UNIVERSITY OF THE EAST

College of Business Administration

Manila

RESEARCH PROPOSAL

I. Research Title:
CREATIVE ACCOUNTING: IMPACT ON THE INTEGRITY OF FINANCIAL
REPORTING

II. Name of Proponents:

Dee, Joseph Ashley
Grabillo, Jason Ronald
Ong, Ma. Cherrie Amor
Pea, Clyde Ian Brett
Rodriguez, Lyka Fave

Sarmiento, Lester

III. Year Level and Approximate No. of Students Required to take the
Course:
4th year BSA students, BBH

IV. Address, College or Unit of the Proponents:

College of Business Administration-Manila

V. Title of Research Course where Study will be Conducted:

Management Consultancy (BAC414)

VI. Brief Review of Related Literature

Creative accounting first appeared in the Anglo-Saxon literature (1970),
most often in the papers about the bankruptcy of enterprises and those written
by Zimmerman and Watts (1990) which represent the foundation of the
positive accounting theory. This research trend made the object of several
empirical works trying to explain the accounting choices the enterprises are
exposed to. It was complemented by several concepts including imaginative
accounting and accounting of intent.

Uurelu, Marin, Danail & Loghin (2010) explained that the ethics in
accounting and creativity. They stated that ethics should be followed by an
accountant and creative accounting is big challenge for them. They talked
about National Code of Ethics for Professional Accountants of Romania.

It is divided into three parts. Part A establishing the fundamental of principles

of professional ethics for professional accountants and also provide conceptual
framework for applying these principles. Part B and Part C illustrates how the
conceptual framework should be applied in specific situations where Part A is
not applicable.

Achieving these goals involves meeting four basic requirements which compose
of credibility in the information and information systems, professionalism of
the employees, service quality which ensures that all services obtained from
the professional accountant are carried to the highest standard of performance
and confidence in the professionals accountants services where in users must
be able to feel confident that there is a framework of professionals ethics
governing the provision of these activities.

Cosmin (2010) described the various techniques used by the managers

to get desired results. Techniques used in creative accounting are also stated in
his research. For tangible assets, it is the subjective depreciation of assets
that creates proper field of creative accounting of management estimates that
recoverable value is lower than net accounting assets are considered impaired
for difference. The result will be affected by recording a depreciation expenses.
When it comes to goodwill, increases by underestimation of assets purchases
capitalization and depreciation of goodwill during its useful life have influence
on the outcome of further coming year.

Option for depreciation method has impact on the profit and loss during useful
economic life of an asset. Thus, a different method of depreciation has different
impact on outcome. An option on different useful life leads to different
expenditure. The inventory provides sufficient opportunities of creative
accounting and subjectivism. The under estimation or over estimation of stock
finally has an impact not only on the financial statement of current year but
also on the following year.

A practice provision for liabilities and charges (increase and decrease thereof) is
an effective tool for levelling outcome. Establishment of provisions in those

years where the profit results lead to decrease, while the resumption of the
provisions in the income year in which the registers deficit increase leads to the
result.

Another technique is choosing between the two methods of accounting for

construction contracts which can give impact on the profit and loss. Under the
completed contracts, the result will be recognized after the completion of
contract, while in method based on percentage of definitive result will be
staggered over time, throughout the progress of the contract switching from
one method to another method also impact on profit and loss account.

Yadav et al. (2014) find the ways that help to reduce the effect of
creative accounting on balance sheet. They present quite positive picture of
creative accounting practices. According to them, creative accounting practices
may arise because of agency problem. He stated that involvement of outside
director may reduce the practices of creative accounting. The involvement of
professionals in financials decision can build a trust of stakeholders on
enterprise. Therefore, qualified accountants can help companies about the use
of creative accounting techniques.

Afolabi and Oluseye (2013) conducted research on manufacturing firms

of Nigeria. They concluded that financial reporting does have effect on
managerial and investment decision making. They also state high transparency
means to avoid corporate fraud.
Burlacu and Ptroi (2005) stated that creative accounting is used for
the consolidation of the economic-financial indicators of the economic
entities, distorting yet their informational content. It is appreciated that in this
way the consistency and truthfulness of the accounting information sent by the
economic entity to the business environment is being altered.

Shah et al. (2011) concludes that creative accounting is a weapon which

is used in a critical situation of a firm. They also conclude that creative
accounting is not that bad if firm shows some flexibility in its accounting
regulations. It also depends on the ethical environment of any firm that how
and why management is using creative accounting techniques as a weapon.

