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The potential to reduce the risk of manipulation of financial statements using the identification models of creative accounting

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  • Zita Drábková

    (Department of Finance and Accounting, University of South Bohemia in České Budějovice, Studentská 13, 370 05 České Budějovice, Czech Republic)

Abstract

Explanatory power of accounting information is the key question for deciding of users of financial statements. A whole range of economic indicators is available to the users of financial statements to measure the firm productivity. When the accounting statements (and applied methods) are manipulated, the economic indicators may reveal clearly different results. The users of financial statements should have the possibility to assess the risk of manipulation of accounting statements in time considering potential risk of accounting fraud. The aim of this paper was based on the synthesis of knowledge from the review of literature, the CFEBT model analysis and Beneish Model proposing a convenient model for identifying risks of manipulation of financial statements. The paper summarizes the outcomes of possibilities and limits of manipulated financial statements and their identification. The testing hypothesis is assessing whether there is a close relation of a loss and an increase in the cash flow in 3-5 years time; whether the sum of the amounts for 3-5 year's time would reveal the same results respectively. The hypothesis was verified on the accounting statements of the accounting entities of prepared case studies respecting the true and fair view of accounting based on Czech accounting standards.

Suggested Citation

  • Zita Drábková, 2013. "The potential to reduce the risk of manipulation of financial statements using the identification models of creative accounting," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2055-2063.
    • Handle: RePEc:mup:actaun:actaun_2013061072055
    DOI: 10.11118/actaun201361072055
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    References listed on IDEAS

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    1. NIAMH M. BRENNAN & MARY McGRATH, 2007. "Financial Statement Fraud: Some Lessons from US and European Case Studies," Australian Accounting Review, CPA Australia, vol. 17(42), pages 49-61, July.
    2. Oriol Amat & John Blake & Jack Dowds, 1998. "The ethics of creative accounting," Economics Working Papers 349, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Naser, Kamal & Pendlebury, Maurice, 1992. "A note on the use of creative accounting," The British Accounting Review, Elsevier, vol. 24(2), pages 111-118.
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