Unrecorded liabilities

Cost parked hides expenses in the asset column. Cost hidden doesn't record them at all, or smothers them with a reserve.

How do companies leave costs unrecorded?

1. The invoice in the drawer. Don't book the vendor invoice, the December freight bill, the contractor's certified work. Entries omitted: Dr Expense / Cr Accounts payable. The residue is payables and accrued-expense balances falling relative to activity, the mirror-image of DSO. Costs surge the following quarter, and supplier disputes appear. Toshiba's PC division ran an industrialized version through supplier "carryovers," masking costs via buy-sell component arrangements timed across period-ends. CG Power (2019) is the India instance. The board itself disclosed (August 2019) that liabilities had been understated by more than ₹1,000 crore, and that company assets had been used without authority as collateral for promoter-linked borrowings. SEBI barred the promoter, and the company was later rescued by the Murugappa group.
2. Aggressive assumptions. Warranty accrual rates get cut from 2% of sales to 0.9% with claims experience unchanged. Pension expected-return assumptions get nudged up. ECL provision percentages are trimmed just when receivables age worst, and self-insurance reserves are set thin. Each is a one-line estimate buried in a note that converts straight into profit. The good news is that you can test every one of them: assumption vs actual experience, and assumption vs peers.
3. Releasing reserves into income. Yesterday's provision (built in a bath, or banked in a good year) is judged "no longer required": Dr Provision / Cr Expense (or other income). Profit appears, and nothing happened. IAS 37/Ind AS 37 forces the confession, because the provisions note must show a roll-forward: opening, additions, amounts used, unused amounts reversed, closing. Read the "reversed" column. A company whose provisions are always reversing fed you fiction in some earlier year. You only need to work out which one.

What happened in the Tesco accounting scandal?

On the record: Tesco (2014). Three weeks into a new CEO's tenure, and on a whistleblower's evidence, the UK grocer announced that it had overstated expected first-half profit by ~£250m (later refined to ~£263m). It had pulled forward "commercial income" (supplier rebates contingent on future volumes, booked early as reductions of cost of sales) and delayed accruals of costs. The Serious Fraud Office entered a deferred prosecution agreement (2017; £129m fine plus an investor-compensation scheme). Prosecutions of individual executives failed at trial. That's a reminder that the entity-level accounting failure can be established while individual criminal guilt is not.

What should you take from it? Rebate-heavy business models (grocery retail, distribution) carry a structural cost hidden temptation, because a negotiable, forecast-dependent credit sits right inside COGS. And margins improving while suppliers grumble in the trade press is a combination worth respecting.