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Creative Accounting, Fraud and International Accounting Scandals


From the South Sea Bubble to Enron and Parmalat, business scandals have a long and varied history which continues into the present day. As accounting is central to the success or failure of any business, so creative accounting has always played a key role in these scandals, reflecting the extremes of how numbers can be manipulated to deceive or even defraud.

Creative Accounting, Fraud and International Accounting Scandals explores the role of accounting, particularly creative accounting and fraud in business scandals from around the world. It features a collection of 13 chapters by international authors, which detail accounting fraud and scandals in both developed and developing economies including Australia, China, Germany, Greece, India, Italy, Japan, the Netherlands, Spain, Sweden the UK and US.

To enhance the international perspective even further, a series of case studies, contributed by accounting experts, is also included.

This unique, global perspective on accounting scandals provides the background for discussion on the role of powerful individuals, the motives and methods of management who are complicit in these scandals and the failures of internal control and external auditing, as well as the long term impact of business scandals on the regulatory environment.

One of the few books on this subject, its accessible treatment of this relevant topic is fascinating reading for a wide audience. It also provides a highly useful reference for professional accountants and business people worldwide and students taking courses in forensic accounting and fraud, as well as providing more general background for most accounting courses.  

Michael Jones, MA Oxon, is Professor of Financial Reporting at Bristol University. He has taught accounting for 33 years at all levels from GCSE to final-year degree course, and has published over 140 articles in professional and academic journals, covering a wide range of topics including financial accounting, the history of accounting and international accounting.

He is joint editor of the British Accounting Review and serves on two more editorial boards. He is Director of the Financial Reporting and Business Communication Unit and he chairs the British Accounting Association Financial and Reporting Special Interest Group. He has served on the British Accounting Association Committee and on the Committee for Professors of Accounting and Finance. He is also the author of three textbooks: Accounting, Financial Accounting and Management Accounting.

List of Contributors.




