Question

A study reports that 29% of employees in finance and accounting witnessed the falsifying or manipulating of accounting information in the past year. This includes nondisclosure of some long-term liabilities. What risks does a business face for not disclosing some of its long-term liabilities? What could the business possibly benefit by not disclosing some of its long-term liabilities?

Answer 1

Many investors invest in companies by just looking at the financial position of the companies. It means if the financial statements of the company shows that it has a sound financial position the investors will be interested to invest. In the present case the employees are not disclosing some of its long term liabilities. The investors will invest believing that the company does not have long term liabilities and is having a sound financial position. Later on if they come to know that actually there were long term liabilities and the company did not disclose the same to manipulate the accounting information, the investors interest will be lost. They will withdraw their investment and company will be in huge trouble. Such risk exists if the company does not disclose long-term liabilities.

The company has many benefits from non-disclosure of long term liabilities. For example, they can raise finance from banks and financial institutions by showing manipulated financial statements and can attract many investors who invest their funds by just depending upon the accounting information and can have a competitive advantage in the market also. But it is not a good practice to manipulate the accounting information.