52
magazine
ALRAQABA
Articles
Innovative Accounting
threatens the Audit Profession
By: Fatma Nabil Mohammed Ali
Auditor, Oil Bodies Production & Manufacturing Audit Department.
I
nnovative accounting is one sort of im-
moral misrepresentation, which is car-
ried out by a number of employees in the
company, and sometimes in cooperation
with the auditors, where the innovative ac-
counting catches great attention by audi-
tors since it represents a threat to the audit
profession. Alongside to its impact on the
quality of control outputs and continuity of
the company. In the recent days, the audit profession have
been facing many difficulties, especially after the financial
crises suffered by the major global corporates due to the
innovative and creative accounting and its numerous meth-
ods that would enable the employees to conceal manipula-
tion, even though the audit reports provides confirmations
on the fair presentation of the financial statements. Innova-
tive accounting is the act that includes “the conversion of
the actual financial accounting digits to the ones desired by
the presenters throughout the false utilization of the avail-
able laws and/or committing the act of their full/partial ig-
norance or negligence.”
The article will address three main pivots. The first will
discuss the Innovative Accounting Methods and the
second will touch upon the Innovative Accounting vs.
Work Quality. Lastly, the third pivots, which will address
the Innovative Accounting and the Audit Profession.
I: Innovative Accounting Methods
Numerous reasons could stand behind the manipula-
tion of the accounting system. Usually, reasons are
those of a personal nature,
or associated with the es-
tablishment participating in
the forming of a different im-
pression other than the real-
istic one for the users of the
financial statements. The
most important causes of
innovative accounting and
manipulation are reducing
the costs, reducing capital
costs, maximizing the prof-
its and managers wealth.
The innovative accounting
methods could be divided
into four different types: in-
come increment, expenses
reduction, assets increment
and liabilities reduction.
Over and above, innova-
tive accounting serves two
main substantial goals. The
two are: income fluctua-
tions mitigation and earn-
ings management, which
are achieved through vari-
ous methods of innovative
accounting that could be
listed as follows:
1- Manipulation of the in-
come statements, which occurs when sales revenue
are recorded at an early stage and the increase of the
income through a non-recurrent return. The major share
of the manipulation is in investments, especially in the
registration of the investment return as an operational
income. Many other ways could be created to inflate the
profits, such as:
- Depreciate the provisions value through the re-as-
sessment of the doubted debts provisions.
- Manipulation of asset item through the registration of
