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Why are accounting ratios are manipulated by the accountants to show wrong image of BALANCE SHEET and FINANCIAL PERFORMANCE STATEMENT WITH EXAMPLES..
Cause they want to make a beauty process for the financial statements to attract many parties such as ignoring entries for some owed expenses .
There might be many reasons in manipulating the financial results of the company , but few are the popular reasons which came out from findings ,
1) Compensation of executive level EE directly linked to the performance of the company
2) It is unlikely that these manipulation in rations are detected by investors due to involvement of auditor and corporate client
3) Also In GAAP use widely in Americas , the flexibilies in using GAAP by management also enable management framing company's position better than actual .
In usual practice, doing so for hiding the financial set backs of the company from investors/stake holder or financial institutions directly or indirectly look forward to the achievement of the company. Or to show a boost up of its financial growth to attract more financial assistance or to keep them with the company. But if it will keep it on continue, the result will adverse and will be beyond of its control and will ended up financial crisis which can't be sustainable.
There are many reasons enforcing the practice of cooking the books. The most common reasons are to attract finance and manipulatiing the stakeholders. Ceative accounting can be used to exaggerate the financial performance of a company to attract investors, to manipulate stakeholders into thinking that management is meeting the organizations' performance objectives to accomplish long term goals or this practice can be used to hide profits and growth to attracts tax and other regulatory reliefs.
I found that this behavior is always the effect of the following causes:
- Top management denial state of mind
- Top management performance related compensation
- Top management please the shareholders short-terms expectations at all costs attitude
- Top management overoptimistic attitude
Don't blame the messenger.......
This is very unethical yet common practice among the accountants. This is done mainly to attract the investors & financial institutions who supply the funds.
Gain the managerial financial skills and tools to make realistic budgets, manage cash, and deliver results
I feel they are manipulated to invite further investment / facilitate banking facilities / gain public recognition.
