Creative Accounting and Corporate Governance Essay

Creative Accounting and Corporate Governance - Essay Example at its shares acquire premium value and (c) payment of high dividends through representing profits in an inflated manner by an over-valuation of assets. Griffiths identifies several such instances where there may be deceptive financial misreporting. Some of these include the practice by so called entrepreneurial Companies to â€Å"include capital profits from the sale of properties or shares†¦.as operating profits† although these had not actually been realized and were subject to speculation; booking â€Å"unrealized capital gains as operating profit† despite the fact that some of these so called profits were generated in transactions with business associates or within the same firm. (Griffits 1990:122). In such cases, there would often be secret arrangements in place whereby the so called â€Å"buyer† in the transaction could later transfer the assets back to the seller, just after the period when the balance sheet had to be generated. Other similar means employed were the reporting of the net profits of associated Companies as a part of their own profits, and keeping an ownership level of the Company at 4 9 percent, such that group accounts did not have to be consolidated and debts could remain unreported, thereby giving rise to a deceptive perception about its capital structure (Griffiths, 1992: 123). Creative Accounting is therefore a deceptive accounting practice that leaves room for unethical financial practices. In the case of Maxwell Communications Corporations, the Company produced a set of accounts that looked very healthy, yet a few months subsequently, the Company experienced a financial collapse. Pension funds available in the Company were being diverted to purchase companies which the Chairman Maxwell was interested in. Some of the means that were utilized by Maxwell to hide this diversion of funds included inconsistencies in the reporting of extraordinary expenses and exceptional items. Additionally, debt was disguised as equity and this executed