Creative accounting

Some organisations also apply creative accounting to show better financial performance. These can be small adjustments such as bad debt provisions and changing collection and payment values at the year end. These simply massage the year end figures. Or they can be major manipulations or complications:

 revaluations of fixed assets such as buildings

 sale and leaseback of fixed assets such as cars

 goodwill

 intangible assets.

These can have a dramatic effect on the ratios calculated. They all have strict and complex guidelines in the financial reporting standards and, for the non-financial specialist, there can seem to be a fine line between window dressing and fraud. If this interests you, there are some tips on spotting fraud in the checklist ‘Spotting fraud’.