While conducting an audit, an internal auditor notices an unusual increase in sales among a small number of units within the organization. The units also experienced persistent negative cash flows despite reported earnings and earnings growth. Which type of fraud do the auditor's findings most likely indicate?
A) Employee collusion with customer organizations.
B) Improper asset valuation.
C) Inventory theft.
D) Fictitious revenues.

Question

Quizplus · Accepted Answer

The unusual increase in sales and persistent negative cash flows despite reported earnings suggest that the organization might be recording fictitious revenues to inflate earnings, which do not translate into actual cash flow.

While Conducting an Audit, an Internal Auditor Notices an Unusual