Creative Accounting

Meaning of Creative Accounting

Creative accounting is the way of cheating the interested parties by changing the value of incomes, expenditures, assets and liabilities. Accounting is the game of numbers. If we systematically change in these
numbers, no one can find it easily. There are lots of loopholes in the accounting. By getting the benefits of these loopholes, accountants managing their incomes, expenses and assets. Except this, cheaters also make new transactions which are false but they use them for inflate the profit or any other purpose.

Motives of Creative Accounting

1. Personal Incentives 

For getting personal incentives, people use creative accounting. For example, one day my friend says me
"Please bring my operation bill from my doctor because he is on the bed and unable to go there. It should be of Rs. 2,00,000. Actual expenses of operation was of Rs. 1,00,000." I asked the reason of this. He told me that he will get personal benefit from this. It was very shameful for me that he was my friend. So, personal incentive or greed is the main reason of creative accounting. Never denigrate great accounting knowledge with this.

2. Saving of Tax

By creative accounting, accountant saves the tax of businessman. You know businessman pays tax on net income. If accountant passes false transactions for increasing expenses and losses, it will decrease the income. So, businessman will pay less tax on this less in income. Never use this, there are lots of honest way for saving tax, use them.

3. Increase the Price of Shares 

For increasing the share prices, big companies use the creative accounting. They show false assets for increasing the net worth and ROI. With this, investors wrongly buy these shares at high cost, due to this prices of shares are  increased. Still SEBI and other regulators are strict on this issue but there is still big need to make new rules to control this.

How to Creative Accounting

To tell the the steps of creative accounting is not to promote creative accounting but to give the awareness to young auditors. Following are the main ways of creative accounting.

1. Loophole

First of all, cheater finds the loopholes. From these loopholes, cheaters start to create his own accounting with any accounting standard of accounting.

2. Window Dressing 

Window dressing is against the fair and true view of financial statement. For more window dressing, read at here.

3. Off Balance Sheet 

Some company start to increase the items of off balance sheet. With this, normal balance sheet will look normal. For more off balance sheet, read at here.

Protection Against Creative Accounting

1. Internal Audit

2. Uniform Accounting System

3. Education of Ethics in Accounting

4. External Audit

5. Accounting Work Rotation

Related : Creativity of Accountant






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Accounting Education: Creative Accounting
Creative Accounting
Accounting Education
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