Secret Reserve Accounting:From the Perspective of Management, Shareholders and Employees

Secret reserves accounting have been described as one of the most celebrated aspects of accounting practices (Arnold, 1997, p. 162). However, while secret reserve accounting may have played a role in promoting public confidence in the banking system, it conflicted with increasing demands from financial report users and regulatory agencies for comprehensive and accurate disclosures of a bank's financial position and performance. Secret reserve accounting may have been a well-intentioned deceit, but it was still a deceit. In this paper I tried to present the beneficial yet conflicting nature of such hidden reserve. The paper begins with an introduction of secret reserve followed by its background which involves its sources, advantages and disadvantages. Next it focuses on how secret reserve created conflicts between different groups like managers, employees, and shareholders. Finally I end the discussion by explaining the position of secret reserve from legal perspective followed by a concluding remark.