All firms need a good understanding of the deliberate and non-deliberate processes that lead to accounting distortions. This concept explains how these distortions arise along with their effects and presents case studies of firms that have experienced accounting distortions, as well as success factors and measures for avoiding distortions.
Accounting Distortions Definition
The term ‘accounting distortions’ refers to any kind of deviation and divergence between information reported by financial statements and the reality of the business (Gandevani, 2010). It is the process of using accounting alternatives (usually unintended alternatives within the accounting standard) inconsistently to increase or decrease the flow of items through the income statement (usually by affecting the timing of the flows) in order to increase or decrease reported profit for a specific period (Tosen, 2006).
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Accounting Distortions References (4 of up to 20) *
- Bushman, R. M., and Indjejikian, R. J. (1993) Stewardship value of “distorted” accounting disclosure. The Accounting Review, Vol.68(4), pp. 765-782.
- Catalano, V. (2006) Sectors and styles: a new approach to outperforming the market. Wiley Publications, USA.
- Elmaleh, M. S. (2005) Financial accounting: a mercifully brief introduction. Epiphany Communications, MD, USA.
- Erickson, M., Hanlon, M., Maydew, E. (2006) Is there a link between executive equity incentives and accounting fraud? Journal of Accounting Research, Vol.44(1), pp.113-143.
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