Creative accounting

Creative accounting
The manipulation of *financial statements through the use of imaginative or unusual accounting techniques. Creative accounting techniques include, among other things, the following: (i) extension of the *amortization periods of *long-term assets to reduce amortization expenses in the initial years of an asset’s life; (ii) manipulation of *reserves through * cookie jar accounting; (iii) the use of *off-balance sheet items; and (iv) *window dressing techniques. Creative accounting techniques may or may not contravene *Generally Accepted Accounting Principles (GAAP), as creative accountants tend to dance around the outer boundaries of GAAP. However, by "operating in the gray area between legitimacy and outright fraud" (Beattie et al., 2001, 5), creative accountants are generally viewed as motivated by attempts to mislead investors and others. In recent years, systems of GAAP and Generally Accepted Auditing Standards (GAAS) around the world have aimed to narrow the scope for auditor acquiescence to creative accounting transactions. As has been memorably stated, creative accountants have tended to become more bold in pushing the boundaries of accounting acceptability: "Auditors giving the green light to risky transactions was the accounting equivalent of providing Viagra to a sex addict; it fuelled the desire to push harder" (Toffler and Reingold, 2003, 245). Further reading: McBarnet and Whelan (1999); Schilit (2002); Smith, T. (1996)

Auditor's dictionary. 2014.

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