Determinants of creative accounting practice in Malaysia

Whether being pushed to the edge or for self-interest, the financial report has been creatively presented to show outstanding performance and make the stakeholders happy. To an extreme extent, creativity becomes fraudulent. Past studies have shown that several factors contribute to the practice of creative accounting. However, studies focusing on individual and organizational aspects are still lacking. This study investigated the relationship between individual factors, that is, the accountant characteristic and organizational factors that are the company’s corporate governance with creative accounting. The variable tested in this study is age, working experience, and education as individual factors, while corporate governance is the organizational factor. A final of 42 respondents consists of accountants that are members of the Malaysian Institute of Accountants (MIA). Data were gathered from a questionnaire adapted from previous studies. From the responses of 42 members of MIA, it was found that none of the individual factors that were tested had a significant relationship with creative accounting practice. This could indicate that the practice is committed by any person regardless of age, experience, and education level. However, corporate governance showed a significant relationship with the practice. This means that corporate governance is a determinant factor of creative accounting practice in Malaysia. Good governance and excellent internal control could curb the practice of creative accounting. This study is primarily significant to the users of financial reporting, especially the investors, in determining the credibility and reliability of the company’s financial report. These findings show that effective internal control as a result of good governance is essential in ensuring a healthy financial report of a company.