Examination of the Impact of Book Entries on Creative Accounting

Creative Accounting is the transformation of financial accounting figures from what they actually are to what the management desire by taking advantage of the existing rules and/or ignoring some or all of them (Naser, 1993). However the question remains: at what point does creative accounting creep into the financial statements to cause the desired havoc? In other words; DO management use book entries as strategic tools for income smoothing which results in material misstatements in the financial statements? Given that Creative Accounting is the transformation of financial accounting figures from what they actually are to what the management desire, it is debatable whether creative accounting starts from book entries, even source documents. After all where then lies the element of transformation? This paper examines the impact of book entries on creative accounting and shows how management uses book entries for creative accounting practices in Nigeria. It adopts a survey research method polling a sample size of 200 (Taro Yameni formula) from a population of 600 senior audit staff of the big four audit firms in Nigeria and uses the Statistical Package for Social Sciences (SPSS 16 package, 2007) to test the hypothesis that: Book Entries are not used for creative accounting practices but creative accounting practices have significant effect on audit risk. This hypothesis was accepted at 5% level of significance. It was recommended among other things that auditors should apply themselves and focus critically on source documents and various external audit evidence in order to discover creative accounting practices.