Procedures known as creative accounting adheres to legal requirements and regulations while taking advantage of gaps in accepted international and local methods. The majority of the business operations and procedures are immediately impacted, which has a significant influence on most of its incentive systems and other processes. There is a link between executive remuneration and creative accounting in the existing practice, corporate governance, and financialization literature.
Despite the fact that executive remuneration is meant to reward excellent performance, the outcome can be changed by altering performance. Accounting rules are flexible, which allows for the manipulation of financial situation. Large bonuses can be awarded to managers for a while because manipulated business finances increase. Bonuses stop being provided when the manipulation is no longer able to offset the financial hardship, and the issue quickly becomes widely known (Clark).
The employment of creative accounting techniques might start as a way to postpone the effects of unwelcome company issues. Otherwise, these problems can make it difficult for a business to obtain the required finance or generate the anticipated profit margins (Clark). If these issues are not settled, they may start to mount to the point that it will become necessary to use criminal means to keep them hidden. Since accounting manipulation is really made possible by the intrinsic flexibility of existing rules, this has an impact on executive remuneration as well.
The extant literature on financialization and aggressive accounting procedures makes an effort to define these problems within a multi-variable framework. It also illustrates how governmental guidelines, global standards, the function of auditors, moral principles, and deceptive conduct relate to financial reporting (Field). Despite being negatively associated, creative accounting plays a large part in financial reporting, which means that having more managers involved in it might lower the value of financial information (Jilani and Basta). If governmental regulations or international standards are accommodating when it comes to reporting, they can have a good and substantial impact.
The tight relationship between financialization and aggressive accounting procedures is one of the main conclusions of academic study in this area. This might lead to a scenario where businesses emphasize short-term profitability above long-term sustainability, which could have a detrimental impact on staff, clients, and other stakeholders (Jilani and Basta). The impacts of deregulation are another topic that has drawn many attention in the literature on the topic. Many academics contend that recent legislative reforms have contributed to the development of a climate that favors financialization and aggressive accounting (Field).
More regulation and control have been demanded as a result of this. Studies on the effects of financialization and aggressive accounting on certain sectors, like healthcare and real estate, have also been conducted. For instance, this issue in the real estate industry has been proven to drive speculative bubbles and possible financial crises (Jilani and Basta). Thus, these issues are closely connected and receive certain attention in the scholarly literature.
The hazards of emphasizing short-term financial performance above long-term sustainability are generally highlighted in scholarly work on financialization and aggressive accounting methods. Financialization has been demonstrated to raise the emphasis on immediate earnings, which might encourage businesses to use aggressive accounting techniques. In order to encourage more responsibility and sustainability, it also emphasizes the necessity for increased transparency, regulation, and monitoring on the different levels, from governmental to international.
Works Cited
Clark, Ian. “Disguising ‘Taking Money Out of a Firm’: Disconnection and Detrimental Consequences for Workers.” Work, Employment and Society, 2022. Web.
Field, Sean. “Financialization. Relational Approaches.” Anthropological Notebooks, vol. 27, no. 1, 2021, pp. 1-11. Web.
Jilani, Faouzi, and Basta Ben Nafissa. “The Mandatory Adoption of IFRS and Timely Loss of Recognition.” International Journal of Auditing and Accounting Studies, vol. 2, no. 1, 2020, pp. 11-39. Web.