Motivation for the use of creative accounting techniques in the conditions of the globalized business environment

¹ University of Zilina, Faculty of Operation and Economics of Transport and Communication, Department of Economics, Univerzitna 8215/1, 010 26 Zilina, Slovak Republic
² University of Zilina, Faculty of Operation and Economics of Transport and Communication, Department of Economics, Univerzitna 8215/1, 010 26 Zilina, Slovak Republic

^* Corresponding author: aneta.cugova@fpedas.uniza.sk

Abstract

Although creative accounting is a modern concept, the improvement of business results, their manipulation and fraud in accounting have been known long before its introduction. It is not easy to prepare the conditions for practicing creative accounting, however the current theory is full of knowledge, practices and techniques for its application. The company’s economic results are important especially for owners, investors, the state, banks or competitors. Most often, creative accounting is used to manipulate financial accounting to meet state requirements. Companies are trying to underestimate their economic result in order to minimize the tax liability. Various methods and procedures can be used for this purpose. The aim of the paper is to characterize the creative accounting and motivation that leads to the use of individual techniques of creative accounting, taking into account the specific conditions of the globalized business environment. The paper also presents the advantages and disadvantages of creative accounting. Creative accounting is the boundary between the alternative approaches allowed by legislation and fraudulent financial reporting. Businesses take advantage of weak control and therefore, they can easily hide handling of financial statements. On the other hand the application of creative accounting may be desirable and tolerated under certain circumstances and it can save the business from failure.