In investigating whether financial statements have been manipulated to appear more profitable, a fraud examiner should look for liabilities that have been:

• A. A True
• B. B False
• C. C Not indicated
• D. D Both true and false

Answer: (B)

When fraud examiners hunt for manipulation that makes profits look better, they focus on obligations the company has that may be hidden from the financial statements. If liabilities are not indicated on the books, that means obligations exist but aren’t disclosed. This omission can falsely lower expenses or hide future outlays, making net income appear higher than it truly is. So the strongest signal is liabilities that have not been indicated on the statements—that is, unrecorded or omitted liabilities. The idea isn’t about something being true or false in isolation, but about whether the obligation is disclosed, which is what would reveal the manipulation.