Professional Documents
Culture Documents
E AND ITS
ACCOUNT
S
MANIPULAT
ION
Potential wealth transfer
Fraud
S
t
D
e
Main
research
streams
Name of the
research stream
Earnings
r
managemen
A
Level of
E
P
S
Main
objective
De
empirical
researches
Type of
research
Schipper
(1989)
(1991)
Representative authors
DeAngelo
(1994)
Few real
empirical
researches
Tweedie et
Whittington
(1990)
Naser (1993)
Breton et
Taffler
(1995)
Pierce-Brown
et Steele
No
empirical
research.
Professional
opinion
Griffiths
(1986, 1995)
Smith (1992)
Schilit (1992)
Stolowy
(2000)
Interpretations
172
(2)
d to take advantage by
shareh
allowing
themselves
olders
take
considerable
the
advantages
or,
financi
generally, by directing
al risk
the entity towards a
justifyi
direction useful for
ng the
them. In the case of
approp
enterprises quoted on
riation
financial markets there
of
a
is a natural distribution
part of
of responsibilities. Such
the
a distribution and the
years
problems arising from
profit
it have been presented
and
in the founding papers
from
of Berle and Means
the
(1932).
residua
The shareholders invest
l net
their
capitals and give the
asset,
leaders/managers
a mandate
in the
through
which
they
manage the
case of
best the organization, trying to
the
entity maximize the performance of the
closing enterprise. This separation of the
down; responsibility can lead to conflicts
on thegenerating costs. Manipulating
other accounting data is an activity
side, reserved to company managers,
even though the other players in
the
leaders the field influence the leaders/
managers in their decision to
,
becaus perform such a manipulation. If it
e theywere possible to build a theory of
have the accounting data management,
privile it would not have started from the
techniques used for manipulation,
ged
inform but based on the needs, the
ation, occasions arising and of the
taking relations between players and
investors.
into
The investors can be
accoun
t
thedivided in four subgroups: real and
positio potential shareholders and the real
n heldand potential stockholders. Their
in theinterests are very varied and the
enterpr transfers of riches can be operated
these
subgroups.
ise and,between
Consequently,
they
react
differently
therefo
to
manipulating
accounting
data.
re, are
173
tempte
accounting,
felt each time the profits have a
fluctuation,
unjustified
appreciating that ithigh
is
athrough the economic reality.
communication
A complex vision is
technique havingprovided by Naser (1993) in
in
view
thewhose
opinion,
creative
amelioration of theaccounting is: 1) the process
information
through which, due to the
provided to theexistence of some breaches in the
investors.
Thus,rules, accounting figures are
the
economicmanipulated
and,
taking
entity is presentingadvantage of the flexibility, they
to the investors orchoose
those
measurement
to the prospectivepractices
allowing
the
investors financialtransformation of the synthesis
statements passeddocuments from what they are
through the filtersupposed to be into what the
of
somemanagers want; 2) the process
techniques capablethrough which the transactions
of generating aare structured in such a manner
more favourablethat it allows the production of
image
on
thethe desired accounting result.
market but also the
Some
authors
define
illusion of somecreative
accounting
as
an
more
attractiveassembly of procedures having in
results that theview the change of the level of the
normal.
result in order to increase or
Defining decrease, or present the financial
statements,
without
these
creative
accounting
objectives
being
reciprocally
through a wellexcluded (Stolowy, 2000). For
known
practice,others, creative accounting is
that is the resultrepresented by the assembly of
of
techniques, operations and freedom
smoothing(smooth spaces provided by the accounting
ing
income),texts which, without distancing
Barnea, Ronen andfrom the accounting norm and
Sadan
(1976)strictness, allow
appreciate that this
makes its presence
174
uses
thetruthfulness of the accounting
information sent by the economic
legislations
breaches or theentity to the business environment
ambiguities
inis being altered.
order to create
Romanian literature is
their own portraitpoor in what the interest
of the enterprise,regarding creative accounting is
according to theirconcerned. Feleaga and Malciu
preferences,
in(2002) stated that creative
other words theaccounting was defined as a
process through which the
financial
performance
isaccounting professionals use their
obtained throughknowledge in order to manipulate
the use of thethe figures contained in the
breaches in theannual accounts.
Although
there
are
legislation. The
author emphasisesmisunderstandings regarding the
the idea thatdefinition of creative accounting,
the majority of researchers accept
creative
accounting doesthe idea that this stands out
not break the lawthrough two aspects. The first
but only its spirit. aspect has in view the use of the
professionals
Creative accounting
imagination
in
order
to translate
accounting is used,
those
juridical,
economic
and
according to the
financial
innovations
for
which
opinion issued by
are
no
normalized
Burlacu and Ptroithere
accounting
solutions
at
the time
(2005) and for the
of
their
occurrence.
