The correct answer is: B. Convention of disclosure
Window dressing is the practice of manipulating financial statements to make a company appear more profitable or healthy than it really is. This can be done by delaying or accelerating the recognition of revenue or expenses, or by using accounting methods that are not in accordance with generally accepted accounting principles (GAAP).
The convention of disclosure requires companies to provide complete and accurate information about their financial condition and performance. This helps investors and other users of financial statements to make informed decisions about the company. Window dressing violates the convention of disclosure because it obscures the company’s true financial condition.
The other options are incorrect because:
- Conservative convention is a principle of accounting that states that assets should be recorded at their historical cost, and that liabilities should be recorded at their estimated amount. This principle is designed to protect investors from losses. Window dressing does not violate this principle.
- Convention of materiality is a principle of accounting that states that only information that is significant to the financial statements should be disclosed. Window dressing may involve the disclosure of immaterial information, but this does not violate the principle of materiality.
- Arrear of book accounts is a term used to describe accounts that are past due. Window dressing does not involve arrear of book accounts.