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CMA Final · Strategic Performance Management and Business Valuation · Corporate Failure

In corporate failure prediction, which of the following best describes 'window dressing' as a warning sign that analysts look for in a distressed company's financial statements?

Window dressing is presenting financial statements so that weaknesses are hidden and the position looks better than it really is. Analysts treat it as a failure warning sign because it masks poor liquidity or losses. Early publication, downward revaluation or auditor changes do not describe this practice.

  1. APresenting financial statements in a way that conceals weaknesses and shows a better position than the real oneCorrect
  2. BRevaluing fixed assets downward to match market values
  3. CPublishing financial statements earlier than the statutory deadline
  4. DChanging the auditor every year to improve independence

Explanation

Window dressing means manipulating the presentation of accounts, such as timing transactions near the year end, to hide weak liquidity or losses. Analysts treat it as a warning sign of possible failure. Downward revaluation and early publication are not concealment, and rotating auditors is an unrelated governance step.

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