creative accounting monopoly go

creative accounting monopoly go

The Impact of Creative Accounting in Monopoly

1. Introduction

The research studies of creative accounting, which was generally accepted to include not only those models to manage and increase the profits of the firm, but also to change the bid-ask spread, firm-specific return, the effect of taxes, and agency problem (market for managers, ownership structure) along with the changes in the share price (stock market reaction) in the information environment, considered only as a means of profit management in a classic approach. In recent years, creative accounting has been assumed to be defined in terms of resources and costs. If resources signify the general benefits (social benefits) and costs to the legal and social loss costs, it has been suggested that creative accounting is performed to be managed by considering the concept of net benefit.

Creative accounting is one of the important topics that have been attracting attention of contemporary studies. Inaccurate financial reporting, which causes the corruption of the capital markets, also affects individual and institutional investors’ wealth. Therefore, such strategies make it difficult to compare and evaluate the share prices of the investors. On the other hand, while firms use income-decreasing and loss-increasing strategies in the years of financial crisis to manage the investors’ perceptions about the firm performance, they choose income-increasing and profit/loss recognition strategies to achieve that goal in the periods after the crises. Sometimes firms prefer to benefit from the regulations which widen the discretion over certain important accounting choices.

2. Understanding Creative Accounting

Earnings management is the activities by management with the intention of providing themselves with certain benefits in a way that distorts the firm’s operating results. These practices allow companies to manage income and expenses in the amounts and/or time periods in which they are recorded. Moreover, earnings management is the ability to create GAAP and non-GAAP with certain discretion. There are three distributions of earnings management used to describe the level of a company’s creative accounting, that are income-increasing earnings management related to income-increasing activities, income-decreasing earnings management related to income-decreasing activities, and income-smoothing earnings management. Then the amount of earnings management is used to quantify each distribution’s assessment.

Creative accounting is a widespread practice in large companies. Companies resort to such practices to make their financial performance better and therefore are able to compete fully. As long as companies operate in the free market, there are only several companies that are able to survive and these companies are called monopolistic companies. Monopolistic companies have more freedom in business operations, including financial accounting in presenting information to the public. The purpose of this research is to determine whether the monopoly company traded on the Indonesian Stock Exchange (IDX) from 2014–2016 is more creative in accounting (earnings management) as compared to non-monopoly companies.

3. The Monopoly Effect

The definition of a monopoly is a market participant who is solely responsible for a certain product; the monopolist is able to control oil production, sales, and prices, and can also carry out illegal operations to absorb other companies in the same way. Although it is considered illegal in various countries and globalization, the formation process is deteriorating. It is integrated and monolithic in a way that makes everyone feel mistaken, conviction, and fatigue. The activities show how countries that have been regulated as “controlled monopolies” have violated the regulations of some countries and affected all the interests and thoughts of all markets. With the existing economic modernization, the process of competition and monopoly implications of accounting psychology and accounting discipline has not been confirmed by most recent studies.

This research has focused on an existing issue, such as the influence of monopolistic effect on creative accounting. In some reports, the issue of company monopoly has not been explained in relation to accounting. In terms of the important role of information, accounting is also a matter that is always and has long been used as a useful tool for decision-makers and various interested parties in responding to external influences. In the current era of economic and public change in various countries, monopoly and competition are crucial for the stability of society. Progressive producers in some countries clearly violated the law to achieve their goals, violated anti-monopoly regulations, and carried out monopolistic behaviors that hindered fair competition in the market.

4. Consequences and Ethical Implications

Entering into such behaviors increasingly directs monopolistic companies and accounting variables to questioning. On the supply side of the economy, companies are profit maximizing and want to be irrational. The concept of monopoly refers to the appropriateness to be delivered to one person. However, since the supply and demand balance is not realized in any market where there is no competition, it is not desired that there is a result in which only the conception of the appropriateness to be experienced by the producers prevails in terms of maximizing profits for the producers in the economy. The main aim of this market structure, under which the world economy at the present time, exists, without allowing the competition policy to continue without gaining power.

Only in the short run, the ability of monopoly leadership to mislead competitors by keeping information about earnings allowances secret may contribute to the increase in profits, which will eventually lead to increased economic profitability. Since profit is the main measure of economic success and business security, companies incorporate various non-ethical practices into the term called “creative accounting”. A good example of this is the Enron company, whose revenue figures were searched and realized through creative accounting, and then published and declared. As a result, the company’s name was stained sector-wide. All these cases lead to a decrease in investors’ confidence in the financial reports of companies. Owing to the negative processes in the company caused by accounting manipulations, the company itself, the employees working in this company, the people who have invested in this company, and the third parties dealing with the company are negatively affected.

5. Conclusion

The process taken to date sought to point out the theoretical discoveries regarding the role played by the concept of monopoly in creative accounting, but also to bring to the attention of the beneficiaries of financial transparency certain practical applications that have to change. It remains for us to deepen the research by finding and neutralizing elements of risk that we have not yet revealed, to follow multiple benefits that stakeholders have the right to obtain, by building its own vision over the time economic entities which are under the lens of perception. Finally, the assumption is coming for the conclusion of our research. The information in accounting entities could be complete and accurate. The accurate fair reflecting the economic and patrimonial reality is an objective which all economic agents want to realize.

The impact of creative accounting in monopoly: The pilot study underlines the importance of the consequences brought by creative accounting in economic entities and highlights the risks led by it in entities which operate in the condition of a monopoly. The fact that this issue is analyzed, to our best knowledge, for the first time in Romanian existing literature of specialty, but also the actual facilities that make us discover with surprise, with every passing day, have convinced us about the necessity of conducting an ample study, by intensifying the research but also by testing the investigated entities through the aspects and the foreign recipes that offer us, in some cases only theoretically. Based on the results obtained and on the particularities of the entities of study, new theories and practices in this area, in the studied university education environment, are in a stage of gestation.