QUESTION 5 A CREATIVE ACCOUNTING Definition (1)

1. Use of unorthodox 'massage parlor' techniques which, while following provisions of GAAP, paint a desired (negative or positive, as the case may be) picture of a firm's finances. For example, selling an asset (whose market value is high but book value is low) to create non-operating profit that offsets operating loss. Unlike cooking the books, creative accounting is generally legal. Euphemistically also called financial engineering or earnings management. See also creative financing.

Creative accounting
Creative accounting, also called aggressive accounting, is the manipulation of financial numbers, usually within the letter of the law and accounting standards, but very much against their spirit and certainly not providing the true and fair view of a company that accounts are supposed to. A typical aim of creative accounting will be to inflate profit figures. Some companies may also reduce reported profits in good years to smooth results. Assets and liabilities may also be manipulated, either to remain within limits such as debt covenants, or to hide problems. Typical creative accounting tricks include off balance sheet financing, over-optimistic revenue recognition and the use of exaggerated non-recurring items. The term window dressing has similar meaning when applied to accounts, but is a broader term that can be applied to other areas. The techniques of creative accounting change over time. As accounting standards change, the techniques that will work change. Many changes in accounting standards are meant to block particular ways of manipulating accounts, which means those intent on creative accounting need to find new ways of doing things. At the same time, other, well intentioned, changes in accounting standards open up new opportunities for creative accounting (the use of fair value is a good example of this). Many (but not all) creative accounting techniques change the main numbers shown in the financial statements, but make themselves evident elsewhere, most often in the notes to the accounts. The market has been surprised before by bad news hidden in the notes, so a diligent approach can give you an edge.
Question 1 A company that faces a high (and difficult to meet) security analysts' (consensus) profit forecast. 2 A listed company which prepares interim financial statements. 3 A recently taken-over company. Answer

4 A company whose directors are considering changing the status of the company from private to publicly listed. That is they are planning an Initial Public Offering (IPO). 5 A large regulated utility company. 6 A company operating in an economy that is moving into recession. 7 A company whose trade unions are about to submit a large wage demand. 8 A company which is rumoured to be subjected to a hostile take-over bid in the next few weeks. 9 A company that is performing below its industry average. 10 A company whose directors are on a profit related bonus scheme. 11 A company that is in fairly permanent decline. 12 A company that has borrowed heavily and is highly geared. 13 A company that operates in an industry known for highly volatile profits. 14 A company that is faced with severe foreign competition. 15 A divisional company whose director's are planning a 'buy-out'. 16 A company that is looking to reduce its tax bill.

Social accounting
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Social accounting (also known as social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting, or sustainability accounting) is the process of communicating the social and environmental effects of organisations' economic actions to particular interest groups within society and to society at large.[1] Social accounting is commonly used in the context of business, or corporate social responsibility (CSR), although any organisation, including NGOs, charities, and government agencies may engage in social accounting. Social accounting emphasises the notion of corporate accountability. D. Crowther defines social accounting in this sense as "an approach to reporting a firms activities which stresses the need for the identification of socially relevant behaviour, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques."[2] Social accounting is often used as an umbrella term to describe a broad field of research and practice. The use of more narrow terms to express a specific interest is thus not uncommon. Environmental accounting may e.g. specifically refer to the research or practice of accounting for an organisation's impact on the natural environment. Sustainability accounting is often used to express the measuring and the quantitative analysis of social and economic sustainability.

FORENSIC ACCOUNTING Who needs Forensic Accountants? Forensic Accounting is the fastest growing area of Accounting today. Forensic Accountants work in most major accounting firms and are needed for investigating mergers and acquisitions, and in tax investigations, economic crime investigations, all kinds of civil litigation support, specialized audits, and even in terrorist investigations. Forensic Accountants work throughout the business world, in public accounting, corporations, and in all branches of government (from the FBI and CIA to the offices of the local authorities).

Contents
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1 Purpose o 1.1 Accountability o 1.2 Management control 2 Scope o 2.1 Formal accountability o 2.2 Self-reporting and third party audits o 2.3 Reporting areas o 2.4 Audience 3 Environmental accounting 4 Applications o 4.1 Format 5 History 6 See also 7 Notes 8 External links

[edit] Purpose
Social accounting challenges conventional accounting, in particular financial accounting, for giving a narrow image of the interaction between society and organizations, and thus artificially constraining the subject of accounting. Social accounting, a largely normative concept, seeks to broaden the scope of accounting in the sense that it should:
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concern itself with more than only economic events; not be exclusively expressed in financial terms; be accountable to a broader group of stakeholders; broaden its purpose beyond reporting financial success.

