Which of the following can make a product line appear less profitable than it actually is, according to concepts related to fraud and the fraud triangle?

• A. Overstating expenses allocated to the product line
• B. Understating sales revenue for the product line
• C. Recording fictitious sales for the product line
• D. Omitting direct costs from the product line's financial statements

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the fraud triangle, which consists of three elements: opportunity, pressure, and rationalization. These elements help explain why individuals commit fraud.
2. Step 2: Analyze the impact of overstating expenses allocated to the product line. This action increases the reported costs, reducing the apparent profitability of the product line.
3. Step 3: Examine the effect of understating sales revenue for the product line. This action decreases the reported income, making the product line appear less profitable than it actually is.
4. Step 4: Consider the implications of recording fictitious sales for the product line. While this inflates revenue, it does not make the product line appear less profitable; instead, it falsely enhances profitability.
5. Step 5: Evaluate the omission of direct costs from the product line's financial statements. This action reduces reported expenses, which would make the product line appear more profitable, not less profitable.