Financial Crime World

Uncovering the Deception: Creative Accounting in Zimbabwe’s Hospitality Industry

Authors

  • Banele Dlamini, Lupane State University
  • Sibonginkosi M.C. Murisa, Lupane State University

Keywords

  • Creative accounting
  • Financial reports
  • Quality
  • Hospitality industry
  • Zimbabwe

A new study by Dlamini & Murisa (2024) reveals the extent of creative accounting practices in Zimbabwe’s hospitality industry and their impact on financial reporting quality.

Impact of Creative Accounting on Financial Reporting in Zimbabwe’s Hospitality Industry

The researchers found that various reasons lead management in the hospitality sector to engage in creative accounting practices: personal gain, improving stock market prices, tax evasion, debt covenants, and loan acquisition.

Common Creative Accounting Methods

The study employed a mixed-methods approach, including:

  1. Semi-structured interviews
  2. Financial statement analysis of five randomly selected hotels

The following creative accounting methods were identified:

  • Altering accounting principles: Adjusting accounting principles to mask financial performance
  • Asset valuation: Overvaluing or undervaluing assets to manipulate profitability
  • Intra-company transactions: Manipulating transactions between parent and subsidiary companies to distort financial results
  • Undervaluing liabilities: Underreporting liabilities to increase net income and asset value
  • Early revenue recognition: Recognizing revenue before it is earned to artificially boost sales figures

Benefits and Consequences of Creative Accounting

The study found that hotels primarily utilize creative accounting practices to secure their own interests and maintain financial stability in a challenging business environment. This results in misleading financial statements for auditors, investors, and other stakeholders.

Consequences of Creative Accounting

Entities engaging in creative accounting practices jeopardize trust in financial reporting and may lead to incorrect investment decisions.

Reference

Dlamini, B., & Murisa, S. M. (2024). Impact of Creative and Aggressive Accounting on the Quality of Financial Reporting in the Hospitality Industry in Zimbabwe. Acta Universitatis Danubius. Œconomica, 20(1), 45-54. Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/2515