Manipulation of accounting profit

Manipulation of accounting profit is possible in many ways. The accounting profit may be manipulated by the changing of accounting policies.The management may get the desired result by framing the policies in a ways that can easily be twisted to change the profit.

The great example of manipulation of accounting profit is change the inventory valuation methods. The different valuation will give you different result because inventory has direct impact on the profit of organization. The increase the closing value of the inventory would result in more profit similarly the decrease in the value of closing stock will reduce the gross profit.

The situation where the prices of inventory is decreasing the management may adopt the LIFO method under which the last inventory is considered to be sold in first place . This provide an opportunity to the management to keep the closing inventory value up.

Manipulation of accounting profit is possible by overriding the accounting policy.The management is always in a position to do that. for example the management may not value the closing inventory at net releasable value despite the knowledge that NRV is lower than cost and need to be valued at NRV.