Instances in which corporations have been found in serious breach of accounting ethics by falsifying or manipulating information so that financial statements do not give a true and fair view of the company's performance.
An accounting practice or business policy designed to highlight the most profitable aspects of financial transactions or customer relationships while minimizing or excluding less profitable or loss-making elements.
Creative accounting involves the use of accounting practices and principles that adhere to the letter of the rules of standard accounting practices but deviate from the spirit of those rules. This kind of accounting presents company financial performance in an overly favorable light, often inflating profits and hiding liabilities.
Earnings, also referred to as net income or profit, is a crucial metric in financial reporting which forms the basis for calculating earnings per share. A key aspect of corporate finance, earnings definition and reporting have evolved to curb creative accounting and ensure transparency.
An in-depth analysis of financial statements to assess a business's performance and position, using ratios to evaluate profitability, solvency, working capital management, liquidity, and capital structure.
The manipulation by companies of certain items in their financial statements to eliminate large movements in profit and report a smooth trend over a number of years. This practice stems from the belief that investors prefer companies showing steady profit increases year by year.
Information inductance refers to the extent to which a person's behavior is affected by the information they are required to communicate. This concept highlights the potential biases in the presentation and interpretation of key financial data.
Denoting assets or liabilities that do not appear on the balance sheet of a company. Various off-balance-sheet arrangements have been entered into by companies wishing to avoid full disclosure of their assets and liabilities through complex legal agreements, joint ventures, specially created subsidiaries, and structured finance arrangements.
The degree to which the net profit of an organization reflects accurately its operating performance; it is particularly important to ensure that creative accounting has not taken place and that no events have occurred to distort the profit figure.
An important concept in accounting, according to which transactions and other events are accounted for by their commercial reality rather than their legal form.
Window dressing refers to any practice aiming to make a financial situation appear more favorable than it really is, often used by accountants to enhance the look of balance sheets.
