Joshua Roberts / Reuters

“We have compiled the accompanying statement of financial condition of Donald J. Trump,” reads part of a two-page disclaimer from the accounting firm Mazars USA. “We have not audited or reviewed the accompanying financial statement and, accordingly, do not express an opinion or provide any assurance about whether the financial statement is in accordance with accounting principles generally accepted in the United States of America.”

This notice, routinely attached to financial statements that Trump used to secure loans and insurance before he became president, amounted to a dry warning that nothing the businessman said was necessarily true.

As detailed in The Washington Post, Trump’s statements of financial condition for the years 2002, 2004, 2011, 2012, and 2013 contained numerous exaggerations and falsehoods. Trump claimed that his golf course in California had 55 lots ready to sell; it had 31. He said his Virginia vineyard sat on 2,000 acres; it sat on about 1,200. He added 10 stories to Trump Tower in New York. He might as well have added an aside about “my wife … Morgan Fairchild.”

These overhyped statements probably don’t offer much to prosecutors as actual evidence—that is, something that could be used in a fraud investigation against Trump or his business. The disclaimers literally say not to trust anything in the documents. It’s hard to prove intent to deceive when the dishonesty is so out in the open.

These statements do, however, offer a window into the world of privately held companies such as the Trump Organization, which operate under very lax accounting rules.

Trump’s accountants at Mazars freely admitted in legal proceedings quoted in the Post story that all they did was write down numbers Trump supplied. “In the compilation process, it is not the role of the accountant to assess the values,” said one accountant in a deposition. “The value per se does not have to be logical.”

A public company must issue audited financial statements every quarter, so that investors and lenders can make informed choices about stock holdings. Outside of financial firms, however, private firms operate under no such mandate. They are not required to have a reputable accounting firm audit or double-check their financial statements using generally accepted accounting principles (GAAP). You’ll be shocked to know that some companies take advantage of this fact.

For example, Theranos didn’t produce audited financial statements for years even as it duped investors into funding its overhyped blood-test ambitions. Theranos didn’t have a full-time chief financial officer, or an accurate budgeting and cash-flow forecast, until the middle of 2017, 14 years after it was founded and well after raising $700 million from investors. Those investors bought in after receiving marketing materials with financial projections that had little reality behind them. Sound familiar?

Critics have thoroughly questioned Uber’s financials, which have rather suspiciously become less sunny as the company works up to an initial public offering, when it will have to provide audited financial statements. Even Warren Buffett, according to Francine McKenna at MarketWatch, “adjust[s] his bottom line with unconventional accounting, just like the Wall Street bankers and corporate CEOs he frequently criticizes for adjusting standard earnings to tell a better story.” (No one has credibly accused Buffett of taking advantage of investors.)

While elites scammed by Theranos might not inspire much sympathy, smaller investors might suffer under the status quo too, especially after the Jumpstart Our Business Startups Act, a 2012 law that reduced financial-reporting requirements for start-ups and enabled them to collect seed money through crowdfunding. Unsophisticated investors who get only limited and often unvetted financial information from private companies can easily find themselves on the wrong side of a scam.

The Securities and Exchange Commission does, of course, place some rules on private-company accounting. But the agency has been dogged by accusations of lax enforcement. The Public Company Accounting Oversight Board, created after a series of accounting scandals in the early 2000s, provides another layer of scrutiny to the auditing companies that look over corporate books. But as the title reveals, PCAOB doesn’t apply to privately held companies.

None of this is to suggest that public companies are always totally up-front and transparent. MarketWatch found that, of 174 large public companies that reported fourth-quarter earnings in 2018, only six completed their legally required audit before releasing their financials. By putting the cart before the horse, companies put pressure on auditors to stick with the reported numbers, even if they’re not quite right. The system also benefits corporate insiders, who might trade on information about audit findings before they become public.

Trump’s prepresidential game-playing, then, should be properly understood as on the spectrum of normal in a financial netherworld that the U.S. government does too little to regulate. Corporate boasting with less-than-rigorous numbers is an all-too-regular occurrence.

And thanks to Trump, this lack of rigor might become even more widespread. In August, Trump directed the Securities and Exchange Commission to study whether to let public companies release financial disclosures only twice a year, as opposed to the current quarterly format. This is great news for corporations, which can reduce compliance costs, and bad news for business partners and investors, who will have access to less data, and less reliable data. Trump is inviting all of corporate America to be even more like him than it already is.

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