Creative accounting practices and quality of financial reporting: perception analysis from an emerging economy

Abstract

Purpose The transparency of financial information in financial reports and their use in making decisions by users are in doubt because of some recent corporate failures. The purpose of this study is to investigate the impact of creative accounting practices on the quality of financial reporting. Design/methodology/approach A structured close-ended questionnaire was administered to gather data from 256 respondents. The collected data were subjected to descriptive statistical analysis to summarize key patterns and trends. To test the formulated hypotheses, a multiple regression model was employed. Findings The findings show that creative accounting practices such as flexibility in accounting regulation, inadequacy in rules, management’s discretionary power and transaction timing impact the quality of financial reporting. However, fake transactions and financial reclassification of transactions have insignificant influence on this quality. Practical implications This study offers valuable insights to investors, policymakers and regulators regarding the prevalence of creative accounting practices and the current state of financial credibility in Bangladesh. It highlights the need for policymakers to enforce stricter corporate governance frameworks to mitigate the misuse of creative accounting techniques in financial statements. Originality/value This study will enhance the existing literature on the impact of creative accounting practices on financial reporting quality, potentially serving as the first investigation of this issue from the perspective of an emerging economy.