Question

Why do you think a company could permit liability accounts to be overstated

Answer 1

A company could permit asset accounts to be understated when there are measurement errors, accounting errors, and improper implementation of accounting principles and policies.

A company could permit liability accounts to be overstated if liabilities are higher. This might be due to the over-accruing of expenses by the company.

Overstatement of income is more likely. Normally an organization does misstatements to improve profitability.

This is done by either expenses understatement or revenue overstatement.

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