The Professional Accountants Perception on Creative Accounting

Transcription

1 Scientific Papers ( Journal of Business Management and Applied Economics 1 The Professional Accountants Perception on Creative Accounting Authors: Andreea-Mihaela Marin, Faculty of Economics, Eftimie Murgu University of Resita, FEAA, Vest University of Timişoara, Romania; Nătăliţa-Mihaela Lesconi-Frumuşanu, Faculty of Economics, Eftimie Murgu University of Resita, Romania The emergence of creative accounting is a result of the possibility of folding the rules that exist within the existing accounting regulations which, if were applied without deviation could lead to a true and fair view of the financial position and of the performances of entities. This paper presents an overview of national and international approaches to the concept of creative accounting and the results obtained in a research conducted in the community, on the legality or illegality of creative accounting in this paper were captured aspects of the perception of professional accountants about creative accounting. Keywords: accountant, creative, rules, financial position, legality, illegality, proffesional. Theoretic aspects regarding creative accounting In order to understand what in fact creative accounting is, we try to analyze some data definitions over time by different researchers. Both international and national literature has addressed the concept of creative accounting, but precise definitions were not developed, being certain that this creativity is accompanied by negative aspects. Analyzing the many and various opinions stated in the international literature (Copeland, 1968; Barnea, Ronen and Sadan, 1976; Naser K., 1993 I. Griffiths, 1987; P. Gilet, 1998; Malo L., Giot H., 1995) we can say that this phenomenon emerged called creative accounting in order to manipulate accounting figures without violating the law, making it a necessity for all experts in the field of ideas, which have not yet found accounting solutions. Copeland defines it as ways of measuring repetitive selection of accounting or reporting rules in a particular way, which results in a change in the reporting of income with a variation less than would have been the trend (Copeland, 1968). Barnea, Ronen and Sadan believed that creative accounting may be defined as the intentional mitigate a certain level of earnings fluctuations regarded as normal for a company (Barnea, Ronen and Sadan, 1976). K. Naser describes creative accounting as the process by which, given the existence of gaps in the rules, accounting figures are manipulated and taking advantage of the flexibility, it choose those practices that allow the transformation of the summaries of what should be, in what managers want, the process by which transactions are structured in a way that will produce the desired result (K. Naser, 1993). Speaking of creative accounting, Ian Griffiths argues that every company organizes its profits. Each set of published accounts is based on records that were more or less pointed. The figures were provided twice to investors were all modified to hide the reality, is the biggest trick you apply this practice (I. Griffiths, 1987). 1

2 According, to what Gilet, creative accounting techniques lies in assembly elections and freedoms of accounting texts without going far from accounting rules that give managers the ability to juggle the result and layout synthesis accounting documents (P. Gilet, 1998). Malo and H. L. Giot support the idea that we should not automatically assimilate creative accounting with something negative because accounting innovation is needed to keep pace with economic, legal and social. In this sense, they show that the origin of his creative accounting is virtuous because it provides resources to enable it to keep pace with the growing development of markets and the proliferation of financial products (Malo L., Giot H., 1995). Analyzing the many and various opinions presented above we can say that this phenomenon called rimordi accounts appeared in order to manipulate accounting figures without violating the law, and thus all the ideas rimordial experts in the field, for which there were yet found accounting solutions. Analyzing national specialty literature (Feleagă N., 1996; Dumitrescu AS, 2014; Ciuhureanu, AT, N. Baltes, 2009) can identify the splitting between creative accounting and bookkeeping regulated between a principles-based accounting and rules-based between innovation accounting and accounting manipulation, between truth and the truth regulators wanted, between bookkeeping and virtuous perverse accounting. The magnitude that took her creative accounting in the international literature has made numerous Romanian researchers to carry out studies in this area, but what can be observed is that research in this area, in Romania, is not as extensive and marked as foreign, but there is work to be mentioned. Professor Nicholas Feleagă said that "other concept came to complete creative accounting. The most circulated concepts are: imaginative accounting and accounting of intent" (Feleagă, N., 1996). The author describes the creative accounting practices presented by foreign authors, highlights the risks taken by practicing these techniques, risks that lead to greater opinion of the author of contemporary accounting crisis. In another opinion on creative accounting arise two converging scientific discussions, the first refers to the definition and analysis of negative terms, to build positive creative accounting (aspects captured in this paper), while the second refers selecting and applying accounting policies in terms of creative accounting, creative accounting practices on the financial performance and financial position of the entity, including in the context of corporate governance (AS Dumitrescu, 2014). It can be seen Romanian authors tend to define creative accounting in a negative, being defined as a problem of ethics in financial and accounting, but also found that imagination in accounting can have a very important role when distortion becomes reality whenever the overriding need (Ciuhureanu, AT, Baltes, N., 2009). As far as we are concerned, we align the views of the authors mentioned above and we can say that the emergence of creative accounting is a result of the possibility of adapting the rules that exist within the existing accounting regulations which, if applied without bypass could lead to providing a true and fair view of the financial position and performance of companies The users of accounting information- determining factors in applying creative accounting Managers are interested in the benefits of creative accounting, because that affects the entity's financial performance managed their image, influencing relations with third parties and competition behavior. Dye, in 1988 believes that the reasons for managers trying to manipulate the profits as external demand to increase economic entity's share price to fall within forecasts and domestic demand in relation to getting the best contracts (Dye, 1986). Kirschenheiter and Melumad show that rational managers use the possibilities offered by financial reporting with the intent of trying to increase the maximum possible value of the economic entity, within legal requirements and normal accounting practices (Kirschenheiter and Melumad, 2002). 2

