Abstract
The dual nature of creative accounting has been intensely debated since its emergence in the Anglo-Saxon economies. The lack of a common accounting language, different accounting systems at international level, applied in different languages, international legislation harmonized more or less correctly, amidst a turbulent economic environment, left room for multiple interpretations and meanings. This chapter presents the advantages of fair value in manipulating business performances by creative accounting, but there are voices that are challenging this concept because of its volatility and tendency to subjectivism, and also manipulating the models used to evaluate balance-sheet structures or profit and loss account. The results show that fair value was introduced by accounting norms in response to the deterioration of confidence in the financial statements and targets a new system for assessing the entity's assets and liabilities.
TopBackground
Theme creative accounting practices are addressed by several disciplines: accounting, information technology, psychology and management, but they have grown tremendously in recent decades throughout the entire spectrum of companies (Brown, 2010). Creative accounting is operating at shade where accusations substantiated by non-compliance with professional or legal norms can be brought, but where common sense logic notifies the presence of a certain dose of „forcing the note” (Bettner & Kate, 2013).
A number of authors have described creative accounting as such:
Key Terms in this Chapter
Accounting Engineering: The process whereby, given the existence of gaps in the rules to manipulate accounting numbers and taking advantage of flexibility, those practices are chosen for measurement and information that allow transforming synthesis documents from what they should be in what managers want.
Convergence of Accounting: The process by which accounting standards are developed in a manner that is able to lead to the same act or purpose, by showing the similarity of national, regional, international.
Fair Value: The amount at which an asset is bought or sold in an arm’s-length transaction, in which neither party is forced to act.
Creative Accounting: A tool to create a distortion of the quality of financial information, creating uncertainty about the consistency and comparability of information for users, in which case we are dealing with an accounting of intent.
Corruptible Value: The amount for which an asset could be changed into a balanced transaction between informed and determined parties other than in a forced sale of liquidation.
Financial Engineering: Represents an aggregate of procedures, which have as objective the modification of the level of the results while taking into account the optimization, minimization, or presentation of financial situations.