Question：X plc has a bad debt policy whereby aged receivables who are obviously not going to pay, are written off. The financial accountant does not enforce this policy.
This might be fraudulent insofar as it creates which of the following effects?
A. It results in the overstatement of profits and net assets
B. It removes funds from the business
C. It results in the understatement of profits and net assets
D. It results in the intentional overstatement of profits and net assets
The correct answer is:It results in the intentional overstatement of profits and net assets
Rationale:One form of fraud is the intentional misrepresentation of the financial position of the business. Bad debt policy may be unenforced deliberately, in order to overstate profits.