An accounting term for reserves kept by a company or business but not disclosed to the public in the balance sheet, being hidden in the wrongful valuation of assets or liabilities. For instance, a company may over depreciate assets or refrain from revaluing them when they increase in value, thus showing them at a value far less than their true one. Were these assets to be realized, the company would make a profit not apparent from the accounts. Limited companies may not have secret reserves, although banks are given favourable treatment and allowed them, as it is thought that this may increase public confidence by providing an additional hedge against possible adversity. Although it is technically illegal to keep secret reserves in limited companies, the law reserves in limited companies, the law rather than those effectively contained in the failure to account for inflationary increases in the values of assets.
|Reference: The Penguin Business Dictionary , 3rd edt.|