Why is it that horizontal analysis is performed only on the income statement and balance sheet, but not on the statement of cash flows?
A) When searching for fraud, examining the statement of cash flows is not as effective as comparing actual changes in account balances.
B) Horizontal analysis converts balance sheet and income statement to change statements whereas the statement of cash flow is already a change statement.
C) The statement of cash flows does not provide any valuable fraud-related information.
D) Horizontal analysis of balance sheets and income statements is relatively easy, while applying the same procedure to the statement of cash flows is complicated.

Question

Quizplus · Accepted Answer

Horizontal analysis involves comparing the change in financial statement amounts over time, typically by converting the statements to percentage change or dollar change values. The balance sheet and income statement are analyzed in this way because they provide information on different aspects of a company's financial performance: assets, liabilities, equity, revenues, and expenses. The statement of cash flows, on the other hand, is already a change statement that reports how cash has been used and generated during a period. Therefore, it is not necessary to perform horizontal analysis on the statement of cash flows.

Why Is It That Horizontal Analysis Is Performed Only on the Income