Ontological basis of the creative accounting phenomenon as a financial misstatement

This article aims to contribute to the accounting knowledge literature by presenting the framework of creative accounting factors and evaluating their identified factors through an argumentation-based total interpretive structural modeling (TISM) approach.

This study adopted mixed, inductive and deductive approaches to develop an integrated framework, validate its practicability and verify its effectiveness in selected manufacturing firms listed on the Tehran Stock Exchange (TSE), respectively. In developing the framework and implementation procedure, the study employed an exploratory data collection (qualitative) approach to review the phenomenon of creative accounting factors. Then, in this study’s second phase, TISM is used to develop the framework of creative accounting design. This study used two types of theoretical sampling in the qualitative part, including theoretical and snowball sampling. Also, the participants in the TISM process in this study were specialized analysts of the TSE.

Based on the mixed method of this study, the result in the qualitative part provides the creative accounting framework of the existence of three categories. There are 6 components and 35 themes during 12 interviews. In the quantitative section, it was determined that two factors, namely the type of ownership firms and intrinsic objectivity, are the most effective drivers for the formation of creative accounting in TSE firms.

So far, it is rare to find preceding studies that have proposed, validated and practically tested an integrated creative accounting framework within the context of financial markets. Thus, the authors understand that this is the very first research focused on the development of a framework for capital market companies to continuously be competitive and could help financial decision-makers, practitioners and academicians in their perception of knowing more about the financial functions of firms.