CFE – Financial Transactions and Fraud Schemes — Question 6

Which of the following actions could management take to make a company appear more profitable than it actually is?

Answer options

• A. Expensing costs instead of capitalizing them
• B. Recording warranty liabilities
• C. Understanding liabilities
• D. Understating assets

Correct answer: C

Explanation

The correct answer, C, refers to the management's comprehension of liabilities, which can influence financial reporting. The other options, such as expensing costs or understating assets, are direct actions that can manipulate reported profitability but do not address the broader strategic understanding that management must possess.