© D.L. Crumbley
Companies hide debt by these techniques:
Using the equity method (rather than Trading Security and Available for Sale methods). Nets the assets and liabilities of the investee.
Lease accounting (arguing that leases are operating leases). Understates 10 to 15% .
Pension accounting – netting of the projected benefit obligation and the pension assets. Must unnet them.
Hiding debt inside Special – Purpose Entities – trillions of dollars of SPE debt is off the books (e.g., securitization, SPE borrowings, synthetic leases).
Readers can make analytical adjustments by searching footnotes for 1,2, and 3. But no disclosures for asset securitization, SPE borrowings, and synthetic leases.
Source: J.E. Ketz, Hidden Financial Risks, John Wiley & Sons, 2003