1 Introduction – Setting the Scene (Michael Jones).

1.1 Introduction.

1.2 Exploring the Terms.

1.3 Structure of the Book.

1.4 Conclusion.

2 The Creative Accounting and Fraud Environment (Michael Jones).

2.1 Introduction.

2.2 The Main Actors.

2.3 Effective Corporate Governance.

2.4 Economic Environment.

2.5 Conclusion.

3 Motivations to Indulge in Creative Accounting and Fraud (Michael Jones).

3.1 Introduction.

3.2 Conclusion.

4 Methods of Creative Accounting and Fraud (Michael Jones).

4.1 Introduction.

4.2 Basic Principles.

4.3 Nature of Accounting.

4.4 Methods of Creative Accounting.

4.5 Simple Numerical Example.

4.6 Fraud.

4.7 Conclusion.

5 Evidence for Creative Accounting and Fraud (Michael Jones).

5.1 Introduction.

5.2 The Descriptive Studies.

5.3 The Statistical Studies.

5.4 Conclusion.

6 Impression Management (Michael Jones).

6.1 Introduction.

6.2 Conclusion.

7 Taking the Long View: Accounting Scandals over Time (Michael Jones).

7.1 Introduction.

7.2 Conclusion.


8 Accounting Scandals in Australia since the Late 1980s (Garry D. Carnegie and Brendan T. O'Connell).

8.1 Introduction.

8.2 Overview of Accounting Scandals during and since the 1890s.

8.3 Case Studies of Accounting Scandals since the Late 1980s.

8.4 HIH Insurance.

8.5 Corporate Governance Reforms Following the Accounting Scandals of the Early 2000s.

8.6 Conclusion.

9 Corporate Accounting Scandals in China (Catherine Huirong Chen, Yuanyuan Hu and Jason Zezhong Xiao).

9.1 Introduction.

9.2 Summary of Corporate Scandals.

9.3 A Case in Depth – Zhengzhou Baiwen.

9.4 Conclusion.

10 Accounting Scandals in Germany (Hansrudi Lenz).

10.1 Introduction.

10.2 Accounting Scandals Between 1985 and 2006.

10.3 Most Important Cases: Flowtex and Comroad.

10.4 Accounting Scandals and Regulatory Responses.

10.5 Examinations of the German Financial Reporting Enforcement Panel 2005–2006.

10.6 Conclusion.

11 Creative Accounting and Fraud in Greece (George Kontos, Maria Krambia-Kapardis and Nikolaos Milonas).

11.1 Introduction.

11.2 Two Accounting Scandals.

11.3 The Bank of Crete Scandal.

11.4 The Aftermath.

11.5 Conclusions.

12 Corporate Creative Accounting in India: Extent and Consequences (Bhabatosh Banerjee).

12.1 Introduction.

12.2 Some Examples of Creative Accounting in India.

12.3 Some Important Corporate Cases in India.

12.4 The Satyam Computer Services Ltd Scandal (2009).

12.5 Aftermath.

12.6 Conclusion.

12.7 Acknowledgements.

13 Creative Accounting and Accounting Scandals in Italy (Andrea Melis).

13.1 Introduction.

13.2 Creative Accounting Practices in Italy: A Case Study Analysis.

13.3 The Most Important Accounting Fraud in Italy: The Parmalat Case.

13.4 The Aftermath of the Parmalat Scandal and its Impact on Business and Society.

13.5 Conclusion.

14 Creative Accounting and Accounting Scandals in Japan (Kazuyuki Suda).

14.1 Introduction.

14.2 Accounting Regulations and Standards in Japan.

14.3 Short History of Accounting Scandals Before the 1980s.

14.4 Three Types of Accounting Scandal Post-1980s.

14.5 Consequences of the Accounting Scandals.

14.6 Conclusion.

15 Financial Accounting Scandals in the Netherlands (Henk Langendijk).

15.1 Introduction.

15.2 Some Minor Accounting Scandals.

15.3 Royal Ahold.

15.4 Conclusion.

16 Creative Accounting and Financial Scandals in Spain (Nieves Carrera).

16.1 Introduction.

16.2 Accounting Scandals in Spain Since the 1980s.

16.3 Investments in Stamps: The Latest Series of Financial Scandals in the Country. Afinsa and Fórum Filatélico.

16.4 The Aftermath of the Scandals.

16.5 Conclusion.

17 Accounting Scandals in Sweden – A Long Tradition (Gunnar Rimmel and Kristina Jonall).

17.1 Introduction.

17.2 Fermenta and Prosolvia: Swedish Stock Market Darlings.

17.3 Two Scandals in Multinationals that Dominated the Swedish Media.

17.4 Conclusions.

18 Creative Accounting – The UK Experience (David Gwilliam and Richard H.G. Jackson).

18.1 Introduction.

18.2 Historical Background.

18.3 Some Recent Accounting Scandals.

18.4 Polly Peck.

18.5 The Immediate Aftermath.

18.6 Subsequent Developments.

18.7 Conclusions.

18.8 Acknowledgements.

19 Creative Accounting and Accounting Scandals in the USA (Charles W. Mulford and Eugene E. Comiskey).

19.1 Introduction.

19.2 Scandals since the 1990s.

19.3 Enron and Worldcom.

19.4 Aftermath of the Scandals.

20 Bank Failures and Accounting During the Financial Crisis of 2008–2009 (Simon D. Norton).

20.1 Introduction.

20.2 Kaupthing Bank.

20.3 Origins of the 'Credit Crunch'.

20.4 Financial Instruments Associated with the Credit Crunch.

20.5 Creative Accounting in the Banking Sector.

20.6 Lehman's, Madoff and Bear Stearns; Failures and Consequences.

20.7 Conclusion.


21 Identifying Some Themes (Michael Jones).

21.1 Introduction.

21.2 Some Themes.

21.3 The Major Methods Used.

21.4 Methods of Fraud.

21.5 Incentives for Creative Accounting and Fraud.

21.6 Overstrong Personalities.

21.7 Failure of Internal Controls.

21.8 Failure of External Auditors.

21.9 Conclusion.

22 The Impact of Accounting Scandals and Creative Accounting (Michael Jones).

22.1 Introduction.

22.2 Short-term Immediate Effects.

22.3 Long-term Effects.

22.4 Cumulative Effects.

22.5 Conclusion.

23 Conclusion – Looking Backwards and Forwards (Michael Jones).

23.1 Overview.

23.2 Thematic Analysis.

23.3 Lessons for the Future.

23.4 Prognosis.

23.5 Conclusion.

Appendix 1 Chronological List of Major Instances of Accounting Issues Across 12 Countries and Beyond.

Appendix 2 Alphabetical List of Most Important Accounting Scandals Across 12 Countries and Beyond since about 1980.