 financial crisis by manipulating the allowance for loan and lease losses account on the balance sheet.