MONICA Creative Accounting Drones Accounting

1. Topic :Creative Accounting
Prepared by : Monica T
(23COMD41)
Academy Year:2023- 2024

2. Creative Accounting
Join us on a journey to explore the world of creative accounting and how it
impacts your bottom line.

3. Definition & Explanation
1 What is Creative
Accounting?
Creative accounting is the
manipulation of financial
records to make a
company appear more or
less financially healthy
than it actually is.
2 Why do it?
Companies can use
creative accounting to
meet financial targets or
avoid bad press.
3 How is it done?
Techniques include
overstating revenue,
understating expenses,
and improperly recording
transactions.

4. Impact on Financial Statements
1 Income Statement
Creative accounting can cause revenue
to be overstated and expenses to be
understated on the income statement,
leading to a false impression of
profitability.
2
Balance Sheet
By manipulating assets, liabilities, and
equity accounts, creative accounting can
affect the overall financial health of a
company, making it appear more or less
stable than it actually is. 3 Cash Flow Statement
Creative accounting can distort cash flow
by reclassifying transactions or
misrepresenting liquidity, making it
difficult to forecast future cash flows.

5. Examples of Creative Accounting
Enron Scandal
Enron used a variety of
methods, such as off-balance
sheet financing, to manipulate
financial records, leading to one
of the largest corporate
scandals in history.
WorldCom Fraud
WorldCom committed
accounting fraud by inflating
earnings and hiding expenses,
leading to the company's
downfall and the loss of over
17,000 jobs.
Tesco Accounting
Scandal
Tesco overstated profits by
£263m, causing a significant
loss of investor confidence and
a subsequent fine by the UK's
Financial Conduct Authority.
Bernard Madoff Ponzi
Scheme
Madoff used a Ponzi scheme to
defraud investors of billions of
dollars, using creative

6. Ethical Considerations
Integrity
Creative accounting violates
the principle of honesty,
integrity, and credibility in
financial reporting.
Stakeholder Interests
Creative accounting harms
investors, creditors, and the
general public who rely on
transparent financial
information when making
decisions.
Legal Obligations
Creative accounting violates
laws and regulations,
leading to significant fines,
reputational damage and
even criminal charges in
some cases.

7. Detection & Prevention
1 Internal Controls
Establishing internal controls can prevent and detect creative accounting by ensuring that
financial records are accurate, complete, and reliable.
2 Independent Auditing
Hiring an independent auditor to verify financial statements can help detect and deter creative
accounting by ensuring that financial records are accurate and reliable.
3 Whistleblower Programs
Encouraging employees to report unethical behavior can help detect and prevent creative
accounting by promoting transparency and accountability within an organization.

8. Conclusion
Creative accounting can have severe consequences on an organization's
financial stability, reputation, and legal standing. It's essential to be aware of
the potential risk associated with creative accounting and take steps to
prevent and detect it.

9. Bonus: Creative Accounting Gimmicks
Creative
Capitalization
By capitalizing expenses
instead of recording them as
liabilities, companies can
increase their assets and make
their financial health appear
stronger than it actually is.
1. Overcapitalizing Assets
2. Leasing vs. Buying
Channel Stuffing
Channel stuffing involves
shipping an excessive amount
of goods to customers, creating
the illusion of increased
demand and revenue.
1. Manipulating Sales
Revenue
2. Shifting Expenses to
Different Fiscal Years
Barter Transactions
Bartering involves exchanging
goods or services without the
use of money. It can be used to
manipulate financial
statements by reporting
increased revenue without any
actual exchange of cash.
1. Manipulating Inventory
2. Misrepresenting Assets
and Liabilities