Preparers of financial statements are in a position to manipulate the view of economic reality presented in those statements to interested parties. This paper examines two principal categories of manipulative behaviour. The term macro-manipulation is used to describe the lobbying of regulators to persuade them to produce regulation that is more favourable to the interests of preparers. Micro-manipulation describes the management of accounting figures to produce a biased view at the entity level. Both categories of manipulation can be viewed as (...) attempts at creativity by financial statement preparers. The paper analyses two cases of manipulation. First, it describes a recent case of significant and successful lobbying against the accounting regulator in the USA. The second case examines some recent Spanish earnings manipulation to demonstrate the effects of biased reporting at the entity level. Both types of creativity are considered in an ethical context. The paper concludes that the manipulations described in it can be regarded as morally reprehensible. They are not fair to users, they involve an unjust exercise of power, and they tend to weaken the authority of accounting regulators. (shrink)

Accountants preparing information are in a position to manipulate the view of economic reality presented in such information to interested parties. These manipulations can be regarded as morally reprehensible because they are not fair to users, they involve in an unjust exercise of power, and they tend to weaken the authority of accounting regulators. This paper develops a model for detecting earnings manipulators using financial statements’ ratios in a sample of Spanish listed companies. Our results provide evidence that accounting data (...) can be extremely useful in detecting manipulators. This approach can be used by a large category of users of accounting information among which we can cite stock exchange supervisors or investing professionals. (shrink)

Creative accounting involves accountants in making accounting policy choices or manipulating transactions in such a way as to convey a preferred and deliberately chosen impression in the accounts. Although it is regarded as unethical by most observers, a defense of creative accounting can be based on the assumption that users of accounts can identify bias in accounting policy choices and make appropriate adjustments. In this paper we take the example of the Barcelona Football Club where the club management made three (...) key accounting policy choices that resulted in the presentation of a favourable position, and a supporters club presented an alternative report choosing three alternative accounting policies that presented an unfavourable position. We presented each of these financial reports to one of two groups of Spanish bank loan officers: we found that the more favourable set of accounts was significantly more likely to attract a positive response to a loan request. This result undermines the validity of defending creative accounting based on the argument that accounts users can identify manipulation. (shrink)

Creative accounting involves accountants in making accounting policy choices or manipulating transactions in such a way as to convey a preferred and deliberately chosen impression in the accounts. Although it is regarded as unethical by most observers, a defense of creative accounting can be based on the assumption that users of accounts can identify bias in accounting policy choices and make appropriate adjustments. In this paper we take the example of the Barcelona Football Club where the club management made three (...) key accounting policy choices that resulted in the presentation of a favourable position, and a supporters club presented an alternative report choosing three alternative accounting policies that presented an unfavourable position. We presented each of these financial reports to one of two groups of Spanish bank loan officers: we found that the more favourable set of accounts was significantly more likely to attract a positive response to a loan request. This result undermines the validity of defending creative accounting based on the argument that accounts users can identify manipulation. (shrink)