COLLEGE OF BANKING AND FINANCIAL STUDIES
DEPARTMENT OF UNDERGRADUATE PROGRAMME
B.Sc. in Accounting, Auditing and Finance
ASSIGNMENT BRIEF
Weightage: 20 %
Case Study – Individual Assignment
Student Name
Semester
Semester – 7
Year
Assignment Title
Accounting Theories and Creative Accounting
Module
Contemporary Issues in
Accounting (UG024)
Assessor:
Start Date:
9th Oct 2020
Internal Verifier
Due Date:
24th Oct 2020
Fall 2020-21
Dr.Labeeb /Mr Lakmal
Ms.Mariam
Required Work, Format and Grading
You must submit the following by the assignment due date:
▪ Completed answers to each task, making sure that you fully address each of the outcome
criteria.
▪ Answer all questions separately.
▪ Assignments without TURNITIN report will not be accepted.
Resources:
You need to demonstrate a confident application of the theories to the assignment task. The theoretical
underpinning of your observations and deliberations should also demonstrate a good understanding of
the subject by the way that your analysis is structured.
You can access the Internet to research about the topic. You should demonstrate good academic practice
by the appropriate use of academic texts and journals that are properly referenced.
Guidelines and further information about assignment:
Assignment must be submitted with the “Turnitin” report. If the report generated indicates a similarity
index percentage of 20% or more, a review of your assignment is necessary to ensure the same is
reduced to less than 20%.
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Student declaration:
I certify that the work contained in this assignment was researched and prepared by me:
Signature: ___________________________ Date: ___________________
Grades given are subjected to External Verification. No grades are Final
The user ID and Password for submitting the soft copy of the report through
TURNITIN is as follows:
Class ID: 26834809
Enrolment Password: CIAfall2020
Submission time and date
You should submit the assignment by the time and date mentioned otherwise a ‘NA’ will be awarded. Fill
in the form cover and staple it with your assignment. Make sure that all the relevant details are complete.
Assignments must be submitted by the due date. You may include diagrams, figures etc without word
penalty.
Plagiarism Writing
Summary
1. Plagiarism occurs if you use somebody else’s work in an assignment or exam answer, but fail to
state where you got the material from. You need to be also very careful about the amount of
words you are using from somebody else’s work.
2. It can happen in any type of assessment where you are given the questions or tasks in advance.
3. If another student uses your work in his/her answer(s), both you and he/she will be punished
when caught.
4. Punishments for committing plagiarism can be very severe.
Details
Plagiarism is a form of cheating in which students use the work of others and present it as their own. It
may include all or any one of the following –
1. Copy extensively from the work of others (from sources such as books, magazines, journal, websites etc) and submit the work as your own.
2. Copy another students’ work and submit it for assessment under your own name.
3. Allow another student to copy your work and then submit it for assessment under their own
name.
What happens if you get caught?
The examining body of CBFS may punish offending students in any manner that they deem fit. Typical
punishments may range from reduction in grades, making students re-sit modules and even failing
students on a module or an entire award. The college considers this form of cheating as a serious offence.
Therefore be forewarned!
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Case Scenarios: 1
‘The Evolving Dimensions of The Accounting Profession and The 21st Century Expectations’
(Jeremiah & Daferighe, 2019)
The dimension of the accountancy profession is undergoing an increasingly expanding and unpunctuated
global evolution. These 21st-century twists, however, tend to pose an identity threat to the profession.
The much-celebrated software substitution of the traditional roles of the Accountant coupled with the
apparent professional cross-carpeting of non-accountants aided by these emerging digital initiatives
appears to ‘take-over' the seat of the Accountant. The following roles were identified for the discussion.
Evolving Dimensions
THE 21ST CENTURY PERSPECTIVE
THE FUTURE IMPERATIVES
The Accountant as a Corporate Pathfinder
Embrace an enlarged strategic and commercial
role
The Accountant as a Guardian of the Corporate Develop a global orientation
Model
The Accountant as a Competent Communicator
Reinvent the talent pool
Task 1: Explain minimum of ONE new skill set required for a modern Accountant from the list above or
from your own choice.
(5 marks: Word count- 300-400)
Case Scenarios: 2
‘Two accounting theories that help create the system investors and managers use today’ : Positive and
Normative Accounting Theories.
Text 1
if an organisation has had a highly successful
financial year, the next year they will have the
financial stability to boost investor dividend
payments. This theory would deduce that
corporate growth causes an increase in
shareholder remittance.
