ET Prime Special: How auditors try to tell you about corporate governance issues & how companies hide their liabilities

Let’s start by going back a bit. To school. Class 11 commerce students are taught the “principle of prudence”: Anticipate all likely losses, but never anticipate profits. In practice, prudence means recording expenses and liabilities as soon as they are likely to happen in the near future, even if the exact amount is not yet clear. Now, let’s step into one of the trickiest and most revealing corners of audit reports: When companies fail to record expenses or liabilities that they actually should. At times, these omissions are innocent mistakes, but often they are intentional tweaks to achieve certain objectives. How exactly do they do this, and why?