3 A study by Ernst and Young in 2002 (Ernst and Young, 2002), reveals that 85% of perpetrators were employees at those companies, 55% came from the ranks of management. It also notes that 85% of managers, who were the authors of the greatest frauds, had less than one year seniority. Managers are primarily interested in the use of creative accounting techniques offered; wanting financial statements reflect the financial position of the economic entity in a manner most favorable to them. Receive advice from professional managers from other stakeholders such as commercial banks; using the possibilities offered by creative accounting which although is within the existing legal regulations beyond their spirit actually. Regulators, is also trying to limit the use of creative accounting by the measures they take through rules and regulations. Such creative accounting determines how the accounting rules and regulations will show, for then these new accounting rules and regulations in turn influence creative accounting techniques. The main actors in this scenario are represented by creative accounting: Managers (internal users of accounting information), the top players are using the techniques and opportunities for creative accounting in order to try to influence the way in which reality is reflected in the financial statements. Investment analysts (investors) examine the financial performance of economic entities so as to obtain an assurance that the share price is right. To do this, they must possess the necessary knowledge to enable them to detect the existence of creative accounting and even the existence of fraud. State bodies want to have control over possible use of creative accounting. To reflect the true and fair view accounting regulations are designed to ensure flexibility in their application. The auditors are also affected by this particularly creative accounting and fraud, as a result of the fact that they have to express an opinion on the fair representation of the results of an economic entity. Auditors should issue a qualified opinion if the observed irregularities. In respect of shareholders, they may consider creative accounting as a positive or as a negative for them, because the short-term creation of images embellish can increase artificially the price of shares held, but may be concerned about the possibility that the business entity is no longer able to continue in the future, and so they will lose the amount invested in shares. Commercial banks (financial creditors) have in some cases a role in giving customers advice to pimp picture of its customers so that it can enable the conditions for repayment of the loans granted. The category of other users may be included employees, customers, etc. This group of users is based on the fact that the financial statements give a true and fair view of the financial performance of the economic entity, and that the true image is not affected by the techniques provided by creative accounting, which does not serve the interests of these stakeholders, but is more than the service managers. The perception on creative accounting In this paper we extracted within a broader research, the perception aspects of professional accountants on creative accounting, which can be plotted on the following two axes: Ilegal 1. The legality axis Legal Immoral 2. The morality axis Moral Figure 3.1: The legality and morality axis Source: Realized by the authors 3

4 To achieve the questionnaire previously interviewed accounting experts (academics and experienced professional accountants) to deepen the knowledge of current accounting context for developing research objectives. In terms of sample size, it was not established according to statistics, since the interviewees are part of a small group of people, mainly professional accountants, but we applied the questionnaire and users of accounting information (Manager / Administrator / Director / economic manager, appraiser, credit analyst or auditor) because I wanted to capture the position of creativity in the quality category must possess professional accountant, and the degree to which the use of creative accounting practices influence management decisions entities. Thus the sample structure is as follows: Criterion Level of studies: Highschool Bachelo r Master Doctoral studies Age group: under between 30 and between 40 and Over The relationship with the representing entity is based on: Experience in the field: Individual labor contract Civil convention Contract for supplying accounting services others under 5 ; between 5 and ; Over Table Nr. 3.1: The structure of sample I As can be seen the highest weight have people between old with a doctorate and who are employed with individual labor contract, which leads us to say that the willingness to participate in research performance is influenced level of education and life experience. Regarding the relationship with the entity you represent, we highlight a limit to this research, namely that were not identified all forms of performance (just the basic) activity by professional accountants (including academia category accounting experts engaged in various forms of private entities). Considered representative given the large share research that those who have an experience of over 10 in the field, and that most have extensive knowledge in accounting field as academics or graduates accountants postgraduate or doctoral. Regarding training, we can see that bank officers (credit analysts) did not have availability for assembly of the questionnaire, but the discussions during the interview, we identified the cause of this reluctance namely high volume work (lack of time) or confidentiality of activity undertaken. Professional training: Professor in the financialaccounting field (academic environment) Under 5 Experience in the field: 5 and 10 ; Over

