Accounting standards' flexibility and creative accounting

In the last two decades, many economists have stressed the role of accounting standards’ flexibility in proliferating the phenomenon of financial engineering, creative accounting and, as often referred to, “cooking the books”. Many other scholars have tried to explain financial scandals caused by excessive earnings management with the social and ethical value on which the accounting system is founded in the different countries of the world. In this paper, we argue that financial flexibility is not an obstacle in achieving a financial reporting disclosure that is able to be fair and true if the reporting process is in line with ethical principles, too. We also believe that even if the accounting rules flexibility may, in some cases, affect the fairness of financial reporting, the underhand risks of a too rigid accounting system are also considerable. We offer, at last, an interpretation of the relationship between flexibility and accounting policies based on the Italian financial accounting traditional theory.