Accountant attorney, what exactly is window dressing accounting?

Hello. This is the accountant attorney at Daeryun Law Firm (LLC).

Window dressing accounting refers to the act of manipulating the company's assets or profits in a manner that violates accounting standards in order to make the company's performance look good, thereby preparing financial statements that differ from the facts.

"Window dressing" originally means making the outside look good even though the inside is not.

Window dressing accounting is mostly done in a way that inflates profits beyond actual figures, but there are also cases where profits are recorded as less than actual to reduce tax burden or avoid wage increases for workers.

Such cases are called reverse window dressing accounting.

In the case of companies whose management has deteriorated, they may fall into the temptation to inflate sales and net profit to appear as a sound company, thereby obtaining favorable conditions when raising funds in the capital market and reducing financing costs.

However, window dressing accounting is strictly prohibited by law because it interferes with accurate judgment by shareholders or creditors and may be misused for tax evasion.

To prevent such problems, companies must have auditors and undergo accounting audits by external certified public accountants. Accounting audit reports are again reviewed by the Financial Supervisory Service through inspection.

Accounting firms that fail to detect window dressing accounting as a result of inspection may be subject to sanctions such as suspension of business or revocation of establishment authorization. If investors or creditors invest based on manipulated financial statements and suffer losses, they can claim damages.

For details, we recommend that you receive accurate advice through consultation with an accountant attorney.

Accountant attorneys will help with quick and accurate resolution by adding legal interpretation to complex accounting and tax matters.