What is window dressing?

Every day, investors are exposed to sophisticated fraud attempts. These can take many forms. We have created this series of short factsheets to explain and illustrate the most common types of fraud that investors may encounter. Let’s start with the concept of window dressing.

What is window dressing?

Originally the term “window dressing” is used to described the effort put in the presentation of products displayed in a shop window to make them look good. Nothing really harmful, but applied to accounting, this could mislead investors and make them loose a lot of money.

“Window dressing”, for accounting, refers to multiple types of manipulations performed on a company’s financial statements to improve their appearance. While we can consider it unhetical, some manipulation are not always illegal.

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Who is involved in window dressing fraud?

Window dressing can serve the managers interests to hide economical distress to future investors or actual shareholders, or to pay their personal expenses and life style. It could also serve employees taking out cash for their personal use. It can happen in companies of all sizes. In companies with a large number of shareholders and in a mutual funds, it is more difficult for shareholders to be close to the account and fully aware of the company’s performance. In SMEs, it is easy for the director to have a single access to all accounts.

When does it happen?

This method is used during the period of the closing of the financial year, before presenting the numbers to the other stakeholders. The general objective of window dressing is to enhance the performance of the company.

Making the company look good. To a lesser extent, this method can be used to reassure actual shareholders or lenders of the financial stability of the structure. It becomes dangerous when window dressing is employed to raise funds from investors, banks or shareholders, or to boost the external growth facilitating partnerships, alliances or a company buy-out. The managers can also take advantage of this technique to distribute more bonuses to themselves by inflating their actual profits. Facing insolvency, window dressing is the easy solution to cover up publicly poor investment choices.

Conversely, window dressing can also be used to show underperformance in order to avoid a takeover or paying taxes for example.

How does it work?

Different methods can be related to window dressing. It can involve, the manipulations of informations in the balance sheet and income statement or the adoption of a specific management policy.

Here is a non-exhaustive list of window dressing methods:

  • Over valuation of closing inventories will show rise in profits, and vice versa
  • Keeping a cash cushion by holding the payment of a vendor at the end of the year will increase the cash balance
  • Selling products at discount at the end of the year will artificially inflate the revenue
  • Manipulating capital expenditure by moving expenses from the income statement to the balance sheet will increase the profits.

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Some exemple of window dressing


We recently studied a famous case of window dressing for NS8. The manager Adam Rogas was the only one that had access to the account. He manipulated the numbers, inflating the revenue to obtain new financing: he showed to the investors a balance of $62m when he actually held $28m. He was arrested by the FBI and faced fraud charges. His investors were scammed out of millions of dollars. See the full story in this article.



Worldcom, the second largest long-distance operator in the United States, has artificially inflated its profits by some $11 billion, rising its value on stock market. The CFO admitted to have manipulated the accounts by capitalizing on revenue expenditure. The company went bankrupt and the CEO was found guilty of false statements, conspiracy and securities fraud. Read the wikipedia article.

What are the lessons?

When we talk about window dressing, the first fooled are the investors, shareholders and the employees of the company. To avoid such a situation, there are several best practices to maintain:

  • Don’t let one manager in full control of the accounts
  • Conduct regular audits to detect anomalies: it is important to analyse the financial statements and to compare to the industry standards and major competitors.
  • Cross-check the information you get: always use different data sources to make sure that the information displayed is the right one.

We advise you to enrich your human audits with a risk analysis solution like October Connect. Connect Company Scan Module will analyse your portfolio banking transactions and behavioural data looking for potential fraudulent attempts. You will be able to detect fraud before you engage further with the company in question and probably loose your money in the process.


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