Balance cosmetics

Balance sheet cosmetics , balance sheet beautification , balance sheet dressing or balance hairstyle ( English window dressing with the literal meaning "window decoration", hence also often called in German with the Anglicism window dressing ) describes all measures within the framework of balance sheet policy , the visual and short-term design of the balance sheet before The balance sheet date is intended to give the reader the best possible impression of the economic situation of a company . Similar terms are creative accounting (English creative accounting ) and earnings design (English earnings management ).

General

The commercial and accounting law allows the reporting entity world more or less leeway in accounting . These margins consist on the one hand from right choice (choice approach Rights: activation / Passivierungswahlrechte and valuation options : Wertansatz- and methods choice rights) and on the other hand, discretion spaces (method leeway). They can be used legally by companies for the purpose of preparing the annual financial statements . The aim of balance sheet policy in general and balance sheet cosmetics in particular is the presentation of annual financial statements that the interested public positively evaluates. The balance sheet cosmetics aim at the external presentation, i.e. the visual appearance of a deal. These success and financial dispositions, which are made shortly before the balance sheet date with a view to the balance sheet, are part of the cosmetic balance sheet.

The English window dressing appeared for the first time in 1895 as the “art of window dressing ”; Its second meaning, which was added later, originally stands for window dressing with no value , but there, too, it has a negative connotation in the sense that something should appear cheaper than it is in reality; certainly with dishonest, fraudulent intent.

Design options

While the balance sheet policy generally differentiates between the structure of the facts and the presentation, the cosmetic balance sheet concentrates on the structure of the facts. This is aimed at all measures that are essentially carried out before the balance sheet date and are aimed at structuring the quantity structure. The cosmetic balance sheet ties in with this structure of the facts. The design of the presentation, however, takes up the facts given after the balance sheet date and influences the presentation in the annual financial statements.

Balance cosmetics include in particular:

Sale of tangible assets : real sale or sale-lease-back of mobile or immobile assets .
Sale of current assets : real sale of receivables or securities or factoring , securities repurchase agreements .
The dissolution of hidden reserves improved by increasing profits , the equity and the equity ratio and correspondingly reducing the debt ratio .
Postponement of business transactions : These are either brought forward before the balance sheet date (although they should actually take place afterwards) or are only carried out on the balance sheet after the balance sheet date (although they should actually take place before). Moving forward is aimed at transactions that have a positive effect on the annual financial statements, while the delay affects processes that have a negative effect. Pending transactions are particularly suitable for this because they occur around the balance sheet date.

Sales lead to an improvement in liquidity , the release of hidden reserves has the effect of improving results, and the timing of business transactions makes the annual financial statements appear positive. These forms of structuring lead to reallocations in the horizontal and vertical deadline structure of the balance sheet. Measures to improve the balance sheet are hardly or not at all recognizable to the external balance sheet analysts .

Affected companies

Balance sheet cosmetics are widespread internationally with banks and non-banks . It is a “pre-release balance sheet hairstyle to demonstrate greater liquidity”. Credit institutes , insurance companies and investment funds in particular use balance sheet cosmetics. At the end of the year, banks have cosmetically carried out money market operations, in particular repurchase agreements as a means of raising money without real need for money. "Window dressing means that, for reasons of balance sheet appearance, the credit institutions try to display the highest possible level of central bank balances ... in order to be able to present a high level of liquidity in this way". A study of banking statistics between 1963 and 1968 found that central bank money stocks in all banking groups in December were between 25.1% and 39.9% higher than the January – November average of each year. This was empirical evidence of the cosmetic accounting hypothesis. Insurance companies traditionally sort their investments towards the end of the year and put securities with good annual performance to date in their custody accounts in order to look better in front of their customers. Fund managers are sprucing up the balance sheet to improve their portfolio composition. Just before the end of the month, mutual funds add the winning stocks of the year to their portfolio . This gives the impression that the fund managers had the right instinct for successful stocks throughout the year. Shortly before the valuation date, securities funds buy low- market securities that are already contained in the fund. This increases the prices of these stocks considerably. The cosmetic balance sheet activities can lead to volatility in the money and capital markets, especially at the end of the year .