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:

Return on Investment

A ratio that measures the gain or loss generated on an investment relative to the amount of money invested.

Pegged Exchange Rate

A fixed exchange rate system in which a currency's value is fixed against the value of another currency or a basket of other currencies.

Chinese Yuan

The official currency of the People's Republic of China, used as a medium of exchange in mainland China.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.