Big bath

Accounting - manipulation.

'Big bath' provisions are, or were, an accounting manipulation designed to boost profits and improve trends in future reporting periods.

An excessive 'big bath' provision is made in the earlier reporting period, reducing net assets and profits (or increasing losses) in the earlier 'bad' year.

The consequence is to artificially increase profits in later periods.

'Big bath' provisioning was particularly attractive to new managements as a way to assign more blame to their predecessors, while claiming more credit for subsequent, partly artificial, improvements.

Modern financial reporting standards aim to prevent such manipulations.

See also

• Accruals accounting
• Conceptual framework
• Provision
• Prudence