Voodoo Accounting

See: Voodoo Economics.

Using black magic and hexes to get your financial results to look better.

Also, the term refers to using, um...less supernatural means to achieve the same goal.

Voodoo accounting refers to any aggressive accounting practice used to improve a company's financial results. Most of these moves step over the ethical line; the accountant is purposely bending the truth with the numbers getting reported. Typically, the goal is to increase profitability, often in an attempt to attact further investment. It might include things like hiding expenses or boosting revenue figures.

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Finance: How Do Some Accountants "Cook t...103 Views

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Finance allah shmoop we'll have new Some accountants cook the

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books Ah those hollywood accountants You know they just make

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up numbers to mess with poor naive innocent little actors

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and actresses Brad pitiful is making a movie about an

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alien who comes to earth and gets elected president brad

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gets fifteen percent of the movie's profits as compensation Well

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the flick is a block but a a monster hit

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doing two hundred million box the box office another one

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hundred million in licensing revenues from netflix the network's youtube

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and like well brad has his eye on a shiny

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new g six jet and has all said to buy

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one when the studio says sorry no profits Well how

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can this be He wonders the studio accountant lucky jim

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here does the math Well the two hundred million dollars

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was just box office sales and the theaters keep half

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the money So that's one hundred million bucks to us

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Same deal with the aftermarket hundred million So only fifty

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million came to us Brad says don't i get fifteen

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million of that new small thing called production costs while

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we needed toe actually make and then market your movie

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Well the movie cost eighty million dollars a shoot And

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then we spent thirty million dollars to market it Well

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brad sighs thinking about a much smaller plane and says

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well then okay that's one hundred fifty million to you

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and one hundred ten million in expenses So we made

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forty million dollars and i get six million write Well

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here comes the book cooking paradigm that eighty million dollars

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wasn't spent the day before the movie rolled out into

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theaters It was spent years beforehand and renting money costs

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money so the studio had to use its credit I

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even rent money from banks and partners to fund the

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movie's production Well the studio borrowed eighty million bucks for

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five years in fact and then another thirty million for

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two years The market it now this is extremely risky

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capital And if this movie had bombed then the banks

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might have lost everything So if you were the bank

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would you charge just three percent for that extremely risky

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capital You have no way So the studio could have

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rightly told the producer tio go fund himself you know

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to fund the movie elsewhere and get whatever interest rate

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on the money he could find and the studio would

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match it And surprise surprise Other than in somalia there

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were no takers Not a single lender was willing to

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take on such enormous risk even at a twenty percent

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interest rate So the studio generously loans the production money

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at fifteen percent interest and here's the math fifteen percent

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on eighty million dollars for five years That's twelve million

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of interest per year for five years or so sixty

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million dollars in total And that fifteen percent interest rate

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was a gift The real market price was more like

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twenty percent Well then fifteen percent on the thirty million

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for two years to market it Yeah at another nine

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million dollars of interest costs So what happened here Well

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the interest charges ate up all the profits Yes the

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film had operating profit ignoring interest costs over forty million

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dollars But it had to rent the money to go

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make the film the rental cost or the interest costs

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of the money with sixty million dollars for the production

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and nine million for the marketing Oh and there's this

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other little thing called a distribution fee that studios taken

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Return for pushing the film into the difficult to deal

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with theater owners and usually that's thirty percent off the

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top but those are details So were the books cooked

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here No not at all If making movies was such

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an easy profitable business well there would be legions of

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venture capitalists throwing money at the business the way there

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are in silicon valley with computer software engineers Unfortunately hollywood's

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heyday was a half century ago and economically hollywood is

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dying The studio and the banks behind it have to

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charge a very high interest rate to accommodate for the

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sad fact that most movies don't make back the money

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invested in them Most movies lose money so the one

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in ten movies that actually make money have to be

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Hey for all the rest of the studio only charged

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three percent interest for years I work out great for

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brad pitiful in his profit sharing story In a world

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where the movie made forty million dollars in revenue and

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had only ten million in interest costs With then thirty

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million of you know pretax profit well then brad would

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have gotten fifteen percent of thirty million or four point

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Five million in bonus dough But that's not the way

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things work The books aren't being cooked here People They're

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just being zapped by interest costs It's almost enough to 00:04:33.104 --> [endTime] make you lose your

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