Window dressing is the act of manipulating financial statements to present a better position than actual by higher management, usually done to attract investors or reduce taxes. It is considered creative accounting if it does not break rules or laws. However, it is unethical as it does not provide a true picture and misleads stakeholders. Common window dressing methods include creation of secret reserves, misrepresenting liabilities and assets, and changing accounting practices temporarily to alter reported profits and cash flows. The objectives are to appear more profitable and liquid to investors, banks, and to pay lower taxes.

1. WINDOW DRESSING
MBA FINANCE

2. INTRODUCTION TO 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.

3. CREATIVE ACCOUNTING
● Window Dressing of financial statements is also referred as creative
accounting and is also considered as an art until and unless it goes
against any of the set rules, standards or law to be followed. Hence, it is
considered legal in such manner.
● Window Dressing is not ethical because it manipulates the data and
does not provide a true and clear picture of the business which is like
cheating to stakeholders who hold on their interest in company’s growth
& position.

4. OBJECTIVES OF WINDOW DRESSING
● 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.

5. WINDOW DRESSING 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

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