Motives and Ethics of Creative Accounting: A Reflective Review and Views

Abstract

Stirred by ethical conundrum of creative accounting and its damaging impact on corporate reporting, this literature review paper (LRP) explores motives of creative accounting and discusses its ethical lines. Consistent with Kaaya (2015a), we, employed qualitative and content analysis approach, as it is reportedly effective for studies of this nature (Corbin & Straus, 2008). Overall, the study found that, creative accounting is unacceptable practice, largely derived by managers’ self-centredness and short-termism and serves external users with obscured information. Information asymmetry, conflicting interests, fear for violating financial covenants, maintaining predictable growth and hiding disgraceful condition are notable drivers of creative accounting, but, essentially, enabled by flexibilities which are integral of reporting standards. Specifically, the paper recommends, first, creative accounting and fraudulent reporting are conceptually, intentionally and practically synonymous and well-nigh indistinguishable; second, auditors ought to be professionally competent and inquisitive to ensure all matters of material impact on financials are discovered and reported. This implies, it is right to ask where were the auditors when things went wrong about companies, because, nothing detrimental can occur without their knowledge, unless, they choose to turn a blind eye on it or are professionally incompetent. We argue that, creative accounting is based on wrong motive (to cheat and mis-inform stakeholders), breaches professional code of conducts and fiduciary duty, destroys honour of profession accountancy and leads to immense losses to stakeholders, and nothing can be right about it. We, therefore, call for concerted efforts by all stakeholders to fight against it.