MOTIVES AND TECHNIQUES OF APPLYING CREATIVE ACCOUNTING IN THE MANIPULATION OF FINANCIAL INFORMATION

Abstract

Creative accounting no longer has the same definition or application as it used to. Over time, creative accounting took on elements of manipulative accounting. At the same time, creativity with the technique of flexible and fair presentation of financial statements in accounting frameworks came out of the same framework in an uncontrolled desire to falsely present the financial situation. The original creativity took on the characteristics of manipulativeness, which in turn became synonymous with falsifying financial statements. To what extent financiers are aware of the presence of creative accounting in practice today, how it is applied, what are the motives for its application and how do they evaluate the application of creative accounting from a personal aspect, do they approach it with a margin of creativity or manipulativeness, are questions that received an answer through the conducted empirical research. On a sample of 181 respondents, the motives and techniques of applying creative accounting are clearly revealed, the issue of its marginality with regulatory frameworks is defined, and a correlation between motives and techniques of application in practice is clearly established from the perspective of financial workers. The basis for data collection was a survey questionnaire, while the results were processed and hypotheses proved using the SPSS statistical package.

Headnote

ABSTRACT

Creative accounting no longer has the same definition or application as it used to. Over time, creative accounting took on elements of manipulative accounting. At the same time, creativity with the technique of flexible and fair presentation of financial statements in accounting frameworks came out of the same framework in an uncontrolled desire to falsely present the financial situation. The original creativity took on the characteristics of manipulativeness, which in turn became synonymous with falsifying financial statements. To what extent financiers are aware of the presence of creative accounting in practice today, how it is applied, what are the motives for its application and how do they evaluate the application of creative accounting from a personal aspect, do they approach it with a margin of creativity or manipulativeness, are questions that received an answer through the conducted empirical research. On a sample of 181 respondents, the motives and techniques of applying creative accounting are clearly revealed, the issue of its marginality with regulatory frameworks is defined, and a correlation between motives and techniques of application in practice is clearly established from the perspective of financial workers. The basis for data collection was a survey questionnaire, while the results were processed and hypotheses proved using the SPSS statistical package.

Keywords: creative accounting, manipulations, financial statements, motives, techniques

1. INTRODUCTION

Creative accounting, designed with the idea of respecting accounting standards and principles, has turned over the years into a deviation from the same standards and principles for a reason known as "hairdressing of the financial situation". The same is not basically a reflection of illegality, but a reflection of unethicality. Over time, creative accounting has neglected the basis of fair and objective financial reporting and today borders between the permitted alternative use of accounting regulations and falsification of financial statements. It attracted attention in the 1980s, but its negative connotations took off with the global financial crisis in 2007. Creative accounting is the idea of sustaining the imagination with newly invented financial tools. In the same way, financial reports as user information bases are compromised in their truthfulness and fair representation of the financial state of the business entity. The aim of the work is to point out the presence of creative accounting in practice in its negative connotation, as manipulation of financial information. At the same time, the goal is to point out the motives and techniques of applying creative accounting, and to find out whether there is a connection between the motives of applying creative accounting and the technique of manipulating financial statements. Through the set goal, the basis is to prove that due to the application of creative accounting, financial statements do not provide what they are based on. The application of creative accounting led to a decrease in the value of financial information, and its manipulations destroy the image of a business entity. For this reason, business entities should try to use the flexibility offered by creative accounting in its ethical application, because only with more ethical principles can manipulative behavior be reduced. Creative accounting has become a "puzzle game" of beautifying financial information that does not follow accounting rules, but skillfully manipulates them. The game has become synonymous with the phenomenon of the 21st century.

2. CREATIVE ACCOUNTING

Creative accounting in practical application, by inappropriate and immoral management, has become an image of the negative aspect of the more favorable and false compilation of financial statements (Belak 2008). It is a process of long-term and multi-year duration, a process that starts with small and ends with large-scale manipulations as a means of complying with accounting regulations, rules and standards, both in legal and illegal contexts (Negovanovic, 2011). O'Regan (2006) defines creative accounting as a deliberate deviation from the true and fair presentation of financial results through the use and abuse of accounting techniques and principles. According to Mulford and Comiskey (2002), creative accounting is an aggressive game with financial numbers, while according to Naser (1993), the same creativity is a pure transformation of actual financial statements into desired statements through playing the rules. Creative accounting, according to Friganovi (2008), is both the application and abuse of accounting standards for the purposes of presenting financial results in the context of inaccuracy and unfair presentation. Falsifying financial information, falsifying business books, deceiving investors are typical examples of accounting manipulations (Rezzaee and Riley, 2014). Management, for the needs of a better and more stable presentation of the state of business as a basis for the upward trajectory of its development, uses creative accounting techniques (Belak and Vudri, 2012). Balaciu et al. (2009) conclude that there is no generally accepted theory of what creative accounting means, neither at the international nor at the European level. Just before that, it leaves room to continue working on the unification of the definition of creative accounting.

