Window Dressing of Financial Statements in the Era of Digital Finance: A Study of Small Cap Indian Companies

With the paradigm shift from the local “bahi-khata (indigenous accounting and record-keeping system)” to the online annual statements, companies are continuously searching for ways to window dress accounts and present a better financial picture. Window dressing is an old phenomenon and lies within the boundaries of lawfulness. As we enter the era of Digital India Programme, it becomes imperative to present correct accounting figures. Studies have revealed that small size companies include more data irregularities than their large size counterparts. Thus, the article aims at analysing the financial statements of 100 companies listed on Nifty Free Float Smallcap Index for the period 2011–2015 with the help of Beneish model. The results indicate that the largest amount of window dressing takes place in the construction industry. The study implies that an in-depth study of the audited reports is required to identify their authenticity and detect any instances of window dressing