Before the law was changed about 15 years ago, banks arranged financial transactions that allowed...
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Accounting
Before the law was changed about 15 years ago, banks arranged financial transactions that allowed companies to keep a portion of their liabilities off their books. The deals were structured to make it appear as if money was coming into a company from operating activities (sales, trading, etc.), rather than from loans.
Some banks were investigated for this practice and also for leaving part if the deal out of the written record. Critics stated that this had the effect of understating the company's liabilities and misleading investors and creditors. Banks maintained that as lenders, they had no obligation to ensure that clients recorded the transactions properly on their accounting books. Proper accounting, they said, is the responsibility of the client and its auditors.
Mention three ways (using accounting terms, concepts, or ratios) that underreporting liabilities can result in distortions or misrepresentations. Note: Must be specific in order to recieve credit and the answer has nothing to do with Net Income or Profits.
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