What is creative accounting?

Creative accounting is a description of accounting procedures that are not considered illegal but may be somewhat unusual. Sometimes it is referred to as Hollywood accounting, management of earnings or cooking books, the idea for creative accounting procedures is often emphasized by the positive aspects of the company's financial situation and at the same time to reduce any negative factors. To some extent, irregularities of this type may be misleading for potential investors and are therefore often considered unethical, although the strategy can remain in a letter of law.

As with most distortion types, the most effective examples of creative accounting are those that say part of the truth, but reduce any elements that could change the perception that the company wishes to communicate to others. For example, the company can play the fact that has recently experienced significantly increased sales in the last quarter. At the same time, little is said about the fact that the expenses have increased in proportion to this jump in sale and effectively compensated this DALSales volume. If those who hear about the increase in sales do not examine a little deeper, it is likely that the perception is that the company is now financially stronger when the company actually achieved only small or no growth at all.

There are many reasons why the company would use creative accounting. One of the more common is to increase the desire for stocks issued by the company. In some countries, this can be achieved by issuing messages that indicate that officers receive bonuses due to increased sales volume, although this volume has not led to the actual increase in profits. At the same time, business issues other shares of shares. This sends a report to investors that the company is moving, and some of them attract orders to buy shares before they are invented by other investors. The final result is that the demand for shares increases the value of shares and benefits business financially.

In recent years a number of nations subnIkla steps to minimize the occurrence of creative accounting by implementing regulations that make it difficult for businesses to cook books and presents a financial situation that does not say the whole story. We hope that investors will be able to obtain all the data needed to decide on their investment possibilities and prevent the economy from being adversely affected by misleading practices of financial accounting for major corporations. Since there are a number of ways to engage in creative accounting, it is likely that it will take several years to make regulations that will make these unorthodox accounting processes explicitly illegal.