Comparison of Creative Accounting Risks in Small Enterprises: The Different Branches Perspective

Abstract

Small enterprises are exposed to new challenges in examining the impact of creative accounting on their financial statements, particularly when assessing ‘going concerned’ conditions and increasing the risk of fraud. The article aims to identify accounting errors and fraud risks made by accounting adjustments, thus distorting the true and fair presentation of financial statements. We aim to explore the risks of creative accounting based on the relationship between profit creation (EBT) and cash flow (CF) by applying the CFEBT risk triangle method. We analyze small enterprises operating mainly in the trade, processing, and construction industry to achieve this. The detected risks of accounting records were subsequently compared and evaluated in the selected branches of activities. Our research findings confirmed that M-score values were primarily negative for the monitored industries of small enterprises. The resulting values point to applying creative accounting methods – earning management, which pursues, in particular, tax optimization, and, on the other hand, the fulfilment of profitability criteria. A more profound analysis of selected accounting items and financial indicators confirmed more substantial differences between the trade and construction industries. Differences between the branches were found in one-half of the financial indicators and most of the 14 accounting items monitored. The accounting risks ascertained may be used as a tool for reducing the information asymmetry between authors of accounting records and users of reported accounting data and information. The detection and evaluation of risks of accounting errors and errors beyond the economic substance of reported data may considerably improve the quality of decision-making of internal and external users and is also used by persons authorized to conduct the administration and Corporate Governance for increasing the efficiency of enterprises’ internal control systems.

Human Capital Efficiency and Firm Performance of Quality-Certified Firms from EFQM Excellence Model: A Dynamic Panel Data Study

“…Činčalová and Hedija (2020) contended that the database includes information pertaining to a vast amount exceeding 2.7 million subjects. Additionally, many recent studies (Lososová and Zdeněk, 2023;Yousaf and Dehning, 2023;Hamplová et al, 2022;Dokulil et al, 2022;Drábková and Pech, 2022;Urbancová and Vrabcová, 2022) have used data from the Albertina database. The number of quality-certified firms in the prior studies was also small for the analysis (Yousaf, 2023c;Yousaf, 2022b).…”

The Moderating Role of Corporate Governance on the Associations of Internal Audit and Its Quality with the Financial Reporting Quality: The Case of Yemeni Banks

“…Internal auditors must identify and analyze the risks of accounting errors (Drábková and Pech 2022). The effectiveness of IA is prejudiced by the audit's overall effectiveness, the experience of the auditing, and the impartiality of IA.…”

The impact of accounting information systems on audit quality: the case of Lebanese SMES

“…On the other hand, auditors may face additional obstacles and dangers due to using AIS. Drábková & Pech, (2022) argues that auditors may need specialized knowledge and abilities to make sense of the data supplied by AIS due to their growing complexity. Furthermore, if the AIS is not well built or maintained, it might raise the risk of mistakes or fraud in financial reporting.…”