Determinants and prevention of creative accounting in financial institutions: Evidence from banking and non-banking sectors in the Tarkwa Nsuaem Municipality, Ghana

Abstract

Creative accounting practices continue to undermine the reliability of financial reporting in developing economy financial sectors, where governance and regulatory enforcement remain uneven. This study evaluates the determinants of creative accounting and the effectiveness of preventive techniques within banking and non-banking financial institutions in the Tarkwa Nsuaem Municipality, Ghana. Grounded in agency theory and corporate governance literature, the study employs a correlational and descriptive survey design. Structured questionnaires were administered to 100 purposively and conveniently sampled respondents, including accountants, auditors, managers, and credit officers, yielding a 90% response rate. Data were analyzed using descriptive statistics and regression analysis in SPSS version 20. Four determinants of creative accounting were examined: ethical issues, disclosure quality, internal controls, and ownership structure. Regression results confirm that all four exert a significant and positive effect on institutional financial performance, indicating that governance weaknesses create conditions that enable creative accounting. Descriptively, disclosure quality falls short of international reporting benchmarks, internal controls are inconsistently applied, and ownership structures do not consistently deter managerial opportunism, despite moderate adherence to ethical standards. Nine preventive techniques are identified, including adoption of international accounting standards, strengthening of audit functions, audit provider rotation, independent director appointments, corporate governance reforms, whistleblower policies, forensic accounting application, investor education, and enforcement of regulatory penalties. The study concludes that preventing creative accounting requires a proactive, multi-layered governance response from institutional management, regulators, and policymakers, with direct implications for financial reporting integrity in emerging economy contexts.