The ethics of creative accounting

Abstract

Creative accounting, which generally involves the preparation of financial statements with the intention of misleading readers of those statements, is prima facie a form oflying, as defined by Bok.1 This paper starts by defining and illustrating creative accounting. It examines and rejects the arguments for considering creative accounting, in spite of its deceptive intent, as not being a form of lying. It then examines the ethical issues raised by creative accounting, in the light of the literature on the ethics of lying. This literature includes the evaluation of various excuses and justifications for lying, and these are examined here in relation to creative accounting. It is concluded that even in circumstances in which creative accounting would arguably serve a worthy purpose, that purpose would be at least as well served by honest communication.