3. MOTIVES AND TECHNIQUES OF MANIPULATION OF FINANCIAL INFORMATION USING CREATIVE ACCOUNTING

Data on business activity are presented in financial statements as representations of the level of financial efficiency of a business entity. Financial statements are records of essential information crucial in making business decisions. Basically, they are the final stage of accounting information processing (Zager and Zager, 1996). According to Belak (2011), earnings management, aggressive accounting, earnings smoothing and falsification of financial statements are just some forms of misuse of creative accounting. Alexander and Nobes (2011) define the most common manipulations of financial statements through income, their recording ahead of time, their false recording and the transfer of current income to later periods. And Рагас (2008) is of the opinion that the most common motives for false presentation of income are the basis of the application of creative accounting, in order to increase profits or reduce losses. Sutton (2004), on the other hand, is of the opinion that manipulations are most easily carried out in the presentation of costs and expenses with the purpose of hiding the resulting loss, avoiding the presentation of the loss and creating greater profits due to receiving incentives and rewards through business. According to Belak (2011), the most common forms of manipulation of financial statements are through costs and expenses, income, provisions, unrealistic assets, aggressive revaluations, hiding liabilities, siphoning money, complex Through the set goal, the basis is to prove that due to the application of creative accounting, financial statements do not provide what they are based on. The application of creative accounting led to a decrease in the value of financial information, and its manipulations destroy the image of a business entity. For this reason, business entities should try to use the flexibility offered by creative accounting in its ethical application, because

only with more

ethical principles can manipulative behavior be reduced. Creative accounting has become a "puzzle game" of beautifying financial information that does not follow accounting rules, but skillfully manipulates them. The game has become synonymous with the phenomenon of the 21st century. 2. CREATIVE ACCOUNTING Creative accounting in practical application, by inappropriate and immoral management, has become an image of the negative aspect of the more favorable and false compilation of financial statements (Belak 2008). It is a process of long-term and multi-year duration, a process that starts with small and ends with large-scale manipulations as a means of complying with accounting regulations, rules and standards, both in legal and illegal contexts (Negovanovic, 2011). O'Regan (2006) defines creative accounting as a deliberate deviation from the true and fair presentation of financial results through the use and abuse of accounting techniques and principles. According to Mulford and Comiskey (2002), creative accounting is an aggressive game with financial numbers, while according to Naser (1993), the same creativity is a pure transformation of actual financial statements into desired statements through playing the rules. Creative accounting, according to Friganovi (2008), is both the application and abuse of accounting standards for the purposes of presenting financial results in the context of inaccuracy and unfair presentation. Falsifying financial information, falsifying business books, deceiving investors are typical examples of accounting manipulations (Rezzaee and Riley, 2014). Management, for the needs of a better and more stable presentation of the state of business as a basis for the upward trajectory of its development, uses creative accounting techniques (Belak and Vudri, 2012). Balaciu et al. (2009) conclude that there is no generally accepted theory of what creative accounting means, neither at the international nor at the European level. Just before that, it leaves room to continue working on the unification of the definition of creative accounting. 3. MOTIVES AND TECHNIQUES OF MANIPULATION OF FINANCIAL INFORMATION USING CREATIVE ACCOUNTING Data on business activity are presented in financial statements as representations of the level of financial efficiency of a business entity. Financial statements are records of essential information crucial in making

business decisions. Basically,

they are the final stage of accounting information processing (Zager and Zager, 1996). According to Belak (2011), earnings management, aggressive accounting, earnings smoothing and falsification of financial statements are just some forms of misuse of creative accounting. Alexander and Nobes (2011) define the most common manipulations of financial statements through income, their recording ahead of time, their false recording and the transfer of current income to later periods. And Рагас (2008) is of the opinion that the most common motives for false presentation of income are the basis of the application of creative accounting, in order to increase profits or reduce losses. Sutton (2004), on the other hand, is of the opinion that manipulations are most easily carried out in the presentation of costs and expenses with the purpose of hiding the resulting loss, avoiding the presentation of the loss and creating greater profits due to receiving incentives and rewards through

business. According to Belak (2011), the most common forms of manipulation of financial statements are through costs

and expenses, income, provisions, unrealistic assets, aggressive revaluations, hiding liabilities, siphoning money, complex quality of financial information in financial statements.

