Accounting policy choice : the case of financial instruments.
In recent years, there have been many suggestions of creative accounting practices by
large companies. Although there is a growing literature on methods of creative
accounting, relatively little is known about the process by which firms make particular
accounting choices. This study is an attempt to analyse this process and identify some
of the factors which influence accounting choice. Accounting practices in respect of
new financial instruments are analysed and compared with accounting standards and
generally accepted accounting principles.
The evidence shows that new financial instruments provide significant scope for
creative accounting by companies and in many cases, these possibilities have been an
important motive behind their issuance. It shows how managers devote significant
resources to manage the firm's financial reporting, and how professionals such as
merchant bankers and lawyers assist them in this process. The findings provide new
theoretical insights into the process of accounting policy making in practice, and reveal
significant scope for further research. In addition, a unique method of analysing
financial statements using a wide range of empirical data is illustrated. This method can
provide analysts with new insights into a company's underlying financial performance.