Effect Of Creative Accounting On Stakeholders Wealth

EFFECT OF CREATIVE ACCOUNTING ON STAKEHOLDERS WEALTH

First Chapter Introduction

1.1 The Study’s Background

Recently, the top management of many organizations has been compelled by the current business climate and even more severe economic recession to focus on how to improve the financial statements of their companies in order to attract investors by manipulating the numbers in their financial statements, either by increasing or decreasing the figures depending on what they want to achieve at the moment using aggressive or creative accounting, also known as

Fraud has recently been found to represent a significant hazard to enterprises. It is a significant risk that carries a hefty price tag and can result in a host of issues, among which is a decline in public and shareholder confidence. This study looks for a fix for financial statement fraud. ”Auditor involvement in solving creative accounting challenges” is another topic on which the research work will concentrate. Corporate governance will also be examined by the researcher as a tool for fraud prevention and detection.

Osisioma and Enahoro (2006) contend that the ability to manipulate accounting procedures and policy decisions made as a result of numerous simultaneous judgments has led to creative accounting. The challenges to the credibility of accounting (financial statements and reporting) have been caused by the disparities that can be seen in financial reporting that are lawfully created using different accounting policies of the same firm for the same period.

Situation Of The Problem

The terms “creative accounting” and “earning management” are euphemisms for accounting techniques that frequently, albeit deftly, or bend the standards of accepted accounting principles. Doubtful complexity and the use of ‘new’ methods of showing income, assets, or liabilities are what define them.

Ineffective financial reporting has been caused by several reports of price manipulation, profit overstatement, and account fabrication by some doubtful stewards. However, corporate governance failure, which involves a variety of stakeholders, including the management board of directors, auditors, and some investors, has been closely linked to business failures over the past ten years (Ezeani, 2010).

Financial catastrophes and connections to fraud have historically harmed the majority of corporate companies. Accounting scandals in recent years, like those involving Enran, World Com, Parmalat, Tyco, and others, have cost stakeholders billions of dollars and tarnished the accounting profession as a result of financial misrepresentation.

The majority of the guidelines established for the accounting (Audit) report have been weakened.

1.3 Study’s Objectives

Examining how creative accounting affects shareholder wealth is the study’s principal goal. The study’s specific goals are to: 1. Determine the link between innovative accounting and shareholder wealth.

2. To determine whether innovative accounting techniques significantly influence the investing choices of shareholders.

3. To investigate the impact of inventive accounting on an organization’s stock price and dividend payments to shareholders.

4. To determine if a well constructed framework of accounting regulation will prevent innovative accounting techniques in company financial reporting.

1.4 Questions For Research

The following research questions will serve as a guide to help us accomplish the aforementioned study goals for the paper:

1. How is the wealth of shareholders related to creative accounting?

2. Do innovative accounting techniques considerably influence the investing choices of shareholders?

3. What impact does creative accounting have on an organization’s stock price and dividend payments to shareholders?

4. How much would a well-crafted regulatory framework for accounting stifle innovative accounting techniques in corporate financial reporting?

1.5 Hypothesis For Research

1. Ho: The wealth of shareholders and innovative accounting do not significantly correlate.

2. Ho: Shareholders’ investment decisions are unaffected by creative accounting.

3. Ho: The share price of an organization and creative accounting do not significantly correlate.

1.6 Impact Of The Study

Policy makers, management of diverse businesses, auditors, stockholders, and student researchers will all greatly benefit from the study. The study will give management a thorough grasp of the consequences and expenses of financial statement window dressing. Additionally, it will be advantageous to shareholders, investors, and the general public who may use firms’ audited financial status when making investment decisions. It will also be simple to access for academic use.

1.7 Limitations of the study

A strict schedule was followed during the research study’s execution. It was started quickly and progressed sporadically with lectures and individual study sessions.

Due to respondents’ hesitation to supply information on time, data collection also had problems.

1.8 Term Definition

Accounting procedures known as “creative accounting” differ from accepted accounting principles.

Fraud is the purposeful use of trickery or deception to get someone to give up their property or another legal right.

Financial Statement: An annual book containing condensed information on the business’s affairs that is arranged methodically.

Auditor: A person tasked with conducting a neutral analysis of the supporting documentation for a company’s financial statements.

Shareholders Shareholder wealth is the total wealth acquired by shareholders as a result of their investments in a business.