Measurement and Assessment of Business Income and Performance in the Era of Creative Accounting Practice

Abstract

Aggressive accounting, income smoothing, earning management and creative accounting are the financial reporting gimmicks that have influence on the differences in the approaches adopted by accounting practitioners in reporting business income and thereby influencing reported income. The difference accounting policies and approaches adopted by preparers of financial statements create differences in the measurement and assessment of business income through provision and loopholes in International Financial Reporting Standards (IFRSs) that lead to manipulation of financial numbers usually within the letter of the law and accounting Standards. Creative accounting practices employed by preparers of financial statements have created gap in the measurement and assessment of business income and performance due to the selfish interest of few stakeholders to the detriment of the larger society. principles-based accounting is the best in providing relevant, reliable and comparable financial information across reporting period and entities but it is to be recognized that to make principles-based approach more effective and efficient, some grey areas must be modified to avoid the risk of exposing financial information to manipulation through unethical behaviours. Cash flow is more reliable to access and measure entities performance because it is more difficult to manipulate than statement of financial performance and financial position.

Keywords: Creative accounting; Income measurement; International Financial Reporting Standards (IFRSs); Rules-based accounting; Financial Statement; Principles-based accounting.

DOI: 10.7176/RJFA/10-18-11

Publication date:September 30^th 2019