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The ethics of creative accounting

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Abstract

Creative accounting, which generally involves the preparation of financial statements with the intention of misleading readers of those statements, is prima facie a form oflying, as defined by Bok.1 This paper starts by defining and illustrating creative accounting. It examines and rejects the arguments for considering creative accounting, in spite of its deceptive intent, as not being a form of lying. It then examines the ethical issues raised by creative accounting, in the light of the literature on the ethics of lying. This literature includes the evaluation of various excuses and justifications for lying, and these are examined here in relation to creative accounting. It is concluded that even in circumstances in which creative accounting would arguably serve a worthy purpose, that purpose would be at least as well served by honest communication.

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Notes and References

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  2. Foster, George J (1986)Financial Statement Analysis, second edition. Prentice-Hall, Englewood Cliffs, NJ; ch. 11, Appendix A.

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  3. Briloff, Abraham J (1982) Anacomp’s Accounting: a Critic Finds Plenty to Fault It With,Barron’s, August 2, 1982.

  4. Citron David B (1985) The Incidence of Accounting based Covenants in UK Public Debt Contracts: an Empirical Analysis,Accounting and Business Research,99, Summer.

  5. “[T]he ‘fairness’ concept implies that accounting statements have not been subject to undue influence or bias …. [F]airness has become one of the basic objectives of accounting.” (Belkaoui, 1985:18)

  6. Hines, Ruth D (1988) Financial Accounting: In Communicating Reality, We Construct Reality,Accounting, Organisations and Society, No. 3.

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  8. For a further discussion of this point, see Ijiri, 1975: 40–45.

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  17. Bok 1978, ch. II.

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  21. Archer S, Alexander D, Collins L and Pham D (1995)Goodwill and Other Intangibles: Theory Standards and Practice in France and the UK, Institute of Chartered Accounts Research Board, London: ch. 6.

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  25. ibid., ch. VIII

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  31. In both the U.S.A. and the U.K., the accounting regulatory bodies were reorganised (in 1972 and 1990, respectively) in order to reduce the influence over them of the accounting profession. But the influence of the managements of companies does not seem to have been thereby reduced. For a discussion of the problems of authority faced by such bodies, see Archer (1993).

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Authors and Affiliations

  1. Department of Management Studies, University of Surrey, GU2 5XH, Guildford, Surrey, UK

    Simon Archer

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Archer, S. The ethics of creative accounting. Sci Eng Ethics 2, 55–70 (1996). https://doi.org/10.1007/BF02639318

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