The impact of creative accounting through discretionary accruals on the economic unit's exposure to financial distress risks

Abstract

This research aims to study the impact of creative accounting through discretionary accruals on the likelihood of economic units experiencing financial distress. The research problem lies in the fact that most economic units' financial statements indicate the strength of their financial position shortly before their collapse. The reasons for this sudden collapse are attributed to the use of fraudulent and deceptive methods when preparing financial statements, with the aim of improving the economic unit's image or eliminating any financial distress it may be exposed to. All of this can be achieved by the accountants of these units resorting to creative accounting practices. A questionnaire was presented and distributed to a number of accountants in the public and private sectors, where (138) questionnaires were retrieved. By analyzing the answers to the set of questions posed in the questionnaire, which are related to the research variables, practical results were obtained. The (Beta) value of (0.746) showed the relationship between financial distress and creative accounting, which is statistically significant. This can be inferred from the (T) value and its associated significance. This means that the more creative accounting is practiced by one unit, the more likely the accounting unit is to be exposed by (0.746) units. According to the practical results, a set of results and recommendations were presented in the last section of the research. The most important results were that the flexibility in accounting standards and rules in selecting accounting methods, policies and principles is an important reason for encouraging accounting units to practice creative accounting. A set of recommendations were presented, the most important of which was the need for accounting unit managements to review the standards of accounting ethics and work in accordance with them in order to achieve the truth and fairness of financial reports.