Why Is It That Horizontal Analysis Is Performed Only on the Income

question 16

Multiple Choice

Why is it that horizontal analysis is performed only on the income statement and balance sheet,but not on the statement of cash flows?

• A)When searching for fraud, examining the statement of cash flows is not as effective as comparing actual changes in account balances.
• B)Horizontal analysis converts balance sheet and income statement to change statements whereas the statement of cash flow is already a change statement.
• C)The statement cash flow of cash flows does not provide any valuable fraud-related information.
• D)Horizontal analysis of balance sheets and income statements is relatively easy, while applying the same procedure to the statement cash flows is complicated.

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Definitions:

Transaction

The act of conducting business between two or more parties, often involving the exchange of goods, services, money, or information.

Moral Hazard

A situation in which one party is more likely to take risks because they know that another party bears the consequences or costs of those risks.

Insured Individuals

People covered by insurance policies, protecting them against financial losses from specified risks.

Less Care

A situation or behavior characterized by reduced attention or diligence towards something.