Secret Reserves Flashcards
1
Q
Secret Reserves: Definition and Purpose
A
Secret reserves refer to hidden or undisclosed Reserves that are not explicitly shown in a company’s financial statements. These reserves are created by deliberately understanding profits or overstating liabilities often to strengthen the financial position of the company or to smooth out fluctuations in profits or overstating liabilities often to strengthen the financial position of the company of the company or to smooth out fluctuations in profits over time. Secret Reserves are more common in industries like banking and insurance, where financial stability is critical.
2
Q
Why Secret Reserves are created
A
- Financial Stability
- Smoothing Profits
- Tax Planning
- Competitive Advantages
- Regulatory Compliance
3
Q
How Secret Reserves are created
A
- Overstating Liabilities
- Understating Assets
- Understating Revenue
- Overstating Expenses
- Creating Hidden Reserves
4
Q
Auditor’s Duty regarding Secret Reserves
A
- Detection and Disciosure
- Compliance with Accounting Standards
- Evaluation of Purpose
- Reposting to Stakeholders
- Ethical Consideration
- Legal Compliance
