What can result from improper assessment of depreciation?

The assessment of depreciation is a crucial aspect of accounting as it directly affects the value of assets reported on the balance sheet. When depreciation is assessed improperly, it can lead to overstated assets. This occurs because an asset's book value reflects its purchase price minus any accumulated depreciation. If depreciation is not calculated correctly—either by using an incorrect method, not taking into account the asset's useful life, or failing to update for impairment—the resulting book value of the asset may not accurately reflect its current worth.

For example, if a business underestimates its depreciation expense, it will result in a higher asset value being reported on the balance sheet than is realistic. This misrepresentation can mislead investors and stakeholders regarding the company's financial position, potentially resulting in poor decision-making based on inflated asset values.

In contrast, the other options relate to different aspects of financial reporting. Understated liabilities, misreporting of expenses, and incorrect revenue recognition typically stem from issues unrelated to the assessment of depreciation but rather from other financial reporting practices or errors. Being aware of these distinctions helps maintain the integrity of financial documents and ensures accurate representation of a company's financial health.