Abstract:
This research is an empirical survey of creative accounting practices in Sri
Lanka. Practitioners do the creative accounting for the purpose of making the
company appear to be financially stronger or weaker depending on the
management’s anticipation. Thus, creative accounting practices do not provide
a “true and fair” view of the financial statements. The general objective of the
study was to assess the effect of creative accounting practices on the financial
performance in Sri Lankan companies. This research considered tax
avoidance, accelerated depreciation, and income smoothing as part of the
major creative accounting practices that affect financial performance of Sri
Lankan companies. The research used descriptive statistics to observe the
major practices of creative accounting that affect to financial performance of
Sri Lankan companies. The target population was professional in accounting
and finance sector. A sample of 60 professionals was used for the study.
Primary data was acquired through administering questionnaires and distribute
to chartered accountant, accountant, CEOs, CA/ACCA student, auditors,
company secretary and lecturers in accounting and finance sector. Statistical
Package for Social Sciences Software (SPSS) 20.0 was used in carrying out
the descriptive analysis. The study found that tax avoidance has a major
influence on financial performance of the firm. Under tax avoidance aspect,
tax incentives has a significant influence on firm‘s profitability showing that
tax avoidance impacts financial performance. The findings also established
that income smoothing has a hand in influencing financial performance and its
practice resulted in decrease in financial performance. The research revealed
that accelerated depreciation significantly influence financial performance of
firms the respondents feel, firms do take advantage of accelerated depreciation
to improve their financial performance.