Text 2
if a corporation has previously boosted investor
dividend payments, and is now looking to reinvest
funds into the firm to ensure its future viability
through corporate sustainability measures, then
theory would point to issuing new shares as a
source of funding
Task 2: Identify a positive theory and a normative theory from the list above (Text 1 or Text 2) and justify
your answer by referring to the differences between two theories.
(5 marks: Word count- 300-400)
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Case Scenario: 3
AbdulSalam LLC’s financial position as of 30th September 2020 is as follows:
Statement of Finanancial Position
Equity and Liabilities
Share capital
Debentures
Net Profits
OMR’000
5260
1540
2500
9300
Assets
Inventory : Raw Materials
Inventory : Finish goods
Other assets
OMR’000
2500
3000
3800
9300
The company management has been decided the following ‘creative accounting’ measures:
a) Inventory: Raw Materials - Increase the raw material inventory by OMR 300 000 to represent low
provision for obsolete raw materials.
b) Inventory: Finish goods – Decrease the finish good inventory by OMR 100 000 to represent damaged
finish goods.
Task (3) Redraft the Statement of Financial Position as of 30th September 2020 to reflect the above
Creative Accounting measures.
(6 marks)
Task (4) Comment on the findings of task (3) above and make relevant recommendations referring to the
below mentioned teaching nexus.
(4 marks: Word count- 300-400)
The Practice of Creative Accounting on the Jordanian Banking Sector: A Case Study in the Northern
Region (Al-Dalabih, 2017)
(Total 20 Marks)
The end
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Australian Academy of Accounting and
Finance Review (AAAFR)
ISSN (Online) 2205-6688
ISSN (Print) 2205-6742
The Practice of Creative Accounting on the Jordanian
Banking Sector: A Case Study in the Northern Region
Firas A. N. Al-Dalabih
Department of Accountancy, Irbid National University, Jordan
Abstract
This study aims to identify the practice of creative accounting on the Jordanian banking sector. The sample of
this study comprised 150 selected from three banks in the northern region of Jordan. These banks are Cairo
Amman Bank, Arab Bank, and Jordan Bank, whereas a questionnaire survey was designed and distributed to
them. A total of 121 questionnaires were retrieved that are valid for statistical analysis formed about 80.7% of
overall distributed questionnaires; and the questionnaires have been analyzed using SPSS statistical software.
The results of the study indicate that there is a statistical significant relationship between the practice of creative
accounting and both the profitability and the size of the Jordanian commercial banks. This study recommended
the Jordanian commercial banks to protect their profitability through different policy instead of practice creative
accounting.
Keywords: Creative Accounting; Jordanian Commercial Bank; Profitability; Size
1. Introduction
Accounting manipulation creates when the managers try to mislead the financial information of the
organization to change the performance according to their benefits (Diana and Madalina, 2008).
The term creative accounting is considered as deceptive accounting, it is widely used to describe
the accounting techniques that allow corporations to report inaccurate financial results of their business
activities (Akenbor and Ibanichuka, 2012).
In view of the prevailing conditions in the business world and the recourse of many departments of
companies to improve the financial situation in terms of profitability or in terms of financial position to
achieve self-objectives, these departments resort to use the methods of creative accounting through the
variety of accounting alternatives that can be relied on in the preparation published financial statements,
which adversely affect the validity of those statements.
Due to the seriousness of this phenomenon, especially in banks as a main aspect in the financial
institutions because of dealing with depositors’ funds and a very large financial leverage due to the
large size of deposits compared to their capital, it is necessary to give the subject great importance
in the bank sector to determine the extent to which banks are practice creative accounting and profit
management.
Hence, this study came to examine the practice of creative accounting on the Jordanian banking sector.
1.1. Statement of problem
Some companies, through their management, owners, or stakeholders, resort to practice certain
methods of creative accounting to achieve personal goals by influencing profitability data or financial
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position, in general, to appear in a manner consistent with their illegal purposes. Therefore, it will
reflect negatively on the credibility of data and reliability of the users for financial statements, both
those who were outside the company or within, and thus the collapse of that company in the money
market by declaring bankruptcy, or involvement in legal cases.
Based on the above, this study attempts to find answers to the following questions:
1. What are the motives behind the practice of creative accounting in the Jordanian commercial
banks?
2. Is there a relationship between the practice of creative accounting and the profitability of the
Jordanian commercial banks?
3. Is there a relationship between the practice of creative accounting and the size of the Jordanian
commercial banks?
4. What are the procedures that can help in curb the practice of creative accounting in the Jordanian
commercial banks?
1.2. Importance of the study
As a result of the existence of many accountants and auditors who have the ability to innovate and
manipulate the accounting numbers under their responsibility, this leads to an increase in the phenomenon
of creative accounting, which ignores transparency in the disclosure of financial statements and credibility
in the presentation of financial statements, which necessitates finding reasons for such phenomenon and
propose possible solutions to reduce them and to adjust the ethics of the accounting profession.
