Which of the Following Would Heighten an Auditor's Concern About

question 36

Multiple Choice

Which of the following would heighten 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:

Straight-Line Depreciation

A plan for breaking down the cost of a concrete asset across its useful life in equivalent annual installments.

Initial Investments

refers to the upfront capital put into a project or business, marking the beginning of financial commitment.

After-Tax Discount Rate

The discount rate that reflects the net cost of investment after accounting for the tax implications.

Income Tax Rate

The level at which a corporation or person's earnings are taxed.