Abstract
The purpose of this case article is to bridge the gap between theory and practice of financial reporting by analyzing the reporting practices from an accountant’s perspective. True and fair financial reporting is the basic requirement for achieving the objectives if Islamic financial system. Importantly, what causes the accountants to mismark the financial status of the companies has been spotlighted. It depicts the impact of aggressive revenue recognition, outright fraud, failing to accrue liability, misclassification of operating and non operating income and expenses, understatement and capitalization of expenses on financial statements. The management manipulates financial statements to have good impression about its performance and to shoe profitability, better return on assets, return on equity and debt ratios Study provides evidence for the mechanics used for manipulation and provides valuable input for the motives for aggressive reporting and outright fraud. It highlights the importance of accounting model to help and trace the manipulated financial statements for efficient investment decisions. The results of the study cannot be generalized to all countries because of difference in the adoption of international accounting standards, international financial reporting standards, generally accepted accounting principles and AAOFI standards in some cases.
Highlights
The contamination in financial statements has compelled the researchers to look into financial reporting issues which caused the collapse of even big firms like, Enron, World Com, One Tel, Barings Bank, etc
The polytomous response logit models are the example of evaluating risk factors, which help the user of financial statements to detect financial failures (Tinoco, Holmes, & Wilson, 2018)
The current study bridges the gap between theory and practice by analyzing the true and fair view of financial reporting practices from an accountant’s perspective
Summary
The contamination in financial statements has compelled the researchers to look into financial reporting issues which caused the collapse of even big firms like, Enron, World Com, One Tel, Barings Bank, etc. Motives behind Manipulations of the Income Statement Integrity of financial reports is at stake due to increasing practices of earnings management that continues to impact managers decision making (Hanif, 2010). The major motive behind manipulation of financial statements could be the overstatement of revenues for the satisfaction of creditors and investors. Manager’s compensation linked with earnings motivates managers to play accounting games and to manipulate financial statements. Aggressive Revenue Recognition: showing record sales, showing record sales when only the sale contract of Rs. 100,000 is signed This will increase profit after interest and tax in the income statement and account receivables and retained earnings in the balance sheet. This will improve the results of ratio analysis
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