A fraud scheme in which obsolete inventory is not written down to its fair market value will have what effect on the company's current ratio?

When obsolete inventory is not written down to its fair market value, the reported value of current assets on the balance sheet remains higher than it should be. This inflated valuation of inventory leads to a skewed perception of the company’s financial health.

The current ratio is calculated by dividing current assets by current liabilities. When the value of inventory is overstated, the total current assets increase. Since current liabilities remain unchanged, this results in a higher current ratio. An inflated current ratio may cause stakeholders, investors, and creditors to believe that the company is in a better liquidity position than it actually is. Thus, the decision not to write down obsolete inventory directly leads to an artificial inflation of the current ratio, conveying an inaccurate representation of financial stability.