Mati et al., (2012) described creative disclosure as a feature of creative

accounting. It is also known as impression management in literature. It can be
found in corporate annual report under forms of distortion of narratives of
numerical and graph manipulation. They gave importance to theoretical

framework than empirical study because interpretation of empirical analysis is

impossible without theoretical guidance.
Creative Accounting must be regarded as a complex mechanism that includes
motives for engaging in manipulation of accounts, types of information
disclosed and types of manipulation strictly connected to presentation of
information.

VII. Conceptual/Theoretical Framework

Diagram of the Conceptual framework of the study

Analysis of the results of the surveys, questionnaires, interviews, and secondary data
PROCESS
ding of the impact of Creative Accounting on financial reporting

Surveys, Questionnaires, Interviews, and Secondary data

OUTPUT

INPUT
If Output derived from the Inputs does not address the problem

The diagram of the conceptual framework of the research describes how

the research would flow. The researchers would gather the inputs through
surveys,

questionnaires,

and

interviews

to

be

given

to

accounting

professionals who are well-versed in Creative Accounting in the public,

private, and academe. Also, the researchers would gather reliable secondary
data through previous researchers, articles, and journals available.
The 100 respondents for the surveys would be partitioned in different
sectors. The allocation would be as follows: 35 from the public sector, 35
from the private sector, and the remaining 30 from the academe.
After gathering enough inputs, the researchers would then process them
into usable information to arrive at the studys objective and expected

output. If the inputs gathered are not yet enough to arrive at a conclusion,
the researchers would engage in gathering additional inputs.
VIII. Statement of the Problem:
The common approaches and application of Creative Accounting in
handling the financial records and data at hand to come up with financial
reports where the focus of this study is to find out the implications of the
said method of accounting to the ethicality, legality, and adherence to the
standards with respect to financial reporting.

IX. Assumptions:
1. The accounting professionals who are to be the respondents already have
significant experience in the industry,
2. That the same professionals are well-versed of the practice of Creative
Accounting.

X. Significance of the Study

This research will introduce the practice of Creative Accounting to
accounting students and professors who are not yet aware of its existence,
and further develop the awareness of those who already are informed but
not yet well familiar with the practice. Through this research, the readers

will be more sentient of the outcomes of Creative Accounting, which they

may already engaging in but are not fully aware of.

By giving light to this matter, the research will help the University in
discerning on adding emphasis, or possible addition, on the subject to the
curriculum since it is a wide yet subtle practice in the industry nowadays.

The research will be of use to the community and the accounting

profession by aiding in the preparation of the accounting students to one of
the controversial practices in the accounting field.

XI. Scope and Limitations

The study will be limited only on the common and basic practices of
Creative Accounting both in the public and private sector of the industry for
the last twelve years (2004 2015). This research would not include in its
scope the complex applications of the said practice. The research would
include questionnaires, surveys, interviews, and secondary data analysis
only, refraining from complex quantitative methods.

The respondents to the questionnaires, surveys, interviews would come

from accounting professions from different sectors, namely the public (35
Respondents), private (35 Respondents), and academe (30 Respondents).
These accounting professionals are those that have already acquired
meaningful experience in the field of accountancy.

The ethical, legal, and standards to be tackled are only those that relate
to the applications of Creative Accounting that are included in the scope of
the research. The study would also include the instances that would trigger
the use of Creative Accounting in financial reporting. The research would
include both local and foreign practices of such field to better comprehend
how Creative Accounting is practiced in different countries but will only
select foreign countries where its practice is evident.
To better understand Creative Accountings ethical and legal implications,
this research would also look into the known accounting scandals that are
related to the practice.

XII. Methodology and No. of Respondents Involved

The researchers will use both quantitative and qualitative data gathering
methods for this study by analyzing reliable secondary data sources and
primary data through surveys, interviews, and questionnaires. The data
gathered will then be reviewed to arrive at usable information.

The respondents involved would be accounting professionals both in the

private, public, and academe who are already exposed to the practice of
Creative Accounting. 100 respondents will be engaged. Preferably 35 from
the Private sector, 35 from the Private sector, and 30 from the Academe.

XIII. Expected Output

The researchers planned to have a research work that would present the
common applications of Creative Accounting in the industry and to make
these applications familiar to the accounting students and professors for
better discernment. This research aims to explicate the underlying
implications of Creative Accounting with respect to ethical and legal matters
related to financial reporting.

Through delving into the applications of the said practice, this research
aims to explain further the practice of Creative Accounting and array
possible safeguards for any advert effect of the said practice to financial
reporting.
XIV. Work Plan of the Study

PHASE/ACTIVITY
1. Approval of Research Study
2. Construction of Research instrument
3. Gathering of Data
4. Editing and Encoding of Data
5. Analysis of Data
6. Finalization of Research Output

XV. Date of Submission of the Proposal

February 9, 2016

DURATION
0.4 weeks
0.6 weeks
1 week
1 week
1 week
2 days