Running head: GLOBAL ISSUES REPORT 1

Global Issues Report:

Accounting

Jeffrey Lebeau

The University of Texas at El Paso

RWS 1301

Dr. Vierra

11/26/19
GLOBAL ISSUES REPORT 2

Abstract

How can UTEP, as a community, help their accounting students to be better prepared to

face reality? This paper is set to display the global issue of creative accounting. Through

thorough research and collection of credible sources, creative accounting is indeed a growing

global issue. Hence, this paper resumes various sources that will open the eyes of many on the

specific subject and propose an alternative to help our discourse community and UTEP as a

whole to better understand the subject at hand.

GLOBAL ISSUES REPORT 3

Global Issues Report:

Accounting

Creative accounting has various methods and its usage simply comes to life in the real

world. Hence, accounting students aren’t prepared and for some not even aware of the situation at

hand. Therefore, it is imperative that the UTEP business department needs to consider some kind

of evolution in the accounting teaching curriculum. In brief, the discussion part is set to shed light

on the problem of creative accounting and how accounting classes could use some innovation

with real-life situations.

Discussion

Creative accounting is a global issue. Creative accounting is an unethical accounting

technique. According to Naser (1993), the freedom of choice in the Anglo-Saxon accounting

system can be potentially subject to abuse, but the regulatory process is set to minimize the abuse

of this freedom. However, there will always be some type of abuse in any system. Hence, through

clever disclosure or non-disclosure methods the true picture of a company fades away and this

“window dressing” technique is so sophisticated that it’s impossible to be detected by even the

most qualified auditors (p.2). In short, creative accounting is a front to what may actually be

happening and it’s a deficit in the accounting system that allows entrepreneurs to take advantage

of the system.

Revenue recognition is the most common account when discussing frauds and abuses.

According to Carmichael (2019), the FASB (Financial Accounting Standards Board) worked on a

project for close to 20 years (1998-2017) called ASC 606. It consists of controlling as much as

possible frauds and abuses through a five-step process; identifying the contract with the

customer, identifying the performance obligations in the contract, determining the transaction

price, allocating the transaction price and finally, recognizing the revenue as performance
GLOBAL ISSUES REPORT 4

obligations are satisfied (p.36). Therefore, in brief, by having the client and the seller determining

the contract, it’s practically impossible to perform some kind of fraud.

Creative accounting is legal, but unethical. Creative accounting and fraud aren’t directly

correlated. According to Ginta and Tirau (2018), unlike fraud, creative accounting only exploits

the imprecisions, incompleteness of accounting regulations. Thus, for one problem, there are

various accounting treatments and the management has the option of which variant solution is the

best fit (p.603). Hence, creative accounting can’t be seen as fraud since it technically abides by

the law and only stretches certain accounting regulations. Therefore, the correlation resultant is

that fraud is a felony and creative accounting is an unethical, but legal, manner of taking

advantage of the system.

Creative accounting is definitely the outcome of the fiscal rules. According to Melo,

Pereira and Souza (2014), fiscal rules are imposed on measured fiscal variables, but they can

differ from the true variables because there is space for creative accounting. The rules can

therefore lead to untruthful outcomes, have a considerable amount of “window dressing” and

very little effect on fiscal policy, so the probability of detecting the creative accounting simply

depends on its size and the transparency of the budget (p.597). In short, the sloppy fiscal rules

allow a margin for creative accounting which in turn leads to some discrepancies in the economic

system.

Accounting could use some changes in its teachings. Accounting degrees at UTEP have

been the same for over 30 years. According to UTEP’s Nova Quarterly (1987), the accounting

degree required 30 hours of accounting class with 36 hours total in the business portion.

However, there were various fields of accounting back then such as, tax accountants, managerial

accountants and professional accountant (p.3). Today, there is simply the accounting major with

the same number of hours required. After 32 years and still counting, I think it is more than
GLOBAL ISSUES REPORT 5

appropriate that times have changed and the curriculum to an accounting major should be

different. The variety of other classes such as economics, marketing, strategic management,

QMB, and others would allow student to have a base background in every field.

Teachers could make course content more realistic rather than simply theory. There is a

fundamental issue in the teaching of accounting classes. According to the American Accounting

Association (2019), accounting classes could use some innovative and evaluation techniques. For

instance, having some real-time simulation over the course of a month where the students can

actually be an accountant and do balance sheets, income tax statements, posting the records in the

general ledger. All of that to prepare them to real-life when they will have to present specific

documents to their boss, so they can get a clear understanding of where they stand (p.71-72).

Moreover, according to figure 3, there are various online simulations that can better prepare

accountants for real-life situations. In summation, the idea of the AAA is to simply innovate the

way of teaching accounting by making it more realistic, instead of the conventional boring note-

taking classes.

New teaching innovation would unquestionably raise awareness of all accounting

situations. Big bath accounting is a creative accounting technique. According to Ciocan (2017),

big bath accounting is considered a creative accounting branch that allows a drastic temporary

profit reduction and cause the company’s growth in a near future. Tools such as “provisions”, and

some depreciation adjustments, managers can then reduce the outcome to distribute less and

compensate to shareholders in dividends. The managers put themselves in a favorable position

for the future and please the shareholders in the present and likely in the future (p.452).

