What is Creative accounting
Creative accounting (also termed as aggressive accounting or earnings management) distorts financial analysis of company accounts. Creative accounting is done by organisations to perhaps enhance balance sheet or performance by either exploiting loopholes in the accounting standards or deliberately not showing certain items. Listed companies specifically have added pressures for the maintenance and increase of share prices; this obviously has an influence on the valuation of company. As share prices are stipulated by the market, information fed to market can be manipulated to ensure this.
There has been a severe crackdown on misleading accounts specifically with the disasters such as Enron and WorldCom. In USA there are now huge financial penalties and even jail sentences for directors deliberately misleading users the accounts. In UK directors are legally obliged to produce true and fair accounts.