Creative Accounting Practices by Bangladeshi Companies: A Study on Recent Share Market Crisis in Bangladesh

Mohammad Safiuddin

Abstract


Creative accounting is the use of accounting knowledge to better reflect the financial position, financial performance of an entity within the jurisdictions of accounting standards but deviating from the spirit of standards. This study aims to identify the reasons why managers manipulate financial statements, the benefits of manipulating financial statements, the tools and techniques used to manipulate accounting figures, and recommendations to reduce misuse of flexibility. Several studies have been conducted on creative accounting practices. The relevant literature finds the reasons of manipulating financial statements, benefits of manipulating financial statements, and the tools and techniques used to manipulate accounting figures. The case of Satyam Computer Service Company in India and Enron Corporation in the USA was studied to understand creative accounting practices in the concurrent world. The investigative report on the recent share market crisis of Bangladesh has been studied in the light of creative accounting practices used by the dishonest preparers of accounting information. This study is based on the previous study and qualitative in nature. The study finds that a number of listed companies used creative accounting tools to manipulate their earnings to enter into initial public offerings and to inflate share price. Asset revaluation technique, revenue recognition principle, and expense recognition principles were targeted to inflate earnings. Financial Reporting Act 2015 in Bangladesh was an outcome of share market crisis which will help the better functioning of auditing firms and developing a congenial atmosphere for financial reporting practices in Bangladesh. The study suggests that limiting the choice of accounting standards, reducing the number of permitted accounting methods, bringing consistency in financial reporting over the years, and uprising the ethical standards of preparers will reduce the misuse of accounting loopholes to a great extent.  

Aus. Aca. Acc & Fin. Rev Vol 4(1), Jan 2018, P 15-21


Keywords


Creative Accounting; Financial Scandals; Share Market Crisis; Financial Reporting Council

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