5 The relationship with the representing entity is based on: Accountant/ Authorized accountant Expert accountant Financial auditor Tax consultant Evaluator Credit analyst Manager/Manager/ Director/Director economic Others Individual labor contract Civil convention Contract for supplying accounting services others Table Nr. 3.2: The structure of sample II In the following we present the results obtained from processing the 175 questionnaires, and the main conclusions drawn in both tabular and graphical (for a better view of them). Do you consider creativity as a quality of Age group: Experience in the field: the professional accountant by which an added value is brought to the entity? 30 and and 50 Over 50 Under 5 5 and 10 Over 10 YES NO Table Nr. 3.3: Do you consider creativity as a quality of the professional accountant by which an added value is brought to the entity? 10+ year, year, 3 y e s 5-10 year, year, year 10+ year n year, 14 o y e s year, year, year, year, year, year year 50+ year 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Figure Nr. 3.3: Graphically representing the answers to the question: Do you consider creativity as a quality of the professional accountant by which an added value is brought to the entity? Source: Realized by the authors Given the literature, it is considered that professional accountants bring added value to entities in which they will work through management, forecasting, training, excellent communication skills or Partnerships. Professional accountant provides the opportunity to assess and compare their performance purposes, recognizing strengths, weaknesses, opportunities, constraints and risks, which may influence the result of knowledge, profit is the fundamental objective of any economic entity, target which overlaps with financial management and accounting. In terms of creativity, quality appreciated by most managers in accounting, it was defined in the literature, most often in a negative sense, is defined as a problem of ethics in financial and accounting, but also found that imagination in accounting can have a very important role when the distortion of reality becomes a paramount necessity. Given this definition the antithesis, we considered asking the question "Do you consider creativity as a quality professional accountant which add value to an entity?", 5

6 The responses were divided, overall, almost equal, but can Note that those with life experience and professional (those between 40-50, with over 10 professional experience) considers creativity as a quality that can bring added value, while respondents with experience between 5-10 and younger do not consider creativity as a quality professional accountant. Do you consider the usage of the practice of creative accounting as: If you consider the applying of some practices of creative accounting as immoral/ illegal what measures should be taken to stop: 30 and 40 Age group: 40 and 50 Over 50 Experience in the field: Under 5 5 and 10 Legal illegal morale immoral Detestable as regarding the ethics, but legal; others Judicial measures Ethic measures Setting of some limits All of the above Others Table Nr. 3.4: The synthesis of the results regarding the qualification of the practices of creative accounting and the stopping methods in respect to this aspect The Legislation in effect (Accounting Law Nr. 82/1991) brands as criminal the using practices that would lead to 'making knowingly inaccurate records and failure to science in accounting records, resulting in distortion of revenues, expenditures, financial results, and the assets and liabilities that are reflected in the balance sheet, constitute the crime of forgery and shall be punished according to law. "Based on these provisions, most respondents consider using creative accounting practices as illegal, proposed measures to stop them being legal. Currently, Romania has drafted national Code of Ethics for Professional Accountants, in accordance with the International Code of Ethics for Professional Accountants, through which rules of conduct are established and formulated the basic principles to be observed by all those involved in the financial-accounting however only 17% of respondents consider the use of creative accounting practices as immoral and a smaller number considered sufficient ethical measures are taken as sufficient to stop their use. What is remarkable is that a high percentage (40%) of respondents consider using creative accounting practices as legal, but most do not have a long experience in the field, which is between Therefore, we conclude that the young (between ) and an average professional experience are willing to apply such practices, considering them to be legal even if this would affect morality in the work. Among the factors that limit / prohibit creativity we identified mainly professional accountant denaturation of the information contained in the financial statements, thus bringing the image of the faithful, and the establishment of incorrect tax obligations, particularly income tax, in particular, the largest of respondents believing that this quality (creativity) a professional accountant can lead to tax evasion. 6

