Western Governors University (WGU) ACCT6000 C254 Fraud and Forensic Accounting Practice Exam

The option indicating that a company’s success depends on high financial leverage is considered evidence that the company’s products might be illegitimate because it can signal risky financial practices that are often associated with fraud or unsustainable business models. When a company relies heavily on financial leverage, meaning it is using borrowed funds to finance its operations, it may be attempting to conceal underlying weaknesses in its product lines or sales performance. This reliance can create pressure to generate profits through means other than legitimate sales.

High financial leverage may lead to a volatile financial position where the company must achieve significant revenue to cover its debt obligations. If a company’s survival hinges on leveraging rather than on robust product sales or market demand, it raises red flags regarding the legitimacy of its products. It suggests potential vulnerabilities that could lead to deceptive practices, especially if the company is misrepresenting its capabilities to siphon funds or maintain investor interest.

In contrast, the other options present situations that do not necessarily imply illegitimacy of products. High cash balances might indicate financial health, discouraging investors does not directly correlate with product legitimacy, and success being independent of strong sales skills could indicate different business strategies that don't inherently suggest fraudulent activities.