What exactly is financial window dressing?

Financial managers can perform certain things to increase or decrease net gain that's recorded in the year. This is called profit smoothing, income smoothing or just plain old window dressing. This isn't indistinguishable fraud, or cooking the books.

Most profit smoothing involves pushing some amount of revenue and/or expenses into other years than they would normally be recorded. A common method of profit smoothing is to delay normal maintenance and repairs. This is known as deferred maintenance. Many routine and recurring maintenance costs required autos, trucks, machines, equipment and buildings can be delayed, or deferred until later. 

A company that spends a great deal of money for employee training and development may delay these programs until the the following year so the expense in the current year is lower.

A business can cut back on its current year's outlays for market research and product development.

A business can alleviate up on its rules regarding when slow-paying customers are written off to expense as bad debts or uncollectible accounts receivable. The business can put off recording some of its money owed expense until the next reporting year.

A fixed asset that is not being actively used may have very little current or future value to a business. Instead of writing off the un-depreciated cost of the impaired asset as a loss in the current year, owner of the business might delay the write-off until the next year.

You can see how manipulating the timing of certain expenses could make an impact on net income. This is not illegal although companies can go too far in massaging the numbers so that its financial statements are misleading. For the most part though, profit smoothing isn't much more than robbing Peter to pay Paul. Accountants refer to these as compensatory effects. The effects next year offset and cancel out the effects in the present year. Less expense this season is balanced by more expense the next year.