Review of Shah, A. K., (1998) Exploring the influences and constraints on creative accounting in the United Kingdom, European Accounting Review, 7 (1): 83-104.
1033 Words5 Pages
In recent years, the practice of creative accounting by the management of large listed corporation in the UK has received increasingly more attention and allegations, especially from key financial information users. Supported by significant evidence of the practice of creative accounting, it is largely believed that such practices misrepresent the underlying reported financial performance of firms, instantaneously conflicts key core aims of accounting – to provide consistent and comparable information to users.
Author Atul K. Shah, in his study aims to illuminate the influences and constraints on creative accounting providing new insights of understanding financial reporting. The dominant purpose of this paper is to identify the key…show more content… Bearing in mind the prevailing issue of creative accounting, one cannot help but to question the accuracy of the data, be it to a small degree, presented in data sources such as prospectuses and annual reports. It is fair to say that the evidences presented in for example table 4 and 5 give a logical support to the assertions and observations made by the author.
Overall, I believe the author has been successful in terms of providing the reader an understanding and depths as to what are the key drivers behind the use of this practice. The paper lightly attempts to outline an important question – why or for how long these motivators and constraints support creative accounting schemes appear to go undetected. Shah (1998) concluded that despite Tesco pursuing similar policies to that of Burton, it had a healthy underlying performance and so had fewer repercussions on the firms. Consequently, it does not only identify and state factors and answer his own questions pertaining to the title of this paper, but also infers logically from the evidence that it’s a combinations of a strong mix of the UK financial reporting environment as an explanation to why the concept flourished in the 1980’s. Shah (1998) defines this environment as where accounting numbers are important, management are powerful, and auditors, press and analysts were weak and inconsistent in restraining