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Accounting Manipulation Practices in Financial Statements: An Experience of an Asian Economy

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  • Madan Lal Bhasin

    (Professor, School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, Kedah Darul Aman, Malaysia)

Abstract

Accounting scandals and frauds are perennial; they have occurred in all eras, in all countries and affected millions of corporations. Unfortunately, there are few loopholes in accounting and auditing standards, which provide leeway and thus motivate accounting professionals to use aggressively manipulation practices. In fact, accounting manipulation (AM) involves the intentional cooking-up of financial records towards a pre-determined target. Every company indeed maneuvers the numbers, to a certain extent, as formally reported in its financial statements (FS) to achieve budgetary targets and generously reward senior managers. From Enron, WorldCom to Satyam, it appeared that window-dressing leading to AM is a serious problem that is increasing both in its frequency and severity, which undermines the integrity of financial reports and eroded investors’ confidence. The responsibility of preventing, detecting and investigating financial frauds rests squarely on Board of Directors and they should adopt preventive steps. Despite the raft of CG, and financial disclosure reforms, corporate accounting still remains murky and companies continue to find ways to play ‘hide-and-seek’ game with the system. Satyam computers were once the crown jewel of Indian IT-industry but were brought to the ground by its founders in 2009 as a result of financial manipulations in FS. The present study provides a snapshot of how Mr. Raju (CEO and Chairman) mastermind this maze of AM practices? Undoubtedly, Satyam scam is illegal and unethical in which computers were cleverly used to manipulate account books by creating fake invoices, inflating revenues, falsifying the cash and bank balances, showing non-existent interest on fixed deposits, showing ghost employees, and so on. Satyam fraud has shattered the dreams of investors, shocked the government and regulators and led to questioning of the accounting practices of auditors and CG norms in India. Finally, we recommend that “All types of AM practices should be legally recognized as a serious crime, and accounting bodies, law courts and regulatory authorities must adopt exemplary punitive measures to prevent such unethical practices.â€

Suggested Citation

  • Madan Lal Bhasin, 2016. "Accounting Manipulation Practices in Financial Statements: An Experience of an Asian Economy," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(11), pages 199-214, 11-2016.
    • Handle: RePEc:arp:ijefrr:2016:p:199-214
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    References listed on IDEAS

    as
    1. Madan Lal Bhasin, 2016. "Creative Accounting Practices at Satyam Computers Limited: A Case Study of India’s Enron," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(6), pages 24-48, June.
    2. Kalpana Pai & Thomas D. Tolleson, 2015. "India’S Satyam Scandal: Evidence The Too Large To Indict Mindset Of Accounting Regulators Is A Global Phenomenon," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 6(2), pages 35-43.
    3. ., 2015. "Corporate governance and financialization," Chapters, in: The Financialization of the Firm, chapter 4, pages 107-139, Edward Elgar Publishing.
    4. Judson Caskey & Volker Laux, 2017. "Corporate Governance, Accounting Conservatism, and Manipulation," Management Science, INFORMS, vol. 63(2), pages 424-437, February.
    5. Martono Anggusti & Bismar Nasution & Mahmul Siregar & Suhaidi & Tan Kamello & Benny Tabalujan & Hikmahanto Juwana, 2015. "Corporate Governance for Employee¡¯s Welfare," International Journal of Social Science Studies, Redfame publishing, vol. 3(3), pages 257-266, May.
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    Cited by:

    1. Mahami, Zouleykha & Mouloudj, Kamel, 2020. "Factors Affecting Detection of Manipulation in Financial Statements: An Empirical Study from Auditors’ Perspective," MPRA Paper 108008, University Library of Munich, Germany, revised 30 Jun 2020.
    2. Umme Kulsoom Zaidi & Javaid Akhter & Asif Akhtar, 2018. "Window Dressing of Financial Statements in the Era of Digital Finance: A Study of Small Cap Indian Companies," Metamorphosis: A Journal of Management Research, , vol. 17(2), pages 67-75, December.
    3. Emmanuel Eneche Onoja & Odoma Ademu Usman, 2021. "Assessing the Effect of Tax Administration on Smes Tax Compliance Level in Kogi State," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 7, July-Dece.

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