Influence of Creative Accounting on Reliability and Objectivity of Financial Reporting (Factors Responsible For Adoption of Creative Accounting Practices in Pakistan).

Abstract

Purpose: Intellectual modifications (creative accounting) in financial reports to make them attractive are very emerging and vastly accepted practices around the globe. But these practices are deceiving and unethical. This study aims to explore the factors encourage the adoption of  creative accounting practices like agency problem, corporate governance, company's ethical value, company's future orientation etc. as well as how these practices affect the reliability and objectivity of financial reporting. Methodology: This research is an empirical research and data is collected from accounting and management professionals of manufacturing industry of Punjab via structured questionnaire. Convenient sampling technique used to select sample size and SPSS software used for data analysis. Findings: Results of this research explored the positive association between agency problem and creative accounting while corporate governance, company's ethical value, company's future orientation have negative impact on creative accounting. It is also verified that creative accounting has significant negative impact on reliability as well as objectivity of financial reporting. Implications: Results of this study will assist the company's management how to control adverse influence of these manipulative activities on reliability and objectivity of financial reports as well as provide literacy to investors to be aware of such extensively using speculative activities. Limitations: Limitations of this study are that it is only considering few factors as well as manufacturing industry of Punjab.