Aggressive Accounting

What Is Aggressive Accounting? Aggressive accounting refers to accounting practices that overstate a company’s financial performance by manipulating financial data. It involves tactics such as delaying or covering up losses and inflating earnings.

Understanding Aggressive Accounting Aggressive accounting techniques deviate from the spirit of accounting rules, aiming to present a more favorable view of a company’s financial performance. While considered unethical and sometimes illegal, some companies still engage in aggressive accounting practices.

Aggressive Accounting Techniques Aggressive accounting can take various forms. Here are a few examples:

  1. Revenue Manipulation
    • Overstating revenue by reporting gross revenue without accounting for expenses that reduce it.
    • Recording revenue before a sale is finalized to recognize it earlier than appropriate.
  2. Inflating Assets
    • Allocating a portion of overhead costs, like staff expenses, to inventory. This increases the value of inventory and reduces the cost of goods sold (COGS).
  3. Deferred Expenses
    • Treating certain costs as assets until they are consumed, recording them as expenses later.
    • Manipulating profits by keeping deferred expenses on the balance sheet instead of recognizing them as expenses on the income statement.

Examples of Aggressive Accounting Several notable cases highlight aggressive accounting practices:

  1. Worldcom
    • Inflating net income by recording expenses as capital purchases, thereby understating depreciation expenses.
    • Spreading out operating expenses over time as smaller capital expenses to boost profits.
  2. Krispy Kreme
    • Inflating asset values and prematurely recognizing revenues.
    • Booking revenue from the sale of doughnut equipment to franchisees before payment.
  3. Enron
    • Reporting the value of energy contracts as gross revenue instead of the commission received.
    • Using off-balance-sheet entities to hide underperforming assets and fabricate profits.

The Sarbanes-Oxley Act of 2002 was enacted in response to accounting scandals like those at Enron and Worldcom. It improved financial disclosures, increased penalties for executives involved in fraudulent financial statements, and mandated improvements in internal controls and audit committees.


  1. Investopedia – Aggressive Accounting
  2. The Balance – Examples of Aggressive Accounting
  3. SEC – Krispy Kreme
  4. Sarbanes-Oxley Act of 2002

Websites and Online Resources:

  1. Financial Accounting Standards Board (FASB) – Official website of the organization responsible for establishing accounting standards in the United States. Provides information on accounting principles and regulations.
  2. Securities and Exchange Commission (SEC) – Regulatory agency overseeing the securities industry in the United States. Offers resources and publications on financial reporting and enforcement actions.


  1. “Creative Accounting, Fraud and International Accounting Scandals” by Michael Jones – Examines various accounting scandals and fraudulent practices, including aggressive accounting techniques.
  2. “Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports” by Howard M. Schilit – Provides insights into identifying deceptive financial reporting practices, including aggressive accounting strategies.

Academic Journals and Research Papers:

  1. “Earnings Management and Aggressive Accounting: A Review of the Literature” by Patricia M. Dechow and Richard G. Sloan – An extensive review of academic literature on earnings management and aggressive accounting practices.
  2. “The Impact of Sarbanes-Oxley Act on Aggressive Earnings Management” by Lian Fen Lee – Examines the effect of the Sarbanes-Oxley Act on reducing aggressive accounting practices.

Reports and Studies:

  1. “Aggressive Accounting: Red Flags and Potential Implications” by Deloitte – Provides insights into identifying signs of aggressive accounting and potential consequences.
  2. “Earnings Quality and Aggressive Accounting: An Empirical Analysis” by Yves Gendron and Jean-Claude Cosset – Examines the relationship between earnings quality and aggressive accounting practices.

Professional Organizations and Associations:

  1. American Institute of Certified Public Accountants (AICPA) – Professional association for certified public accountants. Offers resources, publications, and guidance on accounting practices and ethics.
  2. Association of Certified Fraud Examiners (ACFE) – International professional association dedicated to fraud prevention, detection, and deterrence. Provides resources on detecting and preventing aggressive accounting and financial fraud.