The
second
consolidation of
the
economic-aspect shows the fact that the
financial indicatorsadjustments resulting from this
of the economicfinancial engineering are initiated
entities, distortingaccording to their incidence on
yet
theirthe enterprises balance sheet and
results.
informational
content.
It
is
appreciated that in
this
way
the
consistency
and
175
Italy
Japan
Other
nomenclature of
creative
Australia
accounting in
Great
literature
Britain
Creative
(Source: Audit Committee Newsltter, KPMG, June, 2003)
accounting,
as
mentioned before,
By the mentioned above
has
developed
we
pointed
out the fact that
geographically creative accounting
has known a
both
in
itsglobal geographical development,
practices
today being a world discussed
complexity and inphenomenon.
its nomenclature.
Research methodology
Thus, the term
preferred in the
The object of the current
USA and the mostarticle refers to the presentation of
frequent one isthe conceptual delimitations
that of earningsregarding creative accounting, the
management
detailed description of theoretical
whereas
inframework proposed by some
Europe we areauthors, as well as the brief
using the phrasereview of the literature written on
creative
the topic between 1999 and 2009.
accounting. InAlso, we can see how the specific
the
literature,
literature regarding the aspects
creative
concerning the magical land of
accounting
can
still be foundcreative accounting becomes day
under the name ofby day even richer, not little
guilty by this thing being the
income
financial scandals and the recent
smoothing,
economic
crisis
we
are
earnings
experiencing
(are
we
going
to
get
smoothing,
over it?) we have decided to
cosmetic
accounting
or shortly review the main aspects
approached at the European level
accounting
regarding the role that creative
cosmetics,
financial crafts or accounting is playing in this
accounting crafts.play. To achieve this aim, we
approximately
40
For
moreanalysed
academic
articles
available
in
explanations on
three
scientific
databases,
Science
all the various
Direct, Emerald and ProQuest.
global
nomenclature, weThe choice of these three sources
enclose
theis motivated by the presence
following table: hereof all the articles having in
view a very good quality
international research and the
Country
Switzerland English language to present them.
Our approach regarding the
Germany
exploratory research includes two
Holland
stages:
The first consists in
finding the information about
France
creative accounting in the
USA
databases
second stage consisted in
mentioned abovegrouping them on the most
the longitudinalfrequently approached themes.
classification ofOut of these, we mention aspects
the
selectedconnected to different accounting
articles thetechniques/practices
in
the
interval had incontext of some bankruptcies, by
mind
beingtheir influence on the financial
contained
markets transactions and aspects
between 1999 andconnected to the problems of
2009.
audit and corporative governance.
The
176
2. Acknowledgement
of
profits
3. Information regarding the
financial statements re
In
our
research, we have
Based on these three directions, the
used the deductive
method
(thearticle examines the GAAPs
attainment of therequirements and the ways through
conclusions basedwhich Enron used these GAAPs to
on the alreadyhide the economic substance
existing theories),representing the base of the
the
type
oftransactions. If the economic
research
usedprinciple on the judicial had been
being
theapplied in the case of Enron Co.,
fundamental one.
The utility of suchthe investors and creditors would
a
researchhave been provided with a realistic
contributes to theimage of the financial position and
ensurance of theresults, probably avoiding what
premises for thesubsequently has become the most
development
offamous bankruptcy case in the
future research. USA history. Remaining on the
sphere of serious accounting
Discussionscandals within the big companies
The main(for example, World Com and
interest
areasEnron) and in the banking sector
around which we(for example BCCI, Barings, Allied
have tried toIrish Bank and Baninter), Mine
embroider areOmurgonulsen,
Ugur
therefore
Omurgonulsen
(2009)
brings
into
presented in detail
next:
discussion the problem of creative
Bankrupt accounting with its legal and illegal
facets which occurred on the
cies
companies
and
governments
agenda. They examine a certain
The
spectacular risetype of creative accounting practice
and fall of Enron(fraud) in the light of a Turkish
Co. provides acase (the ImarBank scandal). It has
truthful
discovered
that
the
illustration of thebeen
deficiencies
within
the
legal
fact that some
companies
canbanking conceptual framework, the
use the juridicalinadvertencies of the regulating and
status
ofsupervision governmental bodies,
transactions
topractical difficulties in the
hide the economicapplication of the ethical rules and
substance
representing theof the legislation which have led to
base of thesethe wrong operation of the judicial
system, are significant reasons for
transactions.
