How can a company “hide” losses and other damaging information in financial statements?
AnswerThere are various ways in which a company can hide the losses that it has incurred and inflate its balance sheet or income statement to attract more investments by making it look like a worthy deal. And this is known as accounting fraud. One of the ways it can do is by inflating sales, sales is the booked revenues figures not the actual cash collected figures, so the companies play on that part, and also the company having multiple subsidiaries can show intracompany sales and increase the revenue and hence profits and hence hide losses behind them. Another way is to capitalize the expenses or losses over a longer period, that will have company reduce the net effect of the losses by spreading over the years, which has to be treated as revenue expenditure has been treated as capital expenditure.
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