Secret Reserves or Special Credits? A Reappraisal of the Reserve and Provision Accounting Policies of the Roy Mail Steam Packet Company, 1915–27

Abstract

The Royal Mail case (Rex v Kylsant and another) in 1931 is generally seen as central to the appraisal of secret reserve accounting by companies in the first part of this century. Although the case shows that Royal Mail's accounts disguised the decline in their trading profits, it does not convincingly establish secret reserves as the major cause of this deception. In this paper, information contained in the company's internal records provides the basis for an alternative view, that secret reserves were established during the war years, through accelerated depreciation charges, but were not used to enhance profits after trading conditions became more difficult. Instead it is argued that the reported profits for 1922-27 were largely dependent upon a range of (undisclosed) non-trading incomes of the period.

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