Creative Accounting : a Tool to Suit Whims of the Top Management

Creative accounting is all about making manipulations in accounts by taking advantage of flexibility in accounting system to reflect the desired financial position. It is a tool for fulfilling aspirations of the management. There may be many reasons behind adapting the technique of creative accounting viz. finance from banks, adjustment for abnormal profits, hiding losses, inflating share prices, achieving higher remuneration and increasing income or assets and decreasing expenses or liabilities by making artificial transactions or adjusting the timing of recording transactions or choosing among different alternative methods are some commonly employed methods of creative accounting. This paper is an attempt to bring out actual implications of creative accounting and highlight reasons why management resorts to this method of accounting. It, then suggests a few common methods to present the financial statements in more transparent way. To prevent or discourage the tendency of creative accounting in India, many provisions have been made in the Company Act 2013. A brief summary of those provisions are presented in this paper. At the end, it can be said that ethical behavior on the part of the management, auditors and accountants will ultimately result in the reduction of malpractices seen in creative accounting.