7 Although most respondents have a positive attitude towards creative accounting and practices, however they do not recognize the use of such practices, negative response or abstinence, so the question of support for the use of creative accounting practices of the entity that represents only 12% admitted this fact, most honest being those aged between 30 and 40. Do you use/support creative accounting practices in the entity you represent? 30 and 40 Age group: 40 and 50 Experience in the field: Under 5 5 and 10 YES Table Nr. 3.7: The synthesis of the results regarding the question: Do you use/support creative accounting practices in the entity you represent? An important aspect, separated from the application of this questionnaire is that professional accountants apply specific creative accounting practices aces not manifest independence (48%), which suggests that they are forced (or fiscal management) to do so. Most managers believe that through creative accounting and financial activity, the financial position and image adorns economic and financial performance of an entity. According to studies conducted in the field (Ciuhureanu AT, N. Baltes, 2009), the main reasons that companies use creative accounting practices financial activity, were distributed as follows: 32% of companies there is a desire to evade tax; 43.1% of companies surveyed are interested in obtaining additional sources of funding; 36.1% use creativity and innovation in a situation where they are required to provide financial-accounting information to external users and for other reasons, such as legislative contradictions; legislative interpretations; their professional judgment; reducing workload; handling financial result. Choosing and applying practices of creative accounting means, in your opinion that a tax evasion was intended or perpetrated; Total disapproval Disapproval Partial approval Approval Total approval 44% 4,5% 0,6% 46,86% 4% Choosing and applying practices of creative accounting can be considered, in your opinion, a manifestation of independence; Total disapproval Disapproval Partial approval Approval Total approval 0,6% 51,43% 2,86% 45,14% Table Nr. 3.8: Graphically representing the answers regarding the possibility of tax evasion by means of creative accounting or its representation as a form of expressing independence Conclusions Users of accounting information are equal in importance and credibility ensure qualitative characteristic of accounting information, ingestion of creative accounting practices accounting policies of the organization. Information is reliable when it contains significant errors, and users can be sure that it is right that aim to represent what is reasonably expected to represent (Sabău, E. M., Tuţu, A., 2014). 7

8 The "reasonable" feature introduced in the definition of quality, professional accountants reasonably expect the information resulting from the application of the principles, policies and accounting procedures classics covered, no "accounting tricks" legal (Sabău, E. M., Tuţu, A., 2014). Credible information which causes another antithesis between ensuring the reliability of information and creative accounting practices. As above, creative accounting users favor certain groups over others, thus accounting information can influence a decision (Sabău, E. M., Tuţu, A., 2014). Whether we accept it or not, creative accounting is used more or less by most companies as a means of protection against the action of disturbances in an economy increasingly globalized. Creative accounting practices, made by "face-lifting" of accounting information in order to present a business in a more favorable light. Using these methods shows that managers who are under pressure seek solutions that are beneficial for them, ignoring the observance of ethical standards (Sălceanu, A., 2014). Standing at the boundary between legal and illegal, is considered an unfair practice creative accounting fraud does not mean default. To overcome this situation, most experts recommend creating an organizational culture that is possible to make reasonable estimates that will produce an objective view on the activity of the economic entity (Sălceanu, A., 2014). The research undertaken on the perspective of creative accounting professional accountants can draw the following conclusions: - Most respondents consider using creative accounting practices as legal, but most do not have a long experience in the field, which is between 5 to 10 ; - You can see an important aspect emerged from the application of this questionnaire is that professional accountants apply specific creative accounting practices aces not manifest independence, which shows that they are forced (or fiscal management) to do so. References [1]. Barnea, A., Ronen J., Sadan S.., Classificatory Smoothing of Income with Extraordinary Items, Accounting Review, January 1976, pg [2]. Ciuhureanu, A. T., Balteş, N., Etică sau creativitate în activitatea financiar-contabilă opinii şi realităţi în organizaţiile româneşti, Revista de Audit Financiar, nr. 6/2009; [3]. Copeland, R., M., Income Smoothing, Jurnal of Accounting Research, December 1968, pg ; [4]. Dumitrescu, A.S., Contabilitate creativă. De la idee la bani cu exemple practice, Editura Economică, Bucureşti, 2014; [5]. Dye, R.,A., Proprietary and Nonproprietary Disclosure, The Journal of Business 59, nr. 2, apr. 1986, pg ; [6]. Feleagă, N., Controverse contabile, dificultăţi conceptuale şi credibilitatea contabilităţii, Editura Economică, Bucuresti, 1996; [7]. Gilet P., Comptabilité créative: le résultat comptable n est pas ce qu il était, Revue française de gestion, novembre- décembre, 1998; [8]. Griffiths I., Creative Accounting How to make your Profits what you them to be, International Thomson Business Press, 1987; [9]. Kirschenheiter, M., Melumad N. D., Can Big Bath and Earnings Smoothing Co-Exist as Equilibrium Financial Reporting Strategies?, Journal of Accounting Research 40, nr. 3 jun. 2002, pg ; [10].Malo L., Giot H., L élasticité du résultat selon les dimensions temp et espace, A.F.C. Congress, 1995; [11]. Naser K., Creative financial accounting: its nature and use, Prentice Hall, New Jersey, 1993; [12]. Sabău, E. M., Tuţu, A., Theoretical approaches for accounting lifting., Advanced Research in Economic Crime, 2014, pg. 7-13; [13]. Sălceanu, A., Creative accounting-between the true picture and the accounting fraud, Analele Facultăţii de Ştiinţe Economice a Universităţii Tibiscus, vol XX, 2014, pentru conformitate: 8