Ace the Certified Fraud Examiner Challenge 2025 – Unmask Fraud Like a Pro!

Embezzlement typically involves the fraudulent appropriation of funds or property entrusted to an individual's care, which often results in a decrease in current assets. The current ratio is calculated by dividing current assets by current liabilities. When embezzlement occurs, the embezzled amount reduces current assets, leading to a lower numerator in the current ratio calculation. If current liabilities remain unchanged, this reduction in current assets will cause the current ratio to decrease, indicating potential liquidity issues for the entity involved.

Thus, the impact of embezzlement, which diminishes the resources available to cover short-term obligations, underscores the importance of consistently monitoring financial activity and implementing robust internal controls to prevent such fraudulent behavior.