The auditor should be alert to the risk of material misstatements when cash flows from operations are negative and net income and revenues have increased.

Question

Quizplus · Accepted Answer

If cash flows from operations are negative despite an increase in net income and revenues, it could indicate an issue with cash management, such as delayed receipt of payments or over-reliance on credit. This increases the risk of material misstatement, and the auditor should be alert and thoroughly investigate the underlying reasons for the negative cash flows.

The Auditor Should Be Alert to the Risk of Material