Falsely increasing the perpetual inventory balance and failing to reconcile inventory records are ways a fraudster might conceal inventory shrinkage.

• A. True
• B. Not possible
• C. False
• D. Only in large inventories

Answer: (C)

The key idea is how fraudsters hide inventory losses. To conceal shrinkage, the typical move is to make the book records reflect less loss, often by reducing the recorded inventory or misclassifying the loss so the discrepancy isn’t visible. Falsely increasing the perpetual inventory balance would do the opposite: it overstates the on-hand assets and, if reconciled against a physical count, would reveal a larger gap rather than hide it.

Failing to reconcile inventory records is a weakness that can enable concealment because discrepancies may go undetected, but it isn’t itself a deliberate concealment technique; it’s a failed control that could allow concealment to occur. Since one part would not conceal shrinkage and the statement as a whole lumps them together as concealment methods, the statement is not correct.