Business Accounting

CREATIVE ACCOUNTING











Students: Esperanza Márquez Vargas
Ignacio Carmona Zabalo

INDEX

* Definitions of Creative accounting.

* Creative accounting versus the general ledger.

* Reasons for using creative accounting.

* Techniques and methods used in the implementation of creative accounting.

* Keys to detecting creativeaccounting practices.

* Transactions common in creative accounting

* How to reduce creative accounting

* Creative accounting in Spain

* Example of creative accounting practices




1. DEFINITIONS OF CREATIVE ACCOUNTING.

Creative accounting is primarily to take advantage of gaps in the regulatory framework regarding the different choices in order to transformthe accounting information presented in the financial statements of companies.
This term is used to describe the process by which accountants and advisors use their knowledge of accounting standards to "make up" the figures reflected in the accounts of the company, while meeting accounting principles. Thus, as applicable criteria or other aspects of accounting, the results may vary and be morefavorable for organizations.
Enron, Worldcom and others are some cases of creative accounting (euphemism for fraud with numbers) that have appeared in recent times have been of great impact on the U.S. economy, to the extent that the markets have lost confidence in the "generally accepted accounting principles," the auditors, consultants and even investment analysts, who recommend the purchase ofthis or that action, earn good commissions and leave in the lurch thousands of investors.
2.CREATIVE ACCOUNTING VERSUS THE GENERAL LEDGER.
The general ledger has two basic functions:
• Provide information on any significant variations heritage.
• Study the causes that have led to these changes in order to determine proper planning of the actions to follow.
The use of standards and laws ofgeneral accounting creative accounting offers better opportunities for the professional accountant to the taxpayer.
But the violation of rules and laws of general accounting with intentions creative accounting fraud that harm the interests of members, the Treasury and others, constitutes a public offense.

3. REASONS FOR USING CREATIVE ACCOUNTING.

In recent times as a result of the financialcrisis that has affected large international companies, creative accounting has special relevance, questioning the data presented and the credibility of auditors and consultants.
Discussions on the reasons that have led some companies to put into practice creative accounting, have focused primarily on the impact they may have on the decisions of investors in the stock market as they have used"accounting tricks" to deceive investors.
Among the reasons are the managers of the companies listed their shares, to try to manipulate the accounts through the use of creative accounting include:
Companies generally prefer to reflect a stable trend in profit growth, instead of showing a profit volatile series of dramatic ups and downs.
You can help maintain or "increase" the price of the shares,thereby reducing the apparent levels of debt, and therefore, making the company look less exposed to risk, as creating the appearance of a trend of increasing profit.
If managers are engaged in international operations with the actions of your company, can use creative accounting to delay the arrival of information to the market, taking the opportunity to benefit from inside information.Ethically, the first of three exposed Reason, are open to honest debate. The other two reasons ethically unacceptable, especially the last.
Sometimes, companies must make their records in an objective, but accounting legislation has certain gaps or ambiguities that arise when certain aspects of accounting. There are also many points of accounting among which you can choose or others who need to make...