Case study: Creative accounting in the economic business between concept and application

Creative accounting(10) consists of accounting practices that follow required laws and regulations, but deviate from what those standards intend to accomplish. Creative accounting capitalizes on loopholes in the accounting standards to falsely portray a better image of the company. Although creative accounting practices are legal, the loopholes they exploit are often reformed to prevent such behaviors.

Creative accounting capitalizes on loopholes in the accounting standards to falsely portray a better image of the company. Tweaking figures can lead to higher bonuses for directors, help convince a lender to give a firm a loan and inflate the company’s valuation. Creative accounting tricks vary in nature and consistently evolve as regulations change. Investors should always be skeptical and read financial statements from top to bottom for any signs of foul play.

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now

Business economics is a field of applied economics that studies the financial, organizational, market-related, and environmental issues faced by corporations. Business economics assesses certain factors impacting corporations—business organization, management, expansion, and strategy—using economic theory and quantitative methods. Research topics in the field of business economics might include how and why corporations expand, the impact of entrepreneurs, interactions among corporations, and the role of governments in regulation.

Business economics is a field of applied economics that studies the financial, organizational, market-related, and environmental issues faced by corporations. Business economics encompasses subjects such as the concept of scarcity, product factors, distribution, and consumption. Managerial economics is one important offshoot of business economics. The National Association for Business Economics (NABE) is the professional association for business economists in the U.S.

Overestimating revenues: One of the most common techniques used by public companies looking to artificially boost their income is to prematurely recognize revenue. Revenue recognition is an accounting method that enables companies to recognize sales before they deliver a product or perform a service. It is open to exploitation.

Lowering depreciation charges: Companies often spread out the cost of assets, rather than expensing them in one hit. Methods to reduce annual charges on these items can include extending the useful life estimate of the asset or increasing its assumed salvage value.

Delaying expenses: Deferring the recording of current period expenses, such as payments to suppliers and rent, to a subsequent period makes current period earnings look better.

Masking contingent liabilities: Failure to record potential liabilities that are likely to occur and underestimating how much they are likely to cost can boost net income or shareholders’ equity.

Undervaluing pension liabilities: Pension obligations can easily be manipulated because the liabilities occur in the future and company-generated estimates need to be used to account for them.

Inventory manipulation: Inventory represents the value of goods that were manufactured but not yet sold. Overstating the value of inventory will lead to an understatement of cost of goods sold, and therefore an artificially higher net income, assuming actual inventory and sales levels remain constant.

Managerial Economics: Managerial economics is a field of study within business economics that focuses on the microeconomic factors that influence the decision-making processes with an organization. The strategic decisions of corporations result in either a profit or a loss for the company. Managerial economic principles are intended to influence and guide corporate strategy and decisions toward the best outcomes for a company. The study of managerial economics is applied to both the public and private sectors, as well as to for-profit and not-for-profit organizations. All of these types of organizations must effectively assess the economic climate in order to remain solvent (because all organizations require a source of funding to continue operations). Across all sectors of the business world, the main goal of managerial economics is to use all available resources within an organization, specifically maximizing production while at the same time minimizing any waste.

Business Economics for Nonprofit Organizations: While nonprofit organizations and for-profit organizations may have different goals, both of these types of organizations perform similar business functions and require similar expertise. In addition, they must also strive to limit waste and maximize the overall usefulness of their available resources in order to maintain their viability as enterprises. Both nonprofit organizations and for-profit organizations have to maintain the necessary capital to continue working within the economy; this requires them to use many of the same principles. For example, all types of organizations engage in advertising, community, or customer support and need leadership to make appropriate strategic decisions.

Conceptual model for these relationships.
A conceptual framework can be defined as a system of ideas and objectives that lead to the creation of creative accounting to differentiate between earnings management and fraud, for which literature review has been thoroughly analyzed. Model has been developed, which demonstrates the parties i.e. Banks, Auditors, Investors, Regulatory authorities etc. that are involved in creative accounting. Accounting professionals take advantage of the loopholes in the accounting regulations to manipulate accounts. Creative accounting can be done either “Beyond the Regulatory requirements” or “Within the Regulatory requirements”. This study suggests that Manipulations can be controlled by the effective implementation of Corporates’ internal control systems, compliance with codes of corporate governance and meeting the financial reporting regulatory requirements. in economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed to illustrate complex processes. Frequently, economic models posit structural parameters. A model may have various exogenous variables, and those variables may change to create various responses by economic variables. Methodological uses of models include investigation, theorizing, and fitting theories to the world.

Hypotheses for those relationships
Analysts, asset managers, and financial journalists failed to see many of the above scandals coming, proving that it is not always easy to spot questionable accounting practices. However, that does not mean that investors should sit back and do nothing. Being skeptical and reading financial statements a little more closely, rather than just focusing on what management highlight, can go a long way to detecting suspicious activity. A good starting point is to carefully read company footnotes, assess the reliability of auditors and pay careful attention to any unusual variations in figures. in the broadest sense, economics refers to the study of the components and functions of a particular marketplace or economy—such as supply and demand—and the impact of the concept of scarcity. Within economics, production factors, distribution methods, and consumption are important subjects of study. Business economics focuses on the elements and factors within business operations and how they relate to the economy as a whole. The field of business economics addresses economic principles, strategies, standard business practices, the acquisition of necessary capital, profit generation, the efficiency of production, and overall management strategy. Business economics also includes the study of external economic factors and their influence on business decisions such as a change in industry regulation or a sudden price shift in raw materials.

Required: Based on the above, summarize the information as follows
In the research proposal, an introduction to the research idea is started and then the conceptual framework that clarifies a theory that can be relied upon (if possible) within the framework of the proposed study, the study variables and the relationships between them, and the formulation of appropriate hypotheses for those relationships.
After the conceptual framework, we will talk about the study methodology, which follows the scientific method and based on the positive philosophy, and after the introduction on the study methodology, the statistical procedures that will be implemented must be clarified, such as descriptive and inferential statistics, and how to test the hypotheses of the study.
We must talk about the role of statistical Stata app in implementing various statistics.
At the end of the research proposal, a discussion is made about the estimated time of study, and here it is preferable to assume that this study represents your graduation project and thus the time period available to it, and it is necessary to talk about any ethical considerations that may be necessary in the course of the study, especially when the study intersects the collection of data from People or about people.

"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"