The Ethics of Creative Accounting

Topics: Business ethics, Ethics, Stock market Pages: 4 (1159 words) Published: July 3, 2011
In the accounting world, the general rule is that accounts should give a true and fair view. Under local and international law, a professionally experienced accountant has a responsibility to meet the terms, a corporation has a legal responsibility to meet the terms, and auditors have a legal responsibility to give some species of judgment on compliance. Although the function of accounting principles and other rules, creative accounting has constantly played a part in the efforts made by a few companies to present their performance in a better light. Creative Accounting:

Creative accounting, can be defined in a number of ways also called aggressive accounting, Creative accounting is a process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business. To investigate the ethical issues raised by creative accounting applies have been necessary by the financial analysts and investment advisers and the aim of company directors to present the business as having steady growth in income and profits.

Reasons for Creative Accounting:
Consideration of creative accounting have alert mainly on the impact on decision of investors in the stock market. Reasons for the directors of listed companies to seek to influence the accounts for following reasons: 1.Income smoothing: Companies generally prefer to report a steady trend of growth in Profit rather than to show volatile profits with a series of dramatic rises and falls. This is achieved by making unnecessarily high provisions for liabilities and against asset values in good years so that these provisions can be reduced, thereby improving reported profits, in bad years. 2.Company directors may keep an income-boosting accounting policy change in hand to distract attention from unwelcome news. 3.Creative accounting may help maintain or boost the share price both by reducing the apparent levels of...
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