This therefore enables them to boost their assets in order to avoid take-over which may result due to bad performance. Companies that make losses therefore seek to maximize the loss reported in that year so that their future years may appear better (Griffiths, 1987, p. Te desire for tax benefits necessitates companies to use creative accounting particularly when the taxable income is measured through accounting numbers. Frther, te companies desire to meet external expectations such as long term survival demanded by customers and employees, asurance about payment demanded and dividend payout pattern to the analysts, ad internal targets such as sales targets and profitability.
Both of these require the company to cook their books through creative accounting (Epstein & Lee, 2010, p. Cmpanies use different methods to manipulate the values in their financials. Te most common methods include pre-acquisition write down, etraordinary and exceptional items, dferred consideration on acquisition, canges in depreciation method, of balance sheet finance, band accounting like capitalization of assets, cntingent liabilities, cpitalization of costs (R&D and interest), crrency mismatching between deposition and borrowing of pension funds to reduce annual charge among others (Aneirin, 2007, p.
b Companies basically would wish to succeed in their business endeavors as well as possible. Gnerally Acceptable Accounting Principles of creative accounting outlines various accounting methods to be selected by companies specifically those that may make their financial statements better. Te method provides for legitimate techniques to be employed especially when certain items in the accounts are being computed (Picker, 2013, p. Hwever, awide range of accounting methods provided by the GAAPS of creative accounting poses difficulty drawing an ethical line.
Tchnically, te estimates employed by the companies are not illegal but gross misrepresentation and inflation of the performance of the true values may be unethical. Ceative accounting is therefore legalized impliedly especially when it achieves the ultimate goals of the company of increasing the value of the stock and also within the ramifications of the law. I should therefore not mislead other users or stakeholders and should also benefit the company. ..
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