12. Abuse of Creative Accounting in Practical Application

The aim of general-purpose financial statements is to provide fair and objective information about the financial position, performance, and cash flows of a business entity. Such reporting, in the initial theoretical idea, was sought to be provided through creative accounting, i.e. through the introduction of certain flexibility based on the choice of different methods of estimating fair value. The complexity and dichotomy in determining fair value have led to manipulations in the financial statements, and thus to the biased presentation of balance sheet items. Flexibility techniques, i.e. manipulations, are numerous and often complex so that the bias of financial reporting can hardly be noticed in time. The potential for abuse of creative accounting increases with the allowable flexibility of applicable accounting frameworks. This paper aims to point out critical points in accounting manipulations and reveal the techniques of abuse of creative accounting, with an emphasis on possible forms of false financial reporting and ways of their manifestation. The seriousness of this phenomenon is highlighted by the results of research by the American Association of Chartered Fraud Investigators (ACFE), according to which the largest loss globally is caused by fraud in financial statements. The aim of this paper is to identify indications that may point out to the abuse of creative accounting through the presented techniques and procedures for recognizing business events.