In a newspaper article written by Carol Altmann and entitled ‘Cooking the books the Harris Scarfe way’ (The Australian, 7 August 2001, p. 1), the author discussed the collapse of the company known as Harris Scarfe. Specific commentary was given to how the senior accountant utilised ‘creative accounting’ to provide managers with profit figures that matched what they wanted to report even though the figures bore little relationship to the actual transactions and events. It was alleged that the company overstated its profits and had done so for a number of accounting periods. In this respect:

a. What does ‘creative accounting’ mean?

b. How would a reader of financial statements know if the books had been manipulated by ‘creative accounting’?

c. Is it likely that creative accounting was employed in relation to the statement of cash flows? Why or why not?