When overestimating an account directly results in giving parties who rely on the financial results, and the integrity of those results, to make decision, there is not doubt that deceit and lying are involved. Moreover, because of the reliance on those lies, which the person responsible for making the financial statements is aware of, there is a direct impact on the safety or risk that the other party is taking. To increase the risk someone takes, without letting that person determine whether they want to take that additional risk, is unethical. In fact, if this company were subject to Sarbanes Oxley, this "overestimating" may be illegal.
When financial statements are prepared quarterly, such "overestimates" can serve to severely misrepresent income and available amounts of cash and accounts receivable. Quarterly statements are required where risk is viewed as high and those statements are supposed to accurately state the condition of a business at a specific date. Where accounts do not accurately reflect the true condition of the business there is no way a lender can take proper precautions.
The question asked what was ethical, not what was legal. Moreover, even if GAAP principles, which may have been written prior to Sarbanes-Oxley end up creating a Sarbanes-Oxley violation due to misinformation, then that may still be illegal. GAAP indicates what is allowed, but it is not a judge of ethics, it is only a list of rules.
I agree that banks are equally to blame for the banking problems today with mortgages, especially because they faced the same problem in the 1970s and have only repeated the same mistakes 30 years later. The biggest problem they had was not so much that they tried to smooth their incomes, but that, instead, they wanted to make it look like they had huge incomes, and created new mortgages to sell them off so that their fee income and loan generation incomes were very high. Their other largest problem was that in order to make those fees and incomes appear so high, they lowered their credit standards and made loans to persons they knew could not afford those loans. That idea was great, as long as the economy was doing well and interest rates stayed low because when the payments on the loans got to high, the lender would just "refinance" (earning new income) and the payments, for a time, would again be lowered.
When the interest rates finally rose, this practice ended. The financial statements hid many, many hidden "secrets."
Is the above complete, it seems it was cut off?