transactions and theft of cash. The former ignores the quality and veracity of accounting information, without which quality effective operation simply

loses its foundation

(Aljinovié Bara and Klepo, 2006). The most common motives for manipulations using creative accounting are attracting different interest groups, meeting the expectations of different groups, perceiving better profitability, higher share values, more favorable lending, growth in the market value of business entities, managerial rewards (Belak and Vudrié, 2012). 4. PREVIOUS RESEARCH Selected previous researches emphasize the motives and techniques of applying creative accounting in practice. All research points to the unethical application of creative accounting, which was supposed to be a reflection of ethics. Some researchers dealt with the issue of secondary analysis of scientific papers, while some conducted research by collecting primary data. In both contexts, interesting conclusions are revealed about creative accounting as accounting that once had the connotation of opening Pandora's box, and today is a burning problem that is looking for its solution. Cugova and Cug (2020) conclude with their research that financial information is manipulated through the application of creative accounting in order to fulfill state requirements. Nakié et al. (2021) in their research conclude that the abuse of creative accounting is most often the result of ambiguous rules of regulatory bodies and that the same abuse is connected to the ignorance or lack of information of the accounting and financial staff themselves, and that this is one of the key reasons for the deterioration of the quality of financial statements. The same authors conclude that the revenue impact technique is defined as the simplest approach to applying creative accounting in creating a better image of a business entity. Remenaric et al. (2018) emphasize that the basis of manipulation is found in the allowed accounting estimates within the framework of accounting standards, and that manipulations of off-balance sheet items, manipulations of depreciation and items of income and expenses are most often used under the techniques of using creative accounting. Androniceanu and Strakova (2021) prove the possibility of manipulation of financial statements both in variants of maximization and in variants of minimization of items, applying the technique of beautifying the windows and applying the off-balance sheet technique. Unethical behavior, agency problem and unprofessional attitude are the most common motives for fraud and scandals through creative accounting, according to research by Tassadaq and Malik (2015), who define creative accounting not as an illegal or legal approach, but as a problem of its maximum use, which results in pushing of a business entity in a scandal. 5. RESEARCH METHODOLOGY The research instrument used in the research is a survey questionnaire, sent via e-mail address to financial experts. It was formed with closed type questions. While some questions had concrete answers, some were formed with the answer setting of a Likert measuring scale of five analysis showed a significant statistical connection between the application of creative accounting and the manipulation of financial information through financial statements (Table 1).

e H3. It is assumed that the motive for applying creative accounting is closely related to the technique of its application. 5.1. Research results The research was conducted on a sample of 181 financial employees. They are defined as the group closest to the understanding and application of creative accounting. The diversity of opinions about the motives and ways of applying creative accounting were obtained from both male (45) and female respondents (136). For the purpose of examining the age of the persons involved in the research, five categories were formed, 20-30, 31-40, 41-50, 51-60 and 61 and over. Out

of 181 respondents, 15 of them belonged to the age group of 20 to 30 years, 73 of them belonged to the group of

31 to 40, there were 56 respondents in the group of 41 to 50, 31 respondents belonged to the group

of 51 to 60, while only 6 belonged to the age group of 61 and over. According to the formal education of the respondents, 44 of

them have a secondary education, 56 have a higher education, 67 have a university education, while 14 of them have a PhD. Basically, these are highly educated respondents. In further research, it was established that

the respondents' views on the application of creative accounting in practice in the context of its manipulativeness are clear and indicate its high application in the creative-manipulative aspect.

