Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

Question

Quizplus · Accepted Answer

Choice "A" is correct. An auditor's concern about the risk of fraudulent financial reporting would be heightened if the entity were unable to generate cash flows from operations, but still reported substantial earnings growth, since these two occurrences are somewhat inconsistent. Choice "B" is incorrect. Management's excessive interest in increasing the stock price and earnings trend is a fraud risk factor; lack of such interest would not cause concern. Choice "C" is incorrect. Large amounts of liquid assets that are easily convertible into cash would heighten an auditor's concern about misappropriation of assets, not about fraudulent financial reporting. Choice "D" is incorrect. The need to grant debt covenants when borrowing capital is an ordinary occurrence that would not heighten the auditor's concern.

Which of the Following Factors Most Likely Would Heighten an Auditor's