Which of the Following Situations Would Raise an Auditor's Concern

question 30

Multiple Choice

Which of the following situations would raise an auditor's concern about the risk of fraudulent financial reporting?

• A)Inability to generate positive cash flows from operations,while reporting large increases in earnings.
• B)Management's lack of interest in increasing the dividend paid on common stock.
• C)Large amounts of liquid assets that are easily convertible into cash.
• D)Inability to borrow necessary capital without obtaining waivers on debt covenants.

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Definitions:

Dividend Paid

The portion of earnings distributed to shareholders as a reward for their investment.

Dividend Growth Model

A method used to estimate the value of a stock based on the prediction of future dividend payments and growth rates.

Stock Price

The cost of purchasing a share of a company as quoted on the stock market.

Constant Growth Model

An approach to valuing a company or its stock by assuming a constant rate of growth in dividends paid to shareholders, similar to the Dividend Growth Model.