Creative Accounting, the Executive and Organizational Ethics

Abstract

The nature and scope of creative accounting are analyzed. Creative accounting occurs when executives —intentionally or unintentionally— allow manipulation of accounting information to present desired results, instead of neutral and reasonable transactions. The causes of creative accounting are revealed (it hardly differs from fraud). The preventive role of the executive, and the Cuban legal approach to this practice are presented as well. This paper deals with prevention or minimization of its impact on the organization. Accordingly, the internal control system must be strengthened, never designed by bureaucrats. The analysis mechanisms must be set both at the accounting and the executive areas. Among other measures, their accounting control activities must also be preventive. Therefore, executives will be able to make decisions that rely on reasonable security information, to analyze cost-benefits and the future impact on the organization’s economic and financial settings. As a result, misleading results caused by infringement of ethical patterns or the lack of accounting culture, or both will be avoided.