Which term describes the practice of misclassifying long-term assets as short-term to strengthen apparent financial ratios?

The term that describes the practice of misclassifying long-term assets as short-term to enhance the appearance of financial ratios is indeed window dressing. This practice refers to techniques employed by companies to make their financial statements look more attractive to investors, creditors, or other stakeholders without changing the underlying economic reality of the company. By reclassifying assets inappropriately, a company can improve metrics such as liquidity ratios or current ratios, which may misleadingly suggest a stronger short-term financial position.

Window dressing often seeks to temporarily create a favorable impression at the end of accounting periods, potentially masking the true financial condition of the organization. This term captures the essence of cosmetic changes made for the sake of presentation rather than for genuine financial improvement.

In contrast, creative accounting refers to the broader use of accounting techniques to present financial information in a way that may be misleading but is not necessarily illegal. Financial engineering involves the use of financial instruments and models to manage risk or achieve specific financial objectives, while financial manipulation generally implies deceit or intentional misrepresentation of financial data, which can encompass a range of activities beyond the specific reclassification characteristic of window dressing.