Big bath: Difference between revisions
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imported>Doug Williamson (Create page. Sources: Financial Reporting Council https://www.frc.org.uk/accountants/accounting-and-reporting-policy/uk-accounting-standards/standards-in-issue/frs-12-provisions,-contingent-liabilities-and-cont, Accounting tools https://www.accountingtool) |
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Revision as of 11:34, 17 February 2019
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 was made in the earlier reporting period, reducing net assets and profits (or increasing losses) in the earlier 'bad' year.
The consequence would be to artificially increase profits in later periods.
'Big bath' provisioning was particularly attractive to new managements as a way to assign blame to predecessors, while claiming credit for subsequent, partly artificial, improvements.
Modern financial reporting standards aim to prevent this practice.
