Large frauds can often be detected by performing financial statement analysis. Although such analysis can raise areas
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Large frauds can often be detected by performing financial statement analysis. Although such analysis can raise areas of concern, not all red flags are the result of fraudulent activities. Reasonable explanations often exist for errors in financial statements.
The statement of cash flows is one financial statement that is analyzed in order to identify possible fraud. This statement for Kelly Enterprises, Inc., for a three-year period is shown below.
1. Identify possible red flags.
2. Indicate if reasonable explanations exist for the areas of concern.
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