The Impact of Creative Accounting on Financial Reporting

Abstract

Accurate financial data is essential for effective entity management; nonetheless, due to the intricacy of economic data and psychological factors, innovative accounting techniques frequently arise. This research examines the repercussions of such practices on the evaluation of an entity’s true financial standing. Through literature review and analysis, key motivations for resorting to creative accounting techniques are identified, including tax reduction, regulatory flexibility exploitation, and managerial remuneration enhancement. Additionally, methods for curtailing creative accounting are explored, with emphasis placed on the role of audit certification in identifying fraud risks and bolstering business credibility. While creative accounting may initially improve an entity’s financial outlook, its prolonged misuse can distort perceptions and erode investor confidence. Regulatory measures, enhanced external audits, and ethical promotion within companies are proposed as strategies to mitigate the adverse influence of creative accounting. CZU: 657.632:657.37; JEL: M41