Window dressing in accounting

Window dressing is actions taken to improve the appearance of a company's financial statements. Window dressing is particularly common when a business has a large number of shareholders, so that management can give the appearance of a well-run company to investors who probably do not have much day-to-day contact with the business. It may also be used when a company wants to impress a lender in order to qualify for a loan. If a business is closely held, the owners are usually better informed about company results, so there is no reason for anyone to apply window dressing to the financial statements.

Examples of window dressing are:

These actions are taken shortly before the end of an accounting period

The window dressing concept is also used by fund managers, who replace poorly-performing securities with higher-performing ones just before the end of a reporting period, to give the appearance of having a robust set of investments.

The entire concept of window dressing is clearly unethical, since it is misleading. Also, it merely robs results from a future period in order to make the current period look better, so it is extremely short-term in nature.

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