Reports of Creative Acquisition, Goodwill and Brands Accounting
Meaning of creative Accounting
Creative Accounting refers to the use of accounting knowledge to influence the reported figures, while remaining within the jurisdiction of accounting rules and laws, so that instead of showing the actual performance or position of the company, they reflect what the management wants to tell the stakeholders.
Besides that, other meaning of creative accounting is Creative accounting is the transformation of financial accounting figures from what they actually are to what preparer desires by taking advantage of the existing rules and/or ignoring some or all of them. So that’s why when talks about creative accounting it related with ethical in the business world.
Furthermore, creative accounting was summarizing the major motivations to manage earnings which include Public offerings, Regulation, Executive compensation, and financial liabilities. It’s also provides a conceptual framework for analyzing earnings management or “Big Bath” from an informational perspective.
Earning Management or Big Bath
The allocation to expense of a greater portion of the price paid for another company in an acquisition in an effort to reduce acquisition-year earnings and boost future-year earnings. Acquisition-year expense charges include purchased in-process research and development and an overly aggressive accrual of costs required to effect the acquisition.
The effect of a purchase (as compared to a pooling) will be lower future earnings since purchase accounting requires the revaluation of assets and liabilities to fair value (resulting in greater depreciation and similar charges against future earnings) and any unidentified component of the purchase price reported as goodwill (which also must be amortized against future earnings).
* Cookie jar reserves
Over-provisioning for accrued expenses when revenues are high helps to bring down profits to a level that...