Window Dressing

Window Dressing is the act of manipulating the correct picture of financial statements of a company to show a better position than actual position.

This is usually difficult to detect because of the involvement of higher management.

This is mainly done for attracting potential investors by showing a good financial position of company or to save on taxation by the government.

Objectives
To present better financial and liquidity position of the business by showing increase in revenue and profitability with healthy cashflow and working capital management.

To attract potential investors by over-stating profitability of business and under-stating the liabilities.

To avoid higher taxes to be paid on the income of the business by showing low profits.

To avail credit and loans by banks or financial institution by showing a healthy financials with repayment capability.

To increase the share value in market by attracting investors sentiments and to build up trust of the stakeholders in the business performance.

Methods

Creation of Secret Reserve

Showing contingent liabilities as actual liabilities

Under-valuation and Over-valuation of inventories

Switching to different method of depreciation

Selling off fixed assets

Postponing cash payment

Thank You For Watching
Subscribe to DevTech Finance