Abstract
This paper examines two principal categories of manipulative behaviour. The term ‘macro-manipulation’ is used to describe the lobbying of regulators to persuade them to produce regulation that is more favourable to the interests of preparers. ‘Micromanipulation’ describes the management of accounting figures to produce a biased view at the entity level. Both categories of manipulation can be viewed as attempts at creativity by financial statement preparers.
The paper analyses two cases of manipulation which are considered in an ethical context. The paper concludes that the manipulations described in it can be regarded as morally reprehensible. They are not fair to users, they involve an unjust exercise of power, and they tend to weaken the authority of accounting regulators.
Introduction
Financial statements provide information that is used by interested parties to assess the performance of managers and to make economic decisions. Users may assume that the financial information they receive is reliable and fit for its purpose. Accounting regulation attempts to ensure that information is produced on a consistent basis in accordance with a set of rules that make it reliable for users. However, communications between entities and shareholders may be deliberately distorted by the activities of financial statement preparers who wish to alter the content of the messages being transmitted. This type of distortion is often referred to as ‘creative accounting’ or ‘earnings management’. While opinions on the acceptability of accounting manipulation vary, it is often perceived as reprehensible.
This paper will try to identify some manipulative behavior on the part of preparers of financial statements, taking into account some important ethical concerns.
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