Review of Shah, A. K., (1998) Exploring the influences and constraints on creative accounting in the United Kingdom, European Accounting Review, 7 (1): 83-104.

Topics: Financial statements, Annual report, Balance sheet Pages: 3 (1044 words) Published: November 17, 2013
In recent years, the practice of creative accounting by the management of large listed corporation in the UK has received increasingly more attention and allegations, especially from key financial information users. Supported by significant evidence of the practice of creative accounting, it is largely believed that such practices misrepresent the underlying reported financial performance of firms, instantaneously conflicts key core aims of accounting – to provide consistent and comparable information to users. Author Atul K. Shah, in his study aims to illuminate the influences and constraints on creative accounting providing new insights of understanding financial reporting. The dominant purpose of this paper is to identify the key motivations and constraints of this practice in order to explain variations in accounting policy choices. In the UK, the documentation of creative accounting dates back beyond 1986 through works of Grififths (1986) and has been ever growing. Several authors like Clikeman et al. (2000), Mian and Smith (1990) have carried out studies in this area in attempt to understand the use, factors, incentives and ethics of creative accounting. This paper focuses more on the environment of creative accounting in the UK. Shah (1998) explores a range of factors affecting choices rather than focusing on a combination like that of in Clikeman et al (2000), making this paper slightly more unique and further build on his own previous papers (Shah, 1994 and 1996). Creative accounting is practiced for various reasons such as, to increase employee and management bonus and to boost a company’s share price (Clikeman et al. 2000). Whilst Shah (1998) defines creative accounting as the process by which management take advantage of gaps or ambiguities in accounting standards to present a biased picture of financial performance, Bertolus (1988) simply defined it as ‘the art of faking a balance sheet’. In the literature, Shah claims that firms most likely to...
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