Journal of Business & Economic Policy

ISSN 2375-0766 (Print), 2375-0774 (Online) DOI: 10.30845/jbep

Creative Accounting: Unethical Accounting and Financial Practices Designed To Boot Earnings and To Meet Financial Market Expectations
Dr. Kingsley Wokukwu

This paper discuses financial shenanigans and earnings management and what motivate managers to engage in unethical financial practices. This paper explores the role accounting standards play in the creative accounting practices by the corporate manager. The excessive financial scandals and earnings restatements in recent years has left many investors questioning whether reported earnings can ever be free of management manipulation. The author looks at the role accounting rules and standards, auditors and external factors play in earnings management and revenue recognition. The paper finds that some of the improprieties relating to earnings management stems from an outdated accounting standards, complex corporate financing arrangements, preservation of executive compensation incentives and corporate pressure to meet earnings projection. It is apparent that managers have a strong interest in the corporate bottom line and the managers can choose accounting policies from a set of policies from Generally Accepted Accounting Principles (GAAP) to meet or beat the market expectation, it is natural that the management would choose policies that will help them achieve their objectives. Statement on Auditing Standard (SAS) No 82 distinguishes fraud from error on the basis of whether the underlying action of management that results in misstatement of financial statement is intentional or unintentional. Security Exchange Commission Staff Accounting Bulletin ((SAB) No 101 provides specific guidelines for revenue recognition. Firms go as far as they can to recognize revenues that lack economic substance. International Accounting Standard Board (IASB) IFRS 15 and US Based Financial Accounting Standard Board(FASB) ASU 2014-09 published a new revenue standard. The new standard is as a result of a convergence project between the two Boards.

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