ABSTRACT
This chapter argues that the ways in reserves have been used and figures for income and expenditure described to influence perceptions of corporate performance. It considers the statutory requirements relating to the content of the profit and loss account. Secret reserves were the subject of masterly analysis by de Paula. The existence of secret reserves could be deduced, or suspected, by the careful reader of company accounts. One imprecise caption used to satisfy the auditor's insistence on technical accuracy but at the same time, to conceal the existence of a 'free' reserve from the layman, was sundry creditors and credit balances. The significance of secret reserves for the quality of data reported in the profit and loss account is quite different from its impact on reported balance sheet values. In the balance sheet, the creation and utilization of secret reserves merely affects the extent to which values are understated.