The importance of this study is also determined by its application in the banking sector, which is
the most important financial sectors of the economy in Jordan, and within the researcher’s knowledge,
there are no studies related to the practice of creative accounting applied to this sector.
1.3. Study objectives
This research aims to achieve the following objectives:
1. Determining the motive behind the practice of creative accounting in the Jordanian commercial banks.
2. Illustrate the relationship between the practice of creative accounting and the profitability of the
Jordanian commercial banks.
3. Illustrate the relationship between the practice of creative accounting and the size of the Jordanian
commercial banks.
4. To determine the procedures that can help in curb the practice of creative accounting in the Jordanian
commercial banks.
1.4. Hypotheses of the study
We can develop the following hypotheses:
Ha1: There is a set of motives of practicing creative accounting in Jordanian commercial banks.
Ha2: There is a statistical significant relationship between the practice of creative accounting and the
profitability of the Jordanian commercial banks.
Ha3: There is a statistical significant relationship between the practice of creative accounting and the
size of the Jordanian commercial banks.
Ha4: There is a set of procedures that can help in curb the practice of creative accounting in the
Jordanian commercial banks.
2. Literature Review
Much has been written on creative accounting; for example,
Nyabuti et al. (2016) examined the influence of creative accounting practices on the financial
performance in Kenya.
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The sample of the study comprised 50 people represent the top management of public limited
companies that is the CEO, directors, top managers, and accountants, whom work in 30 public
companies listed in the Nairobi Securities Exchange.
The results found that creative accounting practices have a significant effect on the financial
performance of a company. The results found also that most companies used creative accounting
practices abusively hence resulting in most collapses of many firms.
Bora and Saha (2016) highlighted the creative accounting in financial reporting and its ethical
perspective. To accomplish the purpose of the study, it was depended on theoretical approach through
reviewing the literature.
The results indicated that creative accounting is a highly unethical practice which has been found
to be exercised by majority of the corporate houses.
Hussein et al. (2015) studied the creative accounting practices and its area, techniques, reasons, and
method of prevention through reviewed available articles related to the creative accounting practices,
where a total of 22 articles during the period 2002-2015 were reviewed and analyzed.
The findings reveled that financial statements are the most violated and manipulated area by
creative accounting practices. In addition, the findings reveal that the most prevalent technique for the
creative accounting practices is the manipulation of information to the stakeholders and shareholders. It
was found also that there are differences between private and public companies regarding the reason of
creative accounting, where the private companies use it to hide its income and reduce tax, while public
companies use it to boost the price of shares.
Bhasin (2015) highlighted the creative accounting practices in the Indian corporate sector. This
study depends on the qualitative approach through conduct a survey and distributed questionnaires to a
random sample comprise 120 people represent the preparers and users of corporate financial statement,
as well as, University Teachers of Accounting.
The results revealed that the practice of creative accounting is always a deliberate attempt to gain
undue advantage for accountants, managers, and companies.
Tassadaq and Malik (2015) examined the relationship between creative accounting and financial
reporting in Pakistan. This study was depended on a quantitative research design and data collected from
industrial sector through questionnaires which distributed to the sample of professionals comprised 120
professionals.
The results found that the companies in Pakistan are involved in frauds or scandals because of
several factors such as unethical behaviors, agency problem, and non-professional attitude. Moreover,
the results found that creative accounting plays significant role in financial reporting through negatively
correlated.
Ijeoma (2014) aimed to know the effect of creative accounting on the Nigerian banking industry.
To achieve the goal of the study, a questionnaire has been built and distributed to the sample of the
study which represent 50 employees whom works in three banks in Nigeria.
The results indicated a significant impact for the creative accounting on banks distress in Nigeria.
The results also found that the major reason for creative accounting practices in the Nigerian
banking industry was to inflate the operating costs to reduce exposure to taxes, and the other reasons
include: To help maintain or boost the share price by reducing the apparent levels of borrowing, making
the company appear subject to less risk and of a good profit trend, and to effect changes in accounting
policies.
Micah and Chinwe (2014) study the impact of creative accounting on organizational effectiveness
in Nigeria. An empirical survey was carried out to achieve the goal of the study, where data collected
from manufacturing firms through questionnaires. Sample size was 140 people represent the middle
and top management staff of 14 quoted manufacturing firms from Nigeria Stock Exchange.
The result revealed a significant relationship exists between income smoothing and profitability
and market share, besides that, the results found that there is a significant relationship between
regulatory flexibility and profitability and market share.
