IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v7y1998i1p83-104.html
   My bibliography  Save this article

Exploring the influences and constraints on creative accounting in the United Kingdom

Author

Listed:
  • Atul Shah

Abstract

Allegations of creative accounting by management of listed corporations in the UK do not abate. To the extent that these practices distort the underlying reported financial performance of firms, they conflict with the basic aims of accounting regulation - to provide consistent and comparable financial information to users. Studies have shown that accounting choices are influenced by a range of contracting, financing and operational factors. However, we still know little about what constraints exist against the practice of creative accounting and how effective these are. Issues such as the extent to which the press and analysts are successful in restraining creative accounting, and the role the 'true and fair view' principle and auditors play in the prevention of such practices still remain unresolved. This article explores these themes by examining the accounting practices of two UK companies which issued a creative financing instrument. Using a combination of interview, documentary, and financial statement information, the analysis shows that management took advantage of gaps in accounting standards to present a biased picture of financial performance. Auditors did not appear to restrain such practices, and the true and fair view principle, rather than unifying accounting practice, appears to tolerate a range of interpretations. Adverse media publicity appears to be a successful deterrent in the medium term, but since the press are not regulators, their reporting is not necessarily consistent or predictable. UK analysts at the time did not evaluate accounting practices in any significant detail, and thus this potential restraint was not effective. Overall, the influences and constraints on creative accounting are illuminated in this study in a way which provides new insights into our understanding of financial reporting.

