Two sets of books

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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 public traded companies can prepare the financial statements for the Securities and Exchange Commission, investors, and sometimes the IRS. This is considered an advantage because it shows the 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]

Keeping "two sets of books" does not always refer to an illegal practice. Most publicly traded companies use this practice and it is legal. They abide by the rules set by the Federal Accounting Standards Board, or the FASB, when preparing financial statements and abide by the Internal Revenue Code when preparing tax returns. The goal here is to maximize income for the financial statements, so when investors see them they would be intrigued to invest. On the other hand, the company wants to have a lower income on the tax returns, so they do not have to pay high taxes.

Organisations which 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 them the wrong set of books.

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