The research was conducted in Nigeria and it adopted an ex-post factor design. Secondary data was collected from the Annual Reports of the sampled companies. Two different ratios were computed; one in the traditional way and the other by adjusting the deferred tax and depreciation which are the major book entries allegedly used as creative accounting techniques. An independent samples t-test was used to statistically obtain the significant difference between the unadjusted and adjusted ratios. Then the significance of the t value is compared against the statistically accepted bench mark of 0.05. If the significant value is greater than 0.05, the null hypothesis stands rejected and the alternative hypothesis accepted. The t-test statistic was used to test the hypothesis through the Micro Soft Special Package for Social Sciences (SPSS) version 16.0
In a more recent study, Solowy (2000) see creative accounting as ‘an assembly of procedures in order to change the profit, by increasing or to misrepresent the financial statements, or both of them’. Companies generally prefer to report a steady trend of growth in profit rather than to show volatile profits with a series of dramatic rises and falls. This is achieved by making unnecessarily high provision for liabilities as against assets values in good years so that these provisions can be reduced, thereby improving reported profits, in bad years (Amat and Gorthworpe 1999). Advocates of this approach that it is a measure against the ‘short- termism’ of judging an investment on basis of the yields achieved in the immediate following years. It also avoids raising expectations so high in good years that the company is unable to deliver what is required subsequently. Against this is argued that if the trading conditions of a business are in fact volatile then investors have a right to know this and that income smoothing may conceal long term changes in the profit trend.