Business, Legal & Accounting Glossary
Window dressing refers to any practice that attempts to make a situation look better than it actually is.
An adroit but superficial or misleading presentation of something, designed to create a favourable impression.
Window dressing refers to any practice that attempts to make a situation look better than it actually is.
Window dressing has often been used extensively by accountants to improve the appearance of balance sheets.
In the past, banks used to call in their short-term loans and postpone making payments at the end of their financial years, in order to display spuriously high cash balances.
Another more nefarious example is when a company borrows cash from an associate in order to disguise a short-term liquidity/cash flow problem.
These practices fall under the remit of the Financial Reporting Council (FRC).
Window dressing can have at least two meanings.
In accounting terms, window dressing refers to an assortment of alterations a bookkeeper might make to a financial statement, whether legal or illegal so that the statement appears stronger than it is. Omitting expenses, recording sales before they occur, or delaying write-offs are possible window dressing activities in this context. A firm might engage in the accounting version of window dressing to meet liquidity requirements on financial disclosure forms. In investing, window dressing refers to the churning of a portfolio by an investment fund manager out of stocks or securities that have performed poorly and into stocks that have performed well. Window dressing in this instance typically occurs near the end of a quarter and is aimed at making portfolios appear more profitable and fund managers more astute than they were. Alternatively, investment window dressing might also entail fund purchasing security in a popular, expanding sector that has nothing to do with the orientation of the fund. For instance, a utilities fund purchasing technology stocks during the late 1990s tech boom would have been engaging in window dressing.
smoke and mirrors
facade
front
frontage
face
Window dressing is a technique used by companies and financial managers to manipulate financial statements and reports to show more favourable results for a period. Although window dressing is illegal or fraudulent, it is slightly dishonest and is usually done to mislead investors.
Companies typically window dress their financial statements by selling off assets and either purchasing new assets or using this money to fund other operations. This way the cash balance on the balance sheet appears to be at a normal amount.
Unfortunately, this strategy can only fool novice investors. Experienced investors can analyze the statement of cash flows and long-term assets to see that the company is funding current operations by selling off assets.
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This glossary post was last updated: 28th December, 2021 | 0 Views.