Which of the following factors would most likely heighten 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 because it suggests that earnings are being manipulated through accounting gimmicks rather than through genuine business operations.

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