Therefore, by bolstering contra-assets such as supplies and depreciation adjustments, it allows the

manager to raise the other side of the accounting equation (dividends) to balance the numbers,
GLOBAL ISSUES REPORT 6

which in turn allows the shareholders to still profit tremendously from a low-profit period of

time.

Management accounting plays a key role in the sustainability of any business. According

to CIMA (Chartered Institute of Management Accountants) (2012), management accounting is

the process of identification, measurement, analysis, interpretation and communication of data

used by the superiors to evaluate and control the appropriate use and accountability for its

resources (p.104). Therefore, the sophisticated process of management accounting prepares

financial statements in a clear, precise and concise manner. When the process is done,

accountants give their statements to their superiors and this gives them a global overview of their

business, hence allowing them to make a strategic or necessary decision.

Strategic management accounting leads to immediate success. Many accountants neglect

strategic performance systems. According to Cheng (2012), incorporating the BSC (Balanced

Scorecard) into any company is crucial for all the various attributes it brings to the table and all

the risk reduction of mistakes. It’s internal effect in a business can be seen through behavioral

management accounting and its more abroad effect can be felt as a critical influence on the

managerial decisions and behaviors. The general objective of the BSC is to keep in consideration

that there are various human factors to keep in mind, however, how can we optimize the

effectiveness of the management (p.167). In brief, companies should abide by the BSC in order to

make sure their company is as efficient as possible.

Conclusion

UTEP could use an innovation in the teachings of accounting, thus raising awareness of

all possible accounting situations. Through research and scholarly sources, the problem of

creative accounting is simply growing in different shapes and forms. It has perks for a small
GLOBAL ISSUES REPORT 7

amount of the population and hurts practically everyone in the middle and lower class. Hence, if

the real-world in accounting is evolving, it is fair to acknowledge that the teaching of accounting

classes could use some innovation in order to better prepare its students to face reality.
GLOBAL ISSUES REPORT 8

References

American Accounting Association. (2019). Editorial policy. Issues in Accounting

Education, 34(3), 71-72. Retrieved from https://aaajournals.org/doi/pdf/10.2308/1558-

7983-34.3.71

Carmichael, D. R. (2019). New revenue recognition guidance and the potential for fraud and

abuse. CPA Journal, 89(3), 36-43. Retrieved from http://0-

search.ebscohost.com.lib.utep.edu/login.aspx?direct=true&db=bft&AN=135250784&site

=eds-live&scope=site

Ciocan Claudia-Catalina. (2017). True and fair view: Incentive or inhibitor for creative

accounting? Ovidius University Annals: Economic Sciences Series, (1), 451. Retrieved

from http://0-

search.ebscohost.com.lib.utep.edu/login.aspx?direct=true&db=edsdoj&AN=edsdoj.19bf5

b6caf54436f97327b19ff2a2573&site=eds-live&scope=site

Gînţa, A. I., & Țirău, A. I. (2018). Analysis of creative accounting – faithful image relationship

and creative accounting – fraud relationship. Ovidius University Annals: Economic

Sciences Series, (2), 599-608. Retrieved from http://0-

search.ebscohost.com.lib.utep.edu/login.aspx?direct=true&db=edsdoj&AN=edsdoj.7b834

65e8b141e296e0551dc7991cfd&site=eds-live&scope=site

Jayanthi Kumarasiri. (2012). Management accounting practices for sustainability. In Greg N.

Gregoriou, & Nigel Finch (Eds.), Best practices in management accounting (pp. 101-

114). New York: Palgrave Macmillan.

GLOBAL ISSUES REPORT 9

Mandy Man-sum Cheng. (2012). Strategic Performance Measurement Systems and Managerial

Judgements. In Greg N. Gregoriou, & Nigel Finch (Eds.), Best practices in management

accounting (pp. 166-181). London: Palgrave Macmillan.

Marcus André Melo, Pereira, C., & Souza, S. (2014). Why do some governments resort to

'creative accounting' but not others? fiscal governance in the brazilian

federation. International Political Science Review / Revue Internationale De Science

Politique, 35(5), 595-614. Retrieved from http://0-

search.ebscohost.com.lib.utep.edu/login.aspx?direct=true&db=edsjsr&AN=edsjsr.245734

27&site=eds-live&scope=site

Naser, K. H. M. (1993). Creative financial accounting: Its nature and use. New York: Prentice

Hall.

UTEP NOVA Quarterly. (1987). Nova quarterly: The magazine of the university of texas at el

paso. Nova, 22(3), 3-5. Retrieved from https://digitalcommons.utep.edu/nova/62/

GLOBAL ISSUES REPORT 10

Figures

Figure 1. Example of same old boring accounting class filled with charts and numbers. Copyright

by Christine Denison 2018.

Figure 2. Creative accounting methods. Copyright tutors globe 2015.

GLOBAL ISSUES REPORT 11

Figure 3. Accounting simulation game. Copyright GoVenture 2018.