Abstract
If there is a period of unfavourable to critical economic development Business Corporation, there is no doubt about the significance of determining the actual factual moment of bankruptcy of the business corporation. In such a situation, it is crucial for further development approach of the statutory body of Business Corporation in terms of truly evaluation and timely search for a constructive solution. There are different methods of creative accounting to delaying the impending corporation bankruptcy. This paper describes the individual ways in which the creative accounting can favour the business corporation, e.g. increase the reported earnings or reduce the reported loss, manipulate with indicators used in financial analysis, conceal financial risk or strengthen the company´s access to finance. The reason for using these practices by the company management can be just a simple delay in solving the situation, trying to keep the company position as long as possible or the reasons are more complex and sophisticated. There are many model to predict the adjusting financial statements. We described and applied two of them, the CFEBT model and BENEISH M-score model.
Highlights
Accounting should give a true and fair view of the financial and profit situation of the company
The most common definition the appears in the literature refers to creative accounting as a process of manipulating accounting data to transform financial statements into that they should take, in the form their creators would like. [2,15] Another definition says that creative accounting consists of accounting practices that follow required laws and
[4] Practices of the creative accounting is dishonest, because it is a deliberate misrepresentation of information. [2, 5] Chartered Institute of Management Accounting [5] define the creative accounting as a form of accounting which by complying with all regulations gives a biased view of business performance
Summary
Accounting should give a true and fair view of the financial and profit situation of the company. For this purpose, its outputs are in the form of financial statements, which are relied on by external and internal users, and according these statements are the economic decisions made. Trying to present the entity “in the better light” leads the management of many businesses to artificial improvement of results. Another reason for manipulating the statements is to attract more investors as well as an effort to reduce the tax base by undervaluing revenue or overestimating costs. Creative accounting is all the steps used to play with financial statements including aggressive selection and application of accounting principles, whether within of across the board of accepted accounting principles and fraudulent financial reporting
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