window dressing

Question 1

window dressing

Answer 1

manipulation of financial accounts by a business to improve the appearance of its performacnce

Question 2

presentation of financial data

Answer 2

• using graphs with distorted scales to give the apperance of bigger or smaller changes in scales
• may only highlight certian details or examples of where the business is doing particually well to disguise other areas havent have done as well

-not include any comparative data wirh previous years , performance, competion/; industry

using balence sheet and profit and loss

Question 3

overstaing brand valuations

Answer 3

-revaluing brands, brand value is an intangible fixed asset therefore increases in brand value increases the assets of a company giving the impression they are worth more
, defend against takeovers

valuing brands is subjective therefore an oportunitirt to window dress accounts

Question 4

hiding the costs of poor investments and hiding costs

Answer 4

banks have been found to write down the value of ‘ toxic assets’ as a result of failed investment, huge losses are given the apperance of minimising losses, inflating profit levels

worldcom- inflated profits by disguising expenses as investment in assets, seemed like a really sucessful company never actually made a profit

Question 5

sales and leaseback improve liquidity

Answer 5

cash flow problems in short term are improved by sale and lease back
selling fixed assets amd leasing back sae assets e.g. build a new retail outlet normallu used by department stores sell outlet and leaseback store improving short term cash situation and liquifiity altthough may riase questions on long term business performancde
injects money back into the business showing higer cash balenced smaller lease payments improving cash flow

Question 6

the use of extraudinary and exceptional items

Answer 6

exceptional items unusual one time events not part if normal business operations e.g. selling an asset, large gains. businesses should separate this as an ‘exceptional ‘ item from regular income but may count it within to exadurate revenues

extraudinay items, unusual infrequent e.g. high demand due to e.g. pandemic typically removed but may use t as part of normal revenue to exadurate revenue

Question 7

reasons why businesses window dress accounts

Answer 7

• increase share price, if business seems t be making high profits mr=ore attractive to investors increasing share price

-deter or attract takeovers-
more valuable/ profitablee business attract takeover seemingly successful increasing price Get

don’t want take over could use brand valuation make seem more valuable and expensive

reduce tax bill by making business profits look smaller e.g. including redundancy costs in normal losses then may be able to reduce tax payments

improve credit rating if seems to be making high profits and doing well may be able to finance from banks more easily seem less risky

praise and rewards- good financial accounts could result in praise and financial rewards from managers