It points to the fact that companies influence their external environment (both positively and negatively) through their actions and should therefore account for these effects as part of their standard accounting practices. Social accounting is in this sense closely related to the economic concept of externality. Social accounting offers an alternative account of significant economic entities. It has the "potential to expose the tension between pursuing economic profit and the pursuit of social and environmental objectives".[3] The purpose of social accounting can be approached from two different angles, namely for management control purposes or accountability purposes.

[edit] Accountability

Social accounting for accountability purposes is designed to support and facilitate the pursuit of society's objectives. These objectives can be manifold but can typically be described in terms of social and environmental desirability and sustainability. In order to make informed choices on these objectives, the flow of information in society in general, and in accounting in particular, needs to cater for democratic decision-making. In democratic systems, Gray argues, there must then be flows of information in which those controlling the resources provide accounts to society of their use of those resources: a system of corporate accountability.[4] Society is seen to profit from implementing a social and environmental approach to accounting in a number of ways, e.g.:
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Honoring stakeholders' rights of information; Balancing corporate power with corporate responsibility; Increasing transparency of corporate activity; Identifying social and environmental costs of economic success.

[edit] Management control

Social accounting for the purpose of management control is designed to support and facilitate the achievement of an organization's own objectives. Because social accounting is concerned with substantial self-reporting on a systemic level, individual reports are often referred to as social audits. Organizations are seen to benefit from implementing social accounting practices in a number of ways, e.g.:[5]
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Increased information for decision-making; More accurate product or service costing; Enhanced image management and Public Relations; Identification of social responsibilities; Identification of market development opportunities; Maintaining legitimacy.

According to BITC the "process of reporting on responsible businesses performance to stakeholders" (i.e. social accounting) helps integrate such practices into business practices, as well as identifying future risks and opportunities.[6] The management control view thus focuses on the individual organization. Critics of this approach point out that the benign nature of companies is assumed. Here, responsibility, and accountability, is largely left in the hands of the organization concerned.[7]

[edit] Scope
[edit] Formal accountability

In social accounting the focus tends to be on larger organisations such as multinational corporations (MNCs), and their visible, external accounts rather than informally produced accounts or accounts for internal use. The need for formality in making MNCs accountability is given by the spatial, financial and cultural distance of these organisations to those who are affecting and affected by it.[8] Social accounting also questions the reduction of all meaningful information to financial form. Financial data is seen as only one element of the accounting language.[9]
[edit] Self-reporting and third party audits

In most countries, existing legislation only regulates a fraction of accounting for socially relevant corporate activity. In consequence, most available social, environmental and sustainability reports are produced voluntarily by organisations and in that sense often resemble financial statements. While companies' efforts in this regard are usually commended, there seems to be a tension between voluntary reporting and accountability, for companies are likely to produce reports favouring their interests.[10] The re-arrangement of social and environmental data companies already produce as part of their normal reporting practice into an independent social audit is called a silent or shadow account. An alternative phenomenon is the creation of external social audits by groups or individuals independent of the accountable organisation and typically without its encouragement. External social audits thus also attempt to blur the boundaries between organisations and society and to establish social accounting as a fluid two-way communication process. Companies are sought to be held accountable regardless of their approval.[11] It is in this sense that external audits part with attempts to establish social accounting as an intrinsic feature of organisational behaviour. The reports of Social Audit Ltd in the 1970s on e.g. Tube Investments, Avon Rubber and Coalite and Chemical, laid the foundations for much of the later work on social audits.[12]
[edit] Reporting areas

Unlike in financial accounting, the matter of interest is by definition less clear-cut in social accounting; this is due to an aspired all-encompassing approach to corporate activity. It is generally agreed that social accounting will cover an organisations relationship with the natural environment, its employees, and wider ethical issues concentrating upon consumers and products, as well as local and international communities. Other issues include corporate action on questions of ethnicity and gender.[8]

[edit] Audience

Social accounting supersedes the traditional audit audience, which is mainly composed of a company's shareholders and the financial community, by providing information to all of the organisation's stakeholders. A stakeholder of an organisation is anyone who can influence or is influenced by the organisation. This often includes, but is not limited to, suppliers of inputs, employees and trade unions, consumers, members of local communities, society at large and governments.[13] Different stakeholders have different rights of information. These rights can be stipulated by law, but also by non-legal codes, corporate values, mission statements and moral rights. The rights of information are thus determined by "society, the organisation and its stakeholders".[14] What are the requirements? Applicants must currently hold the Certified Public Accountant (CPA) designation. Any accountant making application for the credential Certified Forensic Accountant, Cr.FA, must first be registered with his/her State Board of Accountancy if required by state law. No one may make application for Certified Forensic Accountant, Cr.FA, unless they are first in compliance with all local ordinances, state laws, and federal regulations. International professionals who wish to become a Certified Forensic Accountant must hold a designation that is equivalent to the CPA in the United States.