WINDOW DRESSING

WINDOW DRESSING

Meaning and Definition of Window Dressing

            The principles of accounting, all work to create accounts that are an accurate reflection of the financial position of the company. Profits are neither exaggerated nor underestimated; the balance sheet clearly distinguishes between the different kinds of assets. In contrast to this, there are techniques in accounting that can be used to present the financial position of the company in a favourable light. This is called window dressing. One example of a window dressing principle in accounting is ‘Goodwill’.

Features of Window Dressing

The features of window dressing are as follows:

1. It is an act making a company look better financially than it really is.
2. It is a technique in accounting that is used to present the financial position of the company in a favourable light.
3. Window dressing links to the concept of branding, which is one of the key concepts in marketing.

Reasons for Window Dressing

Following are the reasons for window dressing:

1. To show a stronger market position that is warranted
2. To influence liability for taxation
3. To reduce liability problems
4. To hide liquidity problems
5. To ward off takeover bids
6. To encourage investors
7. To re-assure lenders of finance
8. To hide poor management decisions
9. To satisfy the demands of major investors concerning the level of return.
10. To achieve sales or profit target, thereby ensuring that management bonuses are paid.

Methods of Window Dressing

1. Inflation of sales
2. Supression of purchases and costs
3. Inflation of assets
4. Suppression of liabilities
5. Share support schemes