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Some bookkeepers utilize "creative book keeping techniques" when doing a company's...

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lscrivy | Student, Undergraduate | (Level 1) Salutatorian

Posted May 9, 2013 at 2:42 PM via web

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Some bookkeepers utilize "creative book keeping techniques" when doing a company's finances. What are the ethical considerations/implications/dilemmas encountered with "creative book keeping techniques"?

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kipling2448 | (Level 2) Educator Emeritus

Posted May 9, 2013 at 3:19 PM (Answer #1)

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"Creative bookkeeping" could be considered another way of saying "fraudulent bookkeeping."

The most common method used in "creatively" maintaining financial records is to use two books, one with accurate data so that the individual or company in question can have a good picture of how business is actually progressing, or regressing, as the case may be; the other involves use of fraudulent data for official filings with the Internal Revenue Service, the Securites and Exchange Commission, business partners, or stockholders.  The motivation could involve embezzelment by one or more officers of a company, risk of losing one's job if financial losses resulting from honest but poor business practices are discovered, or attempts to manipulate stock prices.

"Creative bookkeeping" can generally be assumed to be illegal, as it almost always involves the filing of false information with the federal government.  Ethically, it is certainly wrong, especially if employed for the purpose of defrauding others.  Bookkeepers, accountants, or business officers conducting such practices generally know that the consequences of their actions can be a criminal conviction involving prison and financial penalties including asset forfeitures and fines.  

The dilemmas involved in conducting "creative bookkeeping" can involve any number of factors.  The fraudulent activity can be a desperate ruse by an individual to get out of debt before his or her career is ruined; it can be motivated by simple greed; and, it can be the result of a discovery that honest mistakes were made the discovery of which could lead to embarrasment, prosecution, unemployment, or other possible outcomes.  Anyone engaging in fraudulent bookkeeping does so with the knowledge that the risks can outweigh the benefits.

In the case of publicly-traded companies, those traded on stock exchanges, discovery of fraudulent bookkeeping will result in investigation and probabl prosecution by the federal government.  The resulting reputational damage for the company in question can be devastating in terms of the value of its stocks.  If the company is large enough, the ramification can extend across the breadth of an entire sector of industry.  Many lives can be severely adversely affected by such ethical breaches.

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