Telco's Creative Accounting (Coursework Sample)

Telco’s Creative Accounting
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Institution
Telco’s Creative Accounting
Introduction
Creative accounting plays a major role in covering up major financial shenanigans in some of the most renowned commercial institutions across the world. It essentially refers to accounting practices which defy the spirit of standard accounting practices and rules; even though they may still conform to the legal regulations at that time (Flemming, 2004). Large sums of money have been lost through unscrupulous machinations by critical personalities within the financial departments of many companies. Courtesy of creative accounting, significant economic downfalls of multinational companies such as Worldcom, Enron and Parmalat were actuated (Jay et al; 2007). The practice ensured that the real financial position of the companies was concealed for long periods of time only for it to emerge that they had been running at a loss all along.
Analysis
Telco Company is no exception with respect to doctoring financial records and misrepresenting its financial position to the public. Perhaps in India, Telco is the company which opened the floodgates for others to enhance their immersion in creative accounting. There are many instances in which the company has showcased its prowess in effective creative accounting. For instance, during the launch of Indica in 2001 the company spent RS 1.178 crore on a dinner party which was organized in a grand scale. In the books of account, this expenditure was classified as development expenditure. Ideally, if the company had not done so and written off the amount against profits, it would have posted losses double the presented figures in the previous year of Rs 500. The spokesperson of the company was adamant that they had done no wrong, legally speaking. According to the company release, there was a proposed initiative which would facilitate the balance sheet to be reflective of operational results of the company in future years (Singh, 2005). As such, the move made by the company was plausible by dint of both the existing and proposed regulations as encompassed in the Companies Act of 1956. In as much as this action was above board in the eyes of the law, persistent exercise of this accounting procedure my not be closely monitored and thus result in embezzlement and fraud.
Many other unscrupulous ways of fudging accounts have also been exhibited by the company in recent years. Since depreciation is an acceptable accounting principle, many financial officials manipulate it to the company’s advantage especially through the method called capitalization. With respect to fixed assets, most accountants tend to charge a higher rate of depreciation; an action that ultimately implies that the profits of the company are reduced. If such actions are employed on various fixed assets of the company, cumulatively the company’s profits will reduce significantly and this tremendously reduces the liability of the company when it comes to paying taxes.
Every company is required to do a valuation of its closing inventory. Since there are numerous accounting methods for valuation of stock, accountants of Telco Company have become more ingenuous. They, in most cases adopt th...