Ways to Detect Creative Accounting Techniques by Studying Cash Flows

Author:Ionela IVAN

JEL:M41

DOI:

Keywords:financial reporting, financial statements, cash flow, operating activities, creative accounting, premature revenue, fictitious revenue

Abstract:
The International Financial Reporting Standards include specific requirements for the reporting of cash flows: the inflows and outflows of cash are divided into three main categories, namely operating activities, investing activities and financing activities. The applicable International Accounting Standard is IAS 7 „Statement of Cash Flows”, that presents different aspects of the cash flow reporting, but it is quite brief and it gives the users the possibility to choose the most advantageous way of presentation. Some problems arise as a result of this “freedom” of presentation, namely the allocation of the inflows and outflows into the right category (operating, investing or financing activities). In this study, there will be highlighted some of the more problematic or unclear areas and the different ways in which creative accounting techniques related to cash flow can be identified. Creative cash flow may distort the assessment of financial performance and that’s why this subject has become of great interest for analysts and investors.\r\n\r\n