Creative accounting is the manipulation of financial figures according to laws and accounting standards but against what these laws and standard are supposed to accomplish. The practice capitalizes on the existing accounting loopholes to portray a false but better image of the company.
The main objective of creative accounting is to counter competition from other companies that have better financial records. With creative accounting, also called aggressive accounting, companies manage earnings and keep their debts off the balance sheet. Creative accounting distorts the importance of information as it destroys the true and fair view status of the company. For instance, a company can reduce its reported profits to remain within the debt covenants or hide its challenges.