The Impact of Creative Accounting Practices on the Wealth of Shareholders in Commercial Banks

Abstract

One of the most prominent reasons economic unit departments practice creative accounting in companies is (profit management, income smoothing, and off-budget financing). This achieves a positive impact reflected in the company’s reputation in the market, improving the financial values of shareholders’ wealth, the values of the economic unit, and the search for profits simultaneously. It is difficult to achieve profits and reflects an unrealistic picture of the financial statements of these companies, which leads to the collapse of the companies later and the occurrence of many collapses and financial scandals, as happened in many major economic companies such as (Enron), (Harkin), (Worldcom), and others. Accordingly, this study sheds light on the various practices used to manipulate financial statements, as well as addresses the motives that management seeks to resort to, explains their purpose, and demonstrates the impact of these practices on shareholders’ wealth.

    The research aims to shed light on creative accounting practices, explain the motives that the management of economic units seeks to achieve, and clarify the concept and importance of shareholders’ wealth in monetary units. The research has reached a set of conclusions, the most important of which is that creative accounting practices manipulate financial numbers by taking advantage of existing gaps and flexibility. In the accounting laws and standards adopted in choosing measurement alternatives, creative accounting practices can negatively or positively affect shareholders’ wealth, which explains the decline in most markets and added economic values. The research also presented a set of recommendations, the most important of which is reducing the scope for choosing alternatives and accounting treatments by reducing the number of other options and treatments available or determining the circumstances in which each treatment can be used.