Companies may understate liabilities so as not to be perceived as risky by credit rating agencies.

Question

Quizplus · Accepted Answer

Understating liabilities can make a company's financial position appear stronger than it actually is, which could result in a higher credit rating. This is because credit rating agencies base their ratings on the company's perceived ability to pay its debts. However, understating liabilities is a misleading practice that can ultimately harm investors and stakeholders, so it is not recommended.

Companies May Understate Liabilities So as Not to Be Perceived