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Window Dressing (Accounting)

>> October 10, 2011

In accounting, window dressing is the worst technique and unethical tool to show accounting information to interested parties. Company changes some of accounting data to impress its users. For attracting users, company can show good performance on investment or good financial position by changing depreciation and inventory method. Sometime mark to market accounting may be used for window dressing. Enron company had used same technique  for window dressing of its balance sheet.

Window Dressing Examples 

1st Example : To show Good Performance

Company invests big amount in advertising by taking big loan at high rate of interest at the end of year. It will increase the sales level at the end of the year but its long term cost will be more. So, this is a simple example.

2nd Example : To Show More Liquidity 

Company can show more cash and bank liquidity by delay the big payments or by taking big loans at the end of year.

3rd Example : To Decrease the Value of Taxation 

Company can decrease the value of taxation by increasing false expenses. 

4th  Example : To Show Good Return on Investment 

For increasing good return on investment, company may decrease the active life of fixed asset. With this, depreciation will decrease and company can show more return on investment.

5th Example : To Show Good Performance of Mutual Funds 

Company can show good performance of its mutual fund by buying high return shares and selling non performing stock  just before the quarterly reports.

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Anonymous,  October 22, 2011 at 2:25 AM  

easy way to make fool to shareholders...... :)

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