CREATIVE COMPLIANCE IN FINANCIAL-REPORTING

There is significant evidence of the practice of creative accounting b y large listed corporations. However, little is known about the proces s by which such schemes are devised and succeed in escaping legal and regulatory sanction. This study examines this process of creative comp liance in the case of complex convertible securities issued by U.K. li sted companies between 1987 and 1990. There was an active dialectic of creativity in the design of these instruments - a shift from avoidanc e to rules to avoidance again. The evidence shows how a small group of professionals in finance, law and accountancy cooperated in the devel opment of these instruments. They helped the issuers to manage their f inancial reporting process in a way in which compliance was assured. W here regulatees are able to command such creative compliance skills an d resources, regulators may find themselves facing an uphill struggle.