| Course | ACC 691 Detection and Prevention of Fraudulent Financial Statements |
|---|---|
| Module | Module 8 |
| Paper type | graduate assignment analyzing concealed liabilities and omitted disclosures |
| Length | About 1,050 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 691 Module 8
Analysis of an Undisclosed Guarantee and Unrecorded Liabilities, 2024-2025
[Student Name]
Southern New Hampshire University
ACC 691: Detection and Prevention of Fraudulent Financial Statements
Module Eight Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Analysis of an Undisclosed Guarantee and Unrecorded Liabilities, 2024-2025
Introduction
The schemes analyzed in earlier modules overstated revenue and assets. This paper examines the other side of the balance sheet: obligations the company owed but did not report. The first is a guarantee of a dealer's bank borrowing, signed in December 2024 and hidden through 2025. The second is a set of supplier invoices kept out of the 2025 year-end payables. For each, the paper applies the governing rules at each reporting date, measures the omitted liability and expense, drafts the disclosure that should have appeared and explains how the omission was hidden and could have been found.
The Guarantee
The company's largest dealer, a food service equipment distributor in northern Illinois, received about $5 million of the equipment shipped under the year-end loading scheme described in Module Two. The dealer did not have the cash or credit to pay for it. On December 20, 2024, the CFO signed an agreement with the dealer's bank guaranteeing repayment of up to $22 million under the dealer's revolving credit line, which the bank increased the same week. The board did not approve the guarantee, though the company's bylaws required approval for any guarantee over $5 million. The guarantee therefore did two things for the scheme: it let the dealer pay its receivable, turning a suspicious balance into cash, and it kept the dealer buying.
Applying ASC 460 and ASC 450
A guarantee of another party's debt is within the scope of ASC 460. At inception, the guarantor records a liability for the fair value of its obligation to stand ready to perform, even when payment seems unlikely, and discloses the nature of the guarantee, its term, the maximum potential future payments and any recourse or collateral (Kieso et al., 2019). Separately, ASC 450 requires a loss to be accrued when it is probable and reasonably estimable, and disclosed when it is reasonably possible.
Accounting required at each reporting date, in millions
| Date | Dealer's condition | ASC 460 liability | ASC 450 assessment | Required accounting |
|---|---|---|---|---|
| Dec 31, 2024 | Current on its line | 0.6 | Remote | Record $0.6; disclose $22.0 maximum |
| Jun 30, 2025 | Two late payments | 0.6 | Reasonably possible | Disclose possible loss |
| Sep 30, 2025 | Covenant breach, waiver | 0.6 | Reasonably possible, range $3 to $9 | Disclose range |
| Dec 31, 2025 | In default; bank demand | Replaced by accrual | Probable, $8.5 estimate | Accrue $8.5; disclose |
The fair value of $0.6 million at inception reflects the fee a bank would have charged for a standby letter of credit of that size and term. By December 31, 2025, the dealer had stopped paying, the bank had drawn $15.2 million on the line and sent a demand letter to the company, and the dealer's inventory and receivables pledged to the bank were estimated to cover about $6.7 million. The probable loss was therefore about $8.5 million.
Unrecorded Supplier Invoices
In late December 2025, the plant controller instructed the accounts payable clerk to hold invoices from two steel suppliers, totaling $3.2 million, for material received and used in December. The invoices were kept in a folder and entered on January 6. Because the steel had been used in production, the omission understated both payables and cost of goods sold, overstating 2025 pretax income by $3.2 million.
Effect on the Statements
Effect of the omissions, in millions
| Item | 2024 pretax income | 2025 pretax income | Liabilities understated, Dec 31, 2025 |
|---|---|---|---|
| Guarantee liability at inception | 0.6 | 0.0 | 0.0 |
| Probable loss on guarantee | 0.0 | 8.5 | 8.5 |
| Unrecorded steel invoices | 0.0 | 3.2 | 3.2 |
| Total | 0.6 | 11.7 | 11.7 |
The understated liabilities mattered beyond income. The company's credit agreement capped total debt at three times trailing EBITDA. With the probable loss and the payables recorded, along with the corrections from earlier modules, the company would have breached that covenant at December 31, 2025.
The Disclosure That Should Have Appeared
At December 31, 2024, the guarantee note should have read approximately as follows: "In December 2024 the Company guaranteed borrowings of a customer under a revolving credit facility. The maximum potential future payment under the guarantee is $22.0 million through December 2027. The Company would be entitled to the lender's rights in the customer's inventory and receivables pledged as collateral. The carrying amount of the liability for the Company's obligation under the guarantee was $0.6 million." By the 2025 report, the note should have added the default, the bank's demand and the $8.5 million accrual.
Concealment
The CFO signed the guarantee herself and kept the only copy. Because no payment was made in 2024 or most of 2025, nothing passed through the accounting system. The legal department's contract register did not include it, and the management representation letter signed for both audits stated that all guarantees had been disclosed. The steel invoices were simpler to hide but depended on a clerk following instructions and on receiving reports not being matched to invoices at year end. Hogan et al. (2008) note that concealment often relies on documents outside normal systems, and the COSO study by Beasley et al. (2010) found that understated liabilities and expenses appeared in a meaningful share of fraud cases.