Baker
andcreative accounting practice in
Hayes(2004)
connection with the Imarbank
examine
theowners and top managements
creative
greed. Also, the intention and
accounting
capacity of the political power in
practices
fighting against this type of
connected to:
corruption are crucial. The authors
1. Off
balance also deal with the different
techniques of creative accounting
sheet
financing found in practice, the review of a
the
agencysaccounting profession launched in
theory.
SuchMay 1991 the idea of creating a
problems
committee
regarding
the
connected to thecorporative governance financial
agency, as it hasaspects (Feleag, 2008). After the
been
committee was created, there
demonstrated
were the scandals of the BCCI
above,
oftenand Maxwell enterprises. The
include
theCadbury report was drawn up
managers assetbetween May 1991 and the end of
abuse and the lack1992, through the committee with
of a real control.the same name, due to Sir Adrian
Yet, as in otherCadbury. The central report is
countries,
thebuilt by what the authors call a
development ofcode regarding the best practices.
the
corporativeThey pretend that, if such a code
governance
inhad existed in the past, the recent
Great Britain hasunexpected bankruptcy examples
initially led toand the fraud cases would have
enterprise
been disclosed much earlier.
collapses
and
Peasnell et all. (2000)
financial
using a constant group analyse the
scandals. As acorrelation between the structure
result of theseof the Board of Directors and the
(Coloroll
andmanagerial earnings comparing
Polly Peak, etc. )two periods of time: the period
and of the lack ofbefore the appearance of the
trust
in
theCodes of Good Practice written
by the Cadbury Committee1994
financial
reporting
ofand the period after the
several
Britishappearance of the Code of Good
enterprises,
thePractices. They conclude that
after the appearance of the Code
Financial
of Good Practices the managerial
Reporting
earnings diminished, given the
Council,
thenew
London
Stock
Exchange and the
178
the
budgetary
resources.
A
a
postponing of the
s
budgetary
s
acknowledgement
o
of
some
c
transactions
i
accompanied by a
a
wrong
t
information
on
i
the
debts
o
presented in the
n
financial
statements
b
afferent
to
e
projects are the
t
main
w
consequences of
e
the use of the new
e
financing
n
methods. Shortly,
this is a clear
t
example
of
h
creative
e
accounting used
in
order
to
m
positively respond
a
to
the
r
convergence
k
criterion imposed
e
by the EU.
t
Traditional
ly, the financial
a
balance of the
n
economic entities
d
t
h
e
e
s
t
i
m
a
t
e
d
p
r
o
f
i
t
s
c
o
n
t
r
i
b
u
t
i
o
n
o
f
t
h
e
a
d
m
i
n
i
s
t
r
a
t
i
o
n
f
u
n
c
t
i
o
n
r
e
d
u
c
t
i
o
n
o
f
t
h
e
a
g
e
n
c
y
s
c
o
s
t
s
s
t
r
e
a
m
l
i
n
e
o
f
t
h
Bastida, F.
(
2008)An
example of
creative
accounting
in
public
sector: The
private
financing
of
infrastructu
res
in
Spain.
Critical
Perspective
s
on
Accounting
,
Volume
19, Issue 7,
Pages 963986,
available
on-line at:
http://www
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6. Bertolus J.
1988. Lart
de truquer
un
bilan,
Science
&Vie
Economie,
No.40
7. Brown R.,
Steele
T.
1999, The
economics
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accounting
for
growth,
Accounting
and
business
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vol. 29, no
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Marea Britanie:
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de21. MacBarnet, D. and C. Whelan
(1997). Regulatory Arbitrage
bun conduit n
through Financial Innovation,
contextul
Accounting,
Auditing
&
guvernanei.
Accountability Journal 10.1: 85
Contabilitatea,
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Kinnunen, J., Keloharju, M.,
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Kasanen, E., Niskanen, J., 2000.
Nr.10, pp: 40Earnings management and
41.
expected dividend increases
15. Feleag,
N.,
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Malciu,
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evidence
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i
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Editura
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Economic,
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Investing in people! PhD scholarship, Project co-financed by the European Social Fund, SECTORAL
OPERATIONAL PROGRAMME HUMAN RESOURCES DEVELOPMENT 2007 2013 Babe
-Bolyai University, Cluj-Napoca, Romania
PROIECT FINANAT DE
UNIUNEA EUROPEAN
INSTRUMENTE STRUCTURALE
2007-2013
183
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