Which of the following factors would most likely increase an auditor's concern about the risk of fraudulent financial reporting?
A)Inability to generate cash flows from operations while reporting substantial earnings growth.
B)Management's lack of interest in increasing the entity's earnings trend.
C)Large amounts of liquid assets that are easily converted into cash.
D)Inability to borrow necessary capital without granting debt covenants.

Question

Quizplus · Accepted Answer

Inability to generate cash flows from operations while reporting substantial earnings growth is a red flag for fraudulent financial reporting since it suggests that the reported earnings may be fictitious or the result of accounting manipulations rather than legitimate business operations. The other options do not necessarily indicate an increased risk of fraudulent financial reporting.

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