Question 4

What is meant by creative accounting? Using examples, please state where you might expect to see creative accounting within the financial statements. Please as part of your answer offer a critical debate on why accounting standards provide some level of choice in how they present some elements within the financial statements given this discretion can lead to creative accounting. In your answer, also consider why accounting standard setters are willing to forgo some of the qualitative characteristic of comparability to achieve increased levels of faithful representation for the users of financial statements.

(30 marks)