The auditor of James Corporation should be alert to the risk of material misstatements when James Corporation's cash flows from operations are negative and net income (rather than loss)is reported.

Question

Quizplus · Accepted Answer

Negative cash flows from operations may indicate that the company is struggling to generate cash from its core business activities. If the company reports net income despite this, it could suggest that the company is using accounting techniques to manipulate its financial statements. The auditor should carefully examine the financial statements and assess the reliability of the reported net income.

The Auditor of James Corporation Should Be Alert to the Risk