Black box accounting

Black box accounting is the deliberate use of excessively complex accounting transactions to hide the financial condition of a business. This is most commonly the case when the managers of a business want to hide the true extent of the liabilities of the organization, or that it has taken on an unusually large amount of risk that could lead to the incurrence of yet more liabilities. The excessive use of off-balance sheet and derivative transactions, as well as the over-use of technical language in disclosures are examples of black box accounting. In these situations, it still may be possible for a financial statement user to discern the actual condition of a business, but doing so requires a detailed analysis of the disclosures that accompany the financial statements. Black box accounting is not necessarily illegal, but it is considered unethical, since management is not trying to give a clear and unadulterated view of the finances of the organization.

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