Under-reporting of infected cases is crucial for many diseases because of the bias it can introduce when making inference for the model parameters. The objective of this paper is to study the effect of under-reporting in epidemics by considering the stochastic Markovian SIR epidemic in which various reporting processes are incorporated. In particular, we first investigate the effect on the estimation process of ignoring under-reporting when it is present in an epidemic outbreak. We show that such an approach leads to under-estimation of the infection rate and the reproduction number. Secondly, by allowing for the fact that under-reporting is occurring, we develop suitable models for estimation of the epidemic parameters and explore how well the reporting rate and other model parameters can be estimated. We consider the case of a constant reporting probability and also more realistic assumptions which involve the reporting probability depending on time or the source of infection for each infected individual. Due to the incomplete nature of the data and reporting process, the Bayesian approach provides a natural modelling framework and we perform inference using data augmentation and reversible jump Markov chain Monte Carlo techniques.