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How not to run your finances
Black Box Accounting

Black Box Accounting represents using complex accounting methodologies, with the intent to make the interpretation of financial reports as difficult as possible and to make the endeavor to understand them more time-consuming. It is used by companies that want to conceal information such as debt or difficulties in financing from their investors or sources of financing.

Black Box Accounting is not illegal, as long as it is in accordance with the regulations and standards. Nevertheless, it is generally considered unethical, because it was designed in order to obstruct the simple and accurate image of the financial state of a company. Using complex formulas causes skepticism towards the accuracy of numbers shown in the financial reports.

Cook the Books

“Cooking” of business records implies dishonest activities conducted by companies in order to falsify their financial reports. Typical “Cooking” of books includes influx increase in the financial data for non-existent profit.

Examples of techniques used in “Cooking” books include revenue acceleration, cost delay, reservation and leasing manipulation.

Cookie Jar Accounting

This is part of an accounting practice in which the company uses its reserve from successful years in order to cover up losses in less successful years. Cookie Jar Accounting is a sign of a self-deceptive accounting practice—as long as there are cookies in the jar.

Big Bath Accounting

This is a company manipulation strategy for presenting the bad results in one year as even worse, so that it would seem that the results in the following years significantly improved.

Voodoo Accounting

This is any form of accounting that does not follow the principles. Although there are many methods to devise financial reports, it always comes down to inflating revenues or hiding expenses. Examples of accounting fraud include Big Bath, Cookie Jar Accounting and irregular revenue recognition.

Voodoo Accounting is every method used to increase profitability through accounting tricks in order for the company to keep up with the rest. Until the profits from the past disperse, like in a fog. This is where the name Voodoo Accounting comes from.

Accounting noise

Distortions in the company’s financial reports, occurring due to the rigid adherence to accounting rules and regulations or management endeavors to improve the company’s image. This makes it harder for the investors to know the real financial situation. Accounting noise can make financial reports seem better or worse than they really are. Textual explanations and notes as well as management-adjusted reports will contribute to a better understanding and a clearer image of the financial situation.

Aggressive Accounting

The practice of inappropriately distorted income statement in order to satisfy the investors.

Concealing losses within connected companies and inappropriate increase in income.

Backdating

Dating the documents to a date earlier than the date of the preparation of the document. In most cases backdating is treated as illegal and fraudulent.

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