Creative Accounting and Corporate Governance: - A Literature Review

Abstract

The concept of corporate governance and creative accounting has come into picture after the big accounting scandals (Enron, WorldCom, Satyam computers etc.).Corporate governance represents the manner in which a company is directed and controlled and this aspect is closely related to creative accounting practices, ownership structure, board of director’s structure, they all can encourage or discourage creative accounting practices. Corporate governance is a current issue with great impact on creative accounting. This paper is based on how corporate governance seen as possible solution to reduce creative accounting practices. Occurrence of creative accounting is related to weakness of corporate governance. The paper is structured as follow, at first some definitions of creative accounting and corporate governance after introduction. After that motivators of creative accounting, consequence of creative accounting , techniques of creative accounting , solution to these techniques, theories of corporate governance are bring into attention to identify the nature , existence and incidences. After that relation between corporate governance and creative accounting is shown. The paper continues with a review of some code of conduct of corporate governance like SOX Act, Cadbury committee, Blue Ribbon committee, and concludes by suggesting some solutions and recommendations for this problem of creative accounting.