Worldcom Creative Accounting Essay example
Scope of creative accounting
1) Flexibility in regulation. Generally the regulation, particularly the accounting regulation permits flexibility in choosing a policy to follow; the International Accounting Standards let the financial management to choose between valuation of the non-current assets at depreciated historical value or at revaluated value. The management may decide the change of the policies, and these shifts are difficult to be identified a few years later.
2) Certain entries in the accounts involve an unavoidable degree of estimation, judgment, and prediction. In some cases, such as the estimation of an asset's useful life made in order to calculate depreciation, these estimates are normally made inside the business and the creative accountant has the opportunity to decide on the side of caution or optimism in making the estimate. Management can use their discretionary position in order to obtain the financial position and stability they assumed; for example, the managers decide the increase or reduce of the provisions for bad debts.
3) The timing of some transactions offers to the management the opportunity to increase the revenues, when the