Itb301 Essay

3214 Words Jun 25th, 2012 13 Pages
Abstract

Creative accounting, as a matter of approach, is not objectionable by itself.
However, when unethical elements make intrusion, the resultant accounting details become anything but true and fair. Creativity in such context is like referring to a half glass of water as half-full instead of describing it as half empty. While both statements are factually correct, they paint different picture and thus convey different images. Creativity in company accounting may arise under at least three different financial market conditions. The first is when a company floats its shares to attract investors to subscribe to such shares either at par or at a premium, depending on the financial market evaluation of the company’s future
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But real world situations tend to show that creative accounting practice is, in most cases, a curse rather than a blessing, and therefore undesirable. The main purpose of the practice is usually to attract unsuspecting investors, or obtain undeserved accounting-based rewards, by presenting an exaggerated, sometimes misleading or deceptive, state of a company’s financial affairs

Introduction

Accounting practices that follow required laws and regulations, but deviate from what those standards intend to accomplish. Creative accounting capitalizes on loopholes in the accounting standards to falsely portray a better image of the company. Although creative accounting practices are legal, the loopholes they exploit are often reformed to prevent such behaviors.

Financial statements are one of the most important ways for most business to reveal their performance and status to investors, regulators and employees alike. As an important means of representing the internal information to the public, the making of the statements is also desired to fulfill all the principles, regulations, standards, etc. and ideally should reflect a company’s wealth and activity performance through a transparent accounting system, therefore become the right tool to a fair and true company evaluation.

Although so many restrictions exist, there is still much space to bring into play, in order to appear a more attractive picture facing the public. The key to creative accounting’s growing

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