An overview of the concept of cosmetic accounting Essay

An overview of the concept of cosmetic accounting - Essay Example From this research it is clear that cosmetic or creative accounting is a process where accountant use their knowledge about accounting rules to change or manipulate the reported figures of the company’s business accounts. Cosmetic accounting can be describe in different ways like it is referred as the terms of income smoothing , earning management , earning smoothing or somewhere as financial engineering. The term cosmetic accounting is used when ,accepted accounting techniques those are not allow to use as to report financial results of a company, and with the help of creative accounting those prohibited techniques are used to manipulate accurate picture of the company. The methods of creative accounting are noteworthy because they remain in use as generally accepted accounting principal. As an author every company is fiddling its profit, every sets of published accounts are based on books which have been gently cooked or completely roasted. This deception is all in perfectly good taste. It is creative accounting. Creative accounting also based on some unethical elements like as accounting details of a restaurant can be anything (true and fair). The creativity in such details is like showing a half glass of water as half-full instead of presenting it as half-empty. Both statements are correct but both can paint different pictures and create different images in user’s mind. Sometimes, creativity accounting can be described as accounting manipulation.... This way, the management can reduce the net income’s fluctuations from one period to another. An explanation why cosmetic accounting is considered as blessing or curse: Cosmetic accounting can be considered as blessing when it contributes to clear or maintain the existing accounting system. And it can become a curse when it is used un-ethically to treat unfairly a specific group of users of financial statements. Most of the accountants believe that cosmetic accounting can be used as both of blessing and curse. According to a survey only 10% respondent think that this technique could be a blessing and 21% think that it is a curse. Cosmetic accounting can be used in two ways Positive Negative Simply the positive one can treat as blessing as to represent the true and fair position of the company. It can use to polish the account interests, but also as an accounting engineering consist on agreed accounting policies. As according to International Accounting Standard 1, â€Å"Compa nies can chose any procedure for maintaining their accounting records from the set of procedure those are declared true and fair† Negative form of cosmetic accounting is when this technique is used unethically to damage a specific group of users of financial statements. For example Companies can use a technique to include capital profits as operating Profits from the sale of properties and shares. Companies can record unrealized capital gains as operating profit. Companies can include the profits of their associated companies as their own profits to make the better financial position. In short the Positive one recognizes genuine changes in the business accounting practices while the Negative one reflects undesirable