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The concept of "two sets of books" refers to the practice of attempting to hide or disguise certain financial transactions from outsiders by having a set of fraudulent accounting records (or "books") for official use and another, the real set, for personal records.

Keeping two sets of books has its disadvantages and advantages. The concept of having two sets of books is so that public traded companies can prepare the financial statements for the US Securities and Exchange Commission, investors and sometimes the Internal Revenue Service. That is considered an advantage because it shows investors that they are a rich company. Therefore, they can get more shareholders to buy their stocks. The disadvantage with these companies for having two sets of books is when they report one or both of the books to the Internal Revenue Service, they tend to lower their income to avoid taxes.[1]

Organisations that keep two sets of books can sometimes be caught out when a tax inspector or other official happens to make a visit and asks to see the books, and an inexperienced member of staff happens to be on duty and shows the wrong set of books.

Related situations

Keeping "two sets of books" does not always refer to an illegal practice. Most publicly-traded companies use the legal practice and abide by the rules set by the Financial Accounting Standards Board (FASB) when they prepare financial statements and abide by the Internal Revenue Code when they prepare tax returns. The goal is then to maximize income for the financial statements so that when investors see them, they are intrigued to invest. On the other hand, companies want to have a lower income on the tax returns to avoid being required to pay high taxes.

See also

References

  1. ^ "Corporations avoid taxes by keeping two sets of books - USATODAY.com". USATODAY.COM. Retrieved 2016-10-28.