In particular, 38 respondents were not completely sure whether creative accounting can be observed in practice with all the elements of manipulative accounting, 48 of them

agreed that creative accounting has become manipulative, 88 of them are completely sure of the statement, while only 7 of them expressed disagreement with the

statement made. The analyzed answers confirm the application of creative accounting in practice in all its manipulative

application. Practice has confirmed what the theory indicated, namely that the margins of

misuse of creativity are crossed in practice and manipulation comes to the fore. Based

on the above, the first hypothesis was confirmed, which reads: HI. It

is assumed that creative accounting is applied in practice with an increasing dose of manipulativeness. This gave

the green light to continue the

research and determine the motives and techniques of applying creative accounting in the manipulation of financial statements. For the purposes of

confirming the second hypothesis, which reads: H2. It is assumed that the application of creative accounting affects the quality of financial information in

financial statements, the answers to questions from the questionnaire related to the application of creative accounting and its possible

impact on financial statements in the context of their quality were analyzed. Basically, the aim was to establish to what extent creative

accounting can influence the manipulation of financial information. The same hypothesis was confirmed by correlation analysis in the

statistical package SPSS. The analysis showed a significant statistical connection between the application of creative accounting and the manipulation of financial information through financial statements

(Table 1). Correlations creative_accounting quality financial _ statements Pearson Correlation 1 0,641" creative accounting Sig. (2-tailed) 0,000 N 181 181 alitv financial Pearson Correlation 0,641" 1 an ; Ion ·- Sig. (2-tailed) 0,000 N

So far, the research has given an opinion on the very approach of applying creative accounting in the context of discovering attitudes, whether it is considered whether the same accounting is present in practice at all and to what extent, what are the motives for its application and with what techniques creative accounting is applied when the question is raised its manipulative applications and reflection on the quality of financial statements. The criterion for assessing the ethicality of the application of creative accounting by the respondents ranged from 1 - unethical to 5 - ethical. Regarding the answers, not a single respondent gave an answer with a rating of 1 and 2, which means that the respondents are not considered unethical in the application of creative accounting and that by applying the same accounting they do not cross the border of manipulative accounting. Of the total number of respondents, 10% of the sample was unable to clearly express their position, 33% of the sample rated their application with a grade of 4, while the largest sample of 57% of respondents was quite clear in their ethical application of creative accounting. The above reveals that the respondents have one attitude towards the general application of creative accounting in practice and another attitude towards their personal application. When asked by whose order creative accounting is used in practice, the largest number of respondents are of the opinion that it is applied by order of their superiors (59% of the sample) and at their own discretion (17% of the sample). In addition to the above, the research set itself the task of proving whether there is a connection between motives and the application of the creative accounting technique. To prove it, a correlation analysis was performed (Table 2). In the context of the conducted analysis, a medium-strong connection between the observed variables is confirmed, thus proving the confirmation of hypothesis H3. More specifically, the Pearson's linear correlation coefficient of 0.597 indicates a mediumstrong but significant relationship between the observed variables, with a high significance of the correlation (Sig. < 0.01). The obtained result confirmed the empirical connection between the motive of applying creative accounting and the technique of its application, which leaves us to conclude that the third research hypothesis, which is НЗ, is correct. It is assumed that the motive of applying creative accounting is closely related to the technique of its application, he accepts.

The conducted research confirmed all the set research hypotheses. In the context of the same, it was determined that the application of creative accounting is present in practice and that financial experts perceive it with a high degree of manipulativeness and with a distinct influence on the quality of information presented in financial statements, as well as that the link to the application of the creative accounting technique is clear to them in accordance with the motives of the perpetrator applications.

6. CONCLUSION

The essence of financial reporting lies in the true and fair presentation of financial information in financial statements. The same essence is violated in the permitted space of alternative application of accounting standards and principles that can be abandoned both consciously and unconsciously through the application of creative accounting. Creative accounting violates the principle of true and fair presentation of financial statements through intentional accounting errors and fraudulent practices. The conducted research confirmed the unethical application of creative accounting in practice and the same research detected the most common motives and techniques of its application. At the same time, an insight into the possible existence of a connection between the motive and the very technique of manipulative use of creative accounting was provided. All of the above was clearly confirmed in a sample of 181 financial employees. At the same time, a review was provided to encourage the application of creative accounting, with the order of the superior and on one's own order. In both contexts, the unethicality and abuse of the initially set flexibility of applying regulatory frameworks through the prism of creative accounting is emphasized.

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Footnote

181 181 ·· Correlation is significant at the 0.01 level (2-tailed). according to Petz, ?. (1997). Osnove statistièke metode za nematematicare, VI. Izdanje. Jastrebarsko: Naklada slap.