Advantages of Creative Accounting.Creative accounting is a set of opportunistic accounting practices deliberately developed by Management in order, without altering the composition of the Equity , to issue Financial Statements that provide an image of the company similar to that desired by Management, taking advantage of the explicit or implicit flexibility that allows accounting regulations.
CONCEPT OF CREATIVE ACCOUNTING
Creative accounting is the process of manipulating accounting to take advantage of the gaps in accounting regulations and the possible choices between different valuation and accounting practices that it offers, to transform the annual accounts from what they have to be to that, those who prepare them, prefer that they be … instead of reflecting these transactions in a neutral and consistent way”.
WHY IS CREATIVE ACCOUNTING USED?
- Smooth results.
- Manipulate the value of the Shares .
- Control dividends and manipulate management remuneration systems .
- Reveal the previous address.
- Put difficulties to the next address.
- Deceive Banks or Treasury (DGI).
- Change results regulated companies, concessions.
10 Advantages of Creative Accounting You Must Know
- Reduce assets such as inventories, customers or fixed assets with excessive depreciation or provisions.
- Reduce inventory with changes in valuation criteria.
- Reduce reserves and/or the result for the year.
- Hiding sales or raising expenses to reduce profit.
- Delay the posting of sales or advance the posting of expenses.
- Consider purchases of Fixed Assets as expenses of the period.
- Transfer results from one company to another within a business group .
- Increase assets such as inventories, customers or fixed assets with insufficient amortization or provisions.
- Increase stock with changes in valuation criteria.
- Increase reserves and/or the result of the exercise.
- Increase sales or reduce expenses to increase profit.
- Advance the posting of sales or delay the posting of expenses.
- Consider expenses for the year as investments as Fixed Assets.
- Transfer results from one company to another within a business group.