Content area
Full text
ABSTRACT
Accounting has been rightly termed as the language of business. Accounting serve as an important means of information and communication to various stakeholders such as owners, creditors, investors, employees and general public. An accountant is required to follow certain set of rules, regulations and procedures while preparing books of accounts, commonly known as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards). The financial statements of a company should give a true and fair view of the state of affairs of the company as at the end of the financial year whereas creative accounting/aggressive accounting/innovative accounting falsely portrays a better image of the company. Creative accounting is known as the exploitation of accounting concepts for gaining various advantages and for deceitful purposes. An accountant uses his accounting knowledge to manipulate/cook the accounting statements of a business. So, it is an attempt to deliberately alter accounting records for financial gain. The reason for the present study on Creative Accounting phenomenon is due to the eruption of financial scandals worldwide. Accounts are presented in such a manner that they don't reflect their true value or the financial activities of that company. Sometimes the accountant may wish to show favorable profits (e.g. to get a bonus or to get a bank loan) at other times losses (e.g. to pay less tax). Creative accounting practices may include misdirecting funds, overstating revenues/assets or understating expenses/liabilities. Enron, Satyam, Reebok are just a few companies who have been shaken by accounting scandals. Worst Indian financial scams has been taken as a case for studying the concept of creative accounting.
The study revealed the facts behind the adoption of creative accounting as a deliberate attempt to gain undue advantage to management by portraying a false position of the firm. However, some measures such as Sox audit, zero tolerance policy, course on ethics, employee engagement and so on can be used to curb creative accounting practices.
Keywords: Creative accounting, GAAP, IFRS, financial statements, Sox audit, Reebok scam, Corporate Governance.
Introduction:
Accounting is based on double entry system of book-keeping, which says every debit will have corresponding credit with the same amount.
The foundation of entire accounting is based upon the rules of debit and credit. For example, if an...