Definition
Under-reporting usually refers to some issue, incident, statistic, etc., that individuals, responsible agencies, or news media have not reported, or have reported as less than the actual level or amount. Under-reporting of crimes, for example, makes it hard to figure the actual incidence of crimes.
Under Reporting
What is ‘Under Reporting’
The deliberate act of reporting less income or revenue than was actually received, usually for income tax purposes. Under-reporting income in order to avoid taxes is an illegal practice.
When people under report their incomes, the federal government loses tax revenue that could go towards social security, Medicare and other federal projects. Corporations are especially watched by auditors because of the large tax bills at stake each tax year.
Explaining ‘Under Reporting’
If caught under reporting, individuals and companies will be subject to penalties and, in extreme cases, criminal charges.
Another element of the term’s use sometimes applies to public companies reporting lower revenues in a fiscal quarter than were actually recorded. If the company has already been reporting bad news and the stock is down, executives may try to take some revenue from the current quarter and push it into the next quarter. This way, the bad news can be “flushed out”, and the company can report an upside surprise in the coming quarter, potentially boosting the stock price. This practice is also illegal!
Further Reading
- An information economics analysis of financial reporting and external auditing – www.jstor.org [PDF]
- Self-employed Income Under-reporting and Estimates of the Black-Economy: Britain-1987 & 1992 – ideas.repec.org [PDF]
- Can “big bath” and earnings smoothing co‐exist as equilibrium financial reporting strategies? – onlinelibrary.wiley.com [PDF]
- Infrastructure requirements for an economically efficient system of public financial reporting and disclosure – muse.jhu.edu [PDF]
- How does financial reporting quality relate to investment efficiency? – www.sciencedirect.com [PDF]
- Economic consequences of financial reporting and disclosure regulation: A review and suggestions for future research – papers.ssrn.com [PDF]
- Earnings management under German GAAP versus IFRS – www.tandfonline.com [PDF]
- Are household surveys like tax forms? Evidence from income underreporting of the self-employed – www.mitpressjournals.org [PDF]
- Trends in park tourism: Economics, finance and management – www.tandfonline.com [PDF]