Suggested Citation

  • Atul Shah, 1998. "Exploring the influences and constraints on creative accounting in the United Kingdom," European Accounting Review, Taylor & Francis Journals, vol. 7(1), pages 83-104.
    • Handle: RePEc:taf:euract:v:7:y:1998:i:1:p:83-104
    DOI: 10.1080/096381898336592
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/096381898336592
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/096381898336592?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shah, Atul K., 1996. "Creative compliance in financial reporting," Accounting, Organizations and Society, Elsevier, vol. 21(1), pages 23-39, January.
    2. Mian, Shehzad L. & Smith, Clifford Jr., 1990. "Incentives for unconsolidated financial reporting," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 141-171, January.
    3. Pourciau, Susan, 1993. "Earnings management and nonroutine executive changes," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 317-336, April.
    4. Whittred, Greg & Zimmer, Ian, 1994. "Contracting cost determinants of GAAP for joint ventures in an unregulated environment," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 95-111, January.
    5. Duke, Joanne C. & Hunt, Herbert III, 1990. "An empirical examination of debt covenant restrictions and accounting-related debt proxies," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 45-63, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emilia VASILE & Ion CROITORU, 2020. "Financial Statements €“ Object Of The Financial Audit," Internal Auditing and Risk Management, Athenaeum University of Bucharest, vol. 60(4), pages 51-58, December.
    2. Hronsky, Jane J. F. & Houghton, Keith A., 2001. "The meaning of a defined accounting concept: regulatory changes and the effect on auditor decision making," Accounting, Organizations and Society, Elsevier, vol. 26(2), pages 123-139, March.
    3. Panagiotis E. Dimitropoulos & Dimitrios Asteriou, 2009. "The value relevance of financial statements and their impact on stock prices: Evidence from Greece," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(3), pages 248-265, March.
    4. Philippe Touron, 2002. "Theorie Institutionnelle Et Adoption De Normes Comptables Internationalement Reconnues : Etude De Trois Cas Français Sur La Periode 1989 - 1993," Post-Print halshs-00584540, HAL.
    5. Beattie, Vivien, 2005. "Moving the financial accounting research front forward: the UK contribution," The British Accounting Review, Elsevier, vol. 37(1), pages 85-114.
    6. Ciocan, Claudia Catalina, 2018. "Creative Accounting And Fraud: A Comparative Approach," Management Strategies Journal, Constantin Brancoveanu University, vol. 42(4), pages 157-163.
    7. Tettet Fitrijanti, 2018. "The Influence of Islamic Governance on Minimizing Non-Compliance with Sharia," GATR Journals afr159, Global Academy of Training and Research (GATR) Enterprise.
    8. Claudia Catalina CIOCAN & Iuliana GEORGESCU & Mihai CARP, 2020. "The Perception of the Representatives of the Accounting Profession from Romania on the Relationship Between Conservatism and True and Fair View," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 18(159), pages 585-585.
    9. K. Peasnell & P. Pope & S. Young, 2001. "The characteristics of firms subject to adverse rulings by the Financial Reporting Review Panel," Accounting and Business Research, Taylor & Francis Journals, vol. 31(4), pages 291-311.
    10. Ciocan Claudia-Cătălina, 2017. "True and Fair View: Incentive or Inhibitor for Creative Accounting?," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 451-455, June.
    11. Anja Hjelström & Walter Schuster, 2011. "Standards, Management Incentives and Accounting Practice -- Lessons from the IFRS Transition in Sweden," Accounting in Europe, Taylor & Francis Journals, vol. 8(1), pages 69-88, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Øyvind Bøhren & Jørgen Haug, 2006. "Managing Earnings with Intercorporate Investments," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 671-695, June.
    2. Philippe Touron, 2000. "APPORTS ET LIMITES DE LA THEORIE INSTITUTIONNELLE DES ORGANISATIONS Etude de trois cas d'adoption de normes comptables internationales en France," Post-Print halshs-00587516, HAL.
    3. Wolf, Robin, 2018. "Ganz oder gar nicht - wer nutzte die Quotenkonsolidierung? Eine Analyse der Ausübung des Bilanzierungswahlrechts unter IAS 31 im Prime Standard der deutschen Börse," Arbeitspapiere 183, University of Münster, Institute for Cooperatives.
    4. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    5. Gavana, Giovanna & Gottardo, Pietro & Moisello, Anna Maria, 2020. "Did the switch to IFRS 11 for joint ventures affect the value relevance of corporate consolidated financial statements? Evidence from France and Italy," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 38(C).
    6. Watts, Ross L., 1992. "Accounting choice theory and market-based research in accounting," The British Accounting Review, Elsevier, vol. 24(3), pages 235-267.
    7. Churyk, Natalie Tatiana & Stenka, Renata, 2014. "Accounting for complex investment transactions," Journal of Accounting Education, Elsevier, vol. 32(4), pages 58-70.
    8. Denise A. Jones, 2013. "Changes in the Funded Status of Retirement Plans after the Adoption of SFAS No. 158: Economic Improvement or Balance Sheet Management," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 1099-1132, September.
    9. Thomas W. Scott, 1991. "Pension disclosures under SFAS No. 87: Theory and evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 8(1), pages 62-81, September.
    10. Hand, John R. M. & Skantz, Terrance R., 1997. "The economic determinants of accounting choices: The unique case of equity carve-outs under SAB 51," Journal of Accounting and Economics, Elsevier, vol. 24(2), pages 175-203, December.
    11. Ignacio Ferrero & Alejo José G. Sison, 2012. "A Survey on Virtue in Business and Management (1980-2011)," Faculty Working Papers 06/12, School of Economics and Business Administration, University of Navarra.
    12. Yves Mard, 2003. "Performance Comptable Et Gestion Des Resultats," Post-Print halshs-00582798, HAL.
    13. Dherment-Ferere, Isabelle & Köke, Jens & Renneboog, Luc, 2001. "Corporate monitoring by blockholders in Europe: empirical evidence of managerial disciplining in Belgium, France, Germany, and the UK," ZEW Discussion Papers 01-24, ZEW - Leibniz Centre for European Economic Research.
    14. Jeffrey Ng & Walid Saffar & Janus Jian Zhang, 2020. "Policy uncertainty and loan loss provisions in the banking industry," Review of Accounting Studies, Springer, vol. 25(2), pages 726-777, June.
    15. Abdul Majid, Jamaliah, 2015. "Reporting incentives, ownership concentration by the largest outside shareholder, and reported goodwill impairment losses," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(3), pages 199-214.
    16. Lie, Erik, 2005. "Operating performance following dividend decreases and omissions," Journal of Corporate Finance, Elsevier, vol. 12(1), pages 27-53, December.
    17. (Jianqiu) Bai, John & Mkrtchyan, Anahit, 2023. "What do outside CEOs really do? Evidence from plant-level data," Journal of Financial Economics, Elsevier, vol. 147(1), pages 27-48.
    18. Renata Stenka & Peter Taylor, 2010. "Setting UK standards on the concept of control: An analysis of lobbying behaviour," Accounting and Business Research, Taylor & Francis Journals, vol. 40(2), pages 109-130.
    19. Lee, Sangho & Lee, Sejoong & Ryu, Ji Yeon, 2021. "Do Competent Managers Hoard Bad News? Self-regulation Theory and Korean Evidence," Finance Research Letters, Elsevier, vol. 41(C).
    20. Andreas Charitou & Neophytos Lambertides & Giorgos Theodoulou, 2010. "The Effect of Past Earnings and Dividend Patterns on the Information Content of Dividends When Earnings Are Reduced," Abacus, Accounting Foundation, University of Sydney, vol. 46(2), pages 153-187, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:7:y:1998:i:1:p:83-104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.