Yadav (2014) investigated the creative accounting from professional prospective. To achieve the
goal of the study, a questionnaire was made and distributed to the sample of the study which comprised
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60 people including professional chartered accountants, chartered accountants, and company secretary
student’s accountants from India, college teachers who have immense understanding of the various
accounting methods of the real world.
The results indicated a positive relation between creative accounting and both involvement of
outside directors and internal control mechanism.
While it was found that there is no relation between creative accounting and product and market
competition and capital market technique.
Sanusi and Izedonmi (2014) conducted research on creative accounting practices in Nigerian
commercial banks.
The sample of this study comprised the most experienced/senior 42 Managers/Assistant Managers
and 42 Accountants/Assistant Accountants drawn from 21 consolidated commercial banks head office
branches in Lagos state, and questionnaire was used to collect the data from the sample of study.
The findings illustrated that the major reasons for creative accounting practices in Nigerian
commercial banks are order as following: To boost the market value of shares; users of accounting
information are adversely affected by this practice of creative accounting; and streamlining accounting
principles and rules to reduce diversities of professional judgment in financial reporting will help
minimize creative accounting practices.
Akenbor and Ibanichuka (2012) investigated the creative accounting practices in the Nigerian
banking industry. To achieve the purpose of the study, the survey method of research design was
adopted, where a questionnaire has been the major instrument which used for generating the primary
data from the sample of study which comprised 25 managers and 25 accountants drawn from the 25
recapitalized banks currently operating in the Federal Capital Territory - Abuja.
The results indicated a negative relationship between users of accounting information and the
practice of creative accounting, it was found also that boost the market value of shares is the major
reason for creative accounting practices in Nigerian banks.
3. Theoretical Framework
3.1. Concept of creative accounting
Creative accounting is as old as the accounting profession itself, although the accounting scholars
have over the years carried out several researches to understand and address it, it is still considered as
a problem, and it continues to be practiced by various corporations in the world (Kamau et al., 2016).
Creative accounting refers to the use of accounting knowledge to influence the reported figures,
whereas remaining within the jurisdiction of accounting rules and laws, so that instead of showing the
actual performance or position of the company, they reflect what the management wants to tell the
stakeholders (Yadav, 2014. p. 38).
Hence, from the definition, we can note that creative accounting related to profit and revenue.
In general, the management’s objective is to achieve the highest profit and earning and if some
circumstances prevail to reach this objective then the management of the firm maybe changes its
accounting method, deferring or accelerating expense or revenue transactions, or use any policy which
fraud in financial statements and reporting to show the earnings at a certain level in financial reporting
standards.
3.2. Creative accounting forms
Earning management and income smoothing consider as the most form of creative accounting. We can
define them as follow:
1. Income smoothing is a conscious behavior which reduces periodic income fluctuations. One of
the income smoothing goals is to increase the return (Garizi et al., 2011). Income smoothing refers
to a conscious behavior which occurs for the purpose of decreasing fluctuations of income cycles
(Venouss et al., 2006. p. 179).
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2. Earnings management may be defined as reasonable and legal management decision-making and
reporting intended to achieve stable and predictable financial results (Rahman et al., 2013). Kelly
(2011) illustrates that the factors that affect the flow of earnings management are pattern of earning
management, good earning management, bad earning management, motivations of earning management, and accounting implication.
4. Methodology
To accomplish the purpose of the study, a questionnaire is made with 30 questions that measure and
test the study hypotheses.
4.1. Selection of the sample
Random sampling technique was used to determine the sample size of 150 selected from three banks
in the northern region of Jordan. These banks are Cairo Amman Bank, Arab Bank, and Jordan Bank.
The questionnaire was distributed among the sample of study including managers, internal
auditors, and accountants. A total of 121questionnaires were retrieved that are valid for statistical
analysis, formed about 80.7% of overall distributed questionnaires.
4.2. Statistical techniques used
The collected data analyzed through using SPSS statistical software, we used the following test:
• Reliability analysis.
• Descriptive analysis include: Frequencies, percent, mean and standard deviation.
• One sample t-test: To test the study hypotheses.
4.3. Data Analyses
4.3.1. Reliability analysis
From the Table 1, we can note that the range of Cronbach’s alpha was between 85.65% and
92.52%, and this value for all the questions was 94.73%. Moreover, these values indicate very good
results because it indicates strong correlation between the questions.
4.3.2. Descriptive of sample member
From the Table 2, we can note the following:
Gender: 74.4% of the study sample is male, in contrast, the female ratio was 25.6%.
Years of working in the bank: The majority of the respondents were from the years of working
in the bank 5 to
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