The correct answer is C. Management can make profits appear stronger by concealing liabilities and expenses, including warranty costs. Warranty obligations arise when a company is likely to incur future costs related to products already sold. If management fails to record or disclose those expected costs, expenses and liabilities are understated, while net income and financial position appear better than reality. Overstating expenses and understating revenue would reduce, not strengthen, reported profits. Fabricating product-return liabilities would also reduce income because it creates an additional liability or expense. The ACFE financial statement fraud materials identify concealed liabilities and expenses, including unrecorded or undisclosed warranty costs and product-return liabilities, as schemes used to overstate financial performance.

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