Procedures That Would Have Found Them
A standard bank confirmation asks about guarantees and contingent liabilities, but the company's confirmation went only to its own lenders. Sending the confirmation to the dealer's bank was not required, yet reviewing board minutes for guarantee approvals and asking the dealer, in a receivable confirmation, how it had financed its purchases might have surfaced the arrangement. For the steel invoices, a search for unrecorded liabilities covering January payments and a match of December receiving reports to recorded payables would have found them within hours. Internal controls could have done the same work earlier: a register of every guarantee, letter of credit and comfort letter kept by the legal department and reconciled quarterly to the notes, and a rule that the treasury function signs any commitment to a lender, would have made the CFO's private agreement visible to at least two other people.
Conclusion
The guarantee violated ASC 460 from the day it was signed, because it required a recorded liability and a disclosure even when payment seemed remote, and it violated ASC 450 at the end of 2025, when the loss became probable. The held invoices understated payables and expenses. Together the omissions understated 2025 pretax expense by $11.7 million and hid a covenant breach.
References
Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2010). Fraudulent financial reporting: 1998-2007: An analysis of U.S. public companies. Committee of Sponsoring Organizations of the Treadway Commission.
Hogan, C. E., Rezaee, Z., Riley, R. A., & Velury, U. K. (2008). Financial statement fraud: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 27(2), 231-252. https://doi.org/10.2308/aud.2008.27.2.231
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 691 Module 8 instructions ask for
Module Eight's assignment in ACC 691 covers frauds of omission: liabilities left off the balance sheet and facts left out of the notes. A case usually involves one or more of an undisclosed guarantee, an unrecorded contingency, hidden payables, related-party arrangements or side agreements, and the questions ask you to identify the applicable rules, determine what should have been recorded and disclosed at each date, quantify the effect and explain how the omission was hidden. Graders expect specific guidance, such as ASC 460 for guarantees and ASC 450 for loss contingencies, applied to the facts at each reporting date rather than with hindsight. Expect to write several pages with a timeline and at least one table.
How this ACC 691 Module 8 concealed liabilities assignment example is built
The paper begins with a December 2024 guarantee of $22 million of a dealer group's bank line, signed by the CFO to help the dealer pay for equipment shipped in the loading scheme. Under ASC 460, the company should have recorded a liability for the guarantee's fair value, about $0.6 million, and disclosed the maximum exposure. By the end of 2025 the dealer had defaulted, the bank had drawn $15.2 million and a loss of about $8.5 million after collateral was probable, so ASC 450 required an accrual. The paper also traces $3.2 million of steel invoices held in a drawer at year end, then drafts the note that should have appeared and lists the confirmations and searches that would have found both.
Where the ACC 691 Module 8 rubric puts the points
This assignment's rubric generally scores identification of each omitted item, correct application of the guarantee and contingency standards, measurement at each date, a properly drafted disclosure, analysis of concealment, audit procedures and writing. High-scoring papers separate the stand-ready obligation recorded at inception from the contingent loss recorded when payment becomes probable, explain why disclosure was required even before any loss, and show how the omission affected ratios that lenders and investors watched. They also connect the guarantee to the revenue scheme it supported. Papers lose credit for treating the full guaranteed amount as a liability on day one, for skipping the disclosure and for vague audit steps.
ACC 691 Module 8 help: the mistakes that cost points
The most common mistake on guarantee questions is to record the full guaranteed amount as soon as the guarantee is signed. The guarantee standard requires a liability for the obligation to stand ready, usually measured at fair value, while the contingency standard governs the expected loss once it is probable and estimable; keep the two separate. Students also forget that disclosure is required even when the chance of payment is remote. For unrecorded payables, explain the search for unrecorded liabilities and why cutoff testing of receiving reports would have caught the invoices. Use a dated timeline, because the accounting answer changes as the dealer's condition worsens.
Get ACC 691 Module 8 written to your instructions
Send the ACC 691 Module 8 assignment and its facts. The paper will apply the guarantee and contingency rules date by date, size the omitted liability, write the missing note and name the procedures that would have caught it. Allow roughly two days; your first order carries no charge. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 691 Module 8 questions, answered
Where can I find a free ACC 691 Module 8 Concealed Liabilities sample?
This page presents the complete ACC 691 Module 8 assignment on an undisclosed dealer loan guarantee and hidden supplier invoices.
How is a financial guarantee accounted for under ASC 460?
The guarantor records a liability at inception for the fair value of its obligation to stand ready to perform, and discloses the nature of the guarantee and the maximum potential future payments.
When must a loss contingency be accrued?
Under ASC 450, once a loss looks likely to have occurred by the balance sheet date and a figure or range can be estimated with reasonable confidence; a loss that is only reasonably possible goes in the notes instead.
What is a search for unrecorded liabilities?
An audit procedure that examines payments made and invoices received after year end, along with receiving reports, to find obligations that existed at year end but were not recorded.
Why do companies hide guarantees?
Because recording or disclosing them would reveal risk, weaken debt ratios or covenants and, in fraud cases, expose the scheme the guarantee was used to support.