forensic accounting second half
signals of underestimation of allowance for loan losses:
- allowance for loan losses not growing in proportion to the increase in riskier loans -allowance for loan losses not growing in proportion to the increase in troubled loans -allowance for loan losses not increasing significantly as house prices fall
Signals of using SPE's to understate debt and overstate earnings
- assets and liabilities of unconsolidated affiliates or SPEs increasing significantly -vague references to unconsolidated affiliates in notes to the FS -unconsolidated affiliates used to generate significant profits -related party transactions note to the financial statements referring to transactions with unconsolidated SPE's -securitization of current assets -retaining partial ownership in assets sold -a company guaranteeing the debt of its SPE's
what are characteristics of a successful interviewer?
-amiable and strong interpersonal skills -doesn't interrupt with unnecessary questions -displays interest in the subject and what is being said ----- most results come from volunteered info -fairness -informal and lowkey -no bias ---perceived bias impacts cooperation ---Make every effort to demonstrate impartiality -professionalism -poses no threat
What is the fraud theory approach?
-analyze available data -form a hypothesis -testing the hypothesis -refining and amending the hypothesis
Transaction level procedures
-control over vendors -related parties
what are legal considerations when conducting an interview?
-do you have the legal authority to conduct interviews? ----most often not needed, consult local jurisdiction, if you hold yourself out as an investigator, you may need a license -false imprisonment --locking room, blocking door, refusing to allow the interviewee to leave use of deception in interviews --can be deployed legally--consult legal counsel --can use nearly any means, besides force or threats cannot employ deception that could cause an innocent person to confess Recording interviews -consider employees rights-local law -consult with legal counsel -if legal, consider recording covertly -do not lie if asked about recording
Formal documentation of controls
-includes techniques developed and implemented to prevent fraud -there should be ongoing assessment of fraud prevention -continuous monitoring of fraud preventative controls
What are interviewer mechanics?
-note taking --take accurate but not verbatim --don't slow the interview process down for note taking -maintain eye contact --personalize communication --creates comfort --be aware of cultural differences -opinions --avoid making notes regarding your opinions -do not convey emotions -document results -don't interview more than one person at a time -setting --comfortable --controlled by interviewer but non threatening
What are the two approaches to approach perspectives to address a fraud situation?
-seeking to prove a fraud has occurred -seeking to prove a fraud has not occurred
What are characteristics of a successful interview?
-sufficient length and depth to uncover relevant facts -most interviews get too little, rather than too much info, be a listener not the talker -includes all pertinent, excludes irrelevant, information -conducted as closely as possible to the event in question -objective-is fair and impartial
LivePlayCompany has incurred $300,000 in scenery production costs for the play Cat Trap. It estimates that Cat Trap will run for three years, beginning January 1, 2012. However, to the company's surprise, it becomes clear in October 2012 that Cat Trap will run for only one year and close on December 31, 2012. By the end of Q3 of 2012, LivePlayhad amortized an accumulated amount of $75,000 of the scenery production costs of $300,000. LivePlayhas a second play running at another theater. It estimates that the second play, Dogs, will run until December 31, 2014. On October 1, 2012, in its books and records, LivePlay transfers the scenery assets of $225,000 from the Cat Trap to the Dogs production in order to avoid fully writing off the asset in its 2012 financial statements. By how much would LivePlay understate its amortization expense (or its impairment loss) in Q4 of 2012 by falsely transferring the scenery assets from CatTrap to Dogs?
200000
During the course of preparing annual financial statements, a registrant is evaluating the materiality of three misstatements. The first was an improper expense accrual (e.g. , overstated liability) in the amount of $1000, which was recorded in the prior year and subsequently reversed through income in the current year. The second is an overstatement of Accounts Receivable of $500 due to in appropriate revenue recognition. The third is an over accrual of vacation liability of $700 which occurred in the current year. What is the amount of error on a rollover basis?
2200
LivePlayCompany has incurred $300,000 in scenery production costs for the play Cat Trap. It estimates that Cat Trap will run for three years, beginning January 1, 2012. However, to the company's surprise, it becomes clear in October 2012 that Cat Trap will run for only one year and close on December 31, 2012. By the end of Q3 of 2012, LivePlayhad amortized an accumulated amount of $75,000 of the scenery production costs of $300,000. How much amortization expense or impairment costs should LivePlay Company recognize in respect of the scenery production costs in its income statement in Q4 of 2012?
225000
During the course of preparing annual financial statements, a registrant is evaluating the materiality of three misstatements. The first was an improper expense accrual (e.g. , overstated liability) in the amount of $1000, which was recorded in the prior year and subsequently reversed through income in the current year. The second is an overstatement of Accounts Receivable of $500 due to in appropriate revenue recognition. The third is an overaccrual of vacation liability of $200 which occurred in the current year. What is the amount of error on an iron curtain basis?
700
Saturn Company's income statement for the current year shows $110,000 as its net income. Its depreciation expense is $5,000. The only changes to its working capital balances over the last year were that accounts receivable increased by $40,000, inventory decreased by $10,000, and accounts payable increased by $5,000. What is Saturn's cash flow from operations (CFFO) for the year?
90000
which of the following manipulations by the lessor would have the effect of overstating revenues for sales type leases? a. overstating the estimated residual values of its leased assets b selling or factoring legitimate sales type leases c. using a higher discount rate when discounting future lease payments d. none of the above
A.
if the value of a company's beginning inventory is overstated but its ending inventory is correctly stated, then: A. Gross margin will be understated B. gross margin will be overstated C. its cogs expense will be understated D. None of the above
A. Overstatement-- was fixed. increasing amount in cogs.
signals of misusing roundtrip transactions
AR increasing as a percentage of sales CFFO lagging behind
how is improper use and misleading disclosure of related party transactions a fraud scheme?
Adelphia used this fraud scheme to hide debt, boost earnings and loot the company through off balance sheet partnerships Failed to inform investors how company money was being used.
According to Enron's Bankruptcy Examiner, the effect of Enron's "prepay transactions" on its financial statements was: Understatement of its debt. Overstatement of its cash flow from operating activities Understatement of its cash flow from financing activities. All of the above
All of the above
The SEC Complaint alleges that the description of Countrywide's loans in its 10-K filings was misleading in which of the following ways? Its description of prime nonconforming and nonprime loans was insufficient. It did not disclose the extent of the exceptions to its underwriting guidelines. It did not disclose that its prime nonconforming category included pay-option ARM loans, including such loans with reduced documentation. All of the above.
All of the above
A credit-default swap: Is a form of derivative financial instrument. Is a financial instrument that gives the holder of the instrument the right to receive payment from the writer of the instrument if investments in specified loans suffer defaults or losses. Could give the holder of the instrument the right to payment on the default of a specified loan even if the holder of the instrument did not have a direct investment in the loan. All of the above.
All of the above.
In the text, Signal #1 of improper use of related-party transactions states that any disclosures in the notes to the financial statements that the company is doing transactions with any major shareholder, officer, or director of the company should alert the reader to the fact that these transactions could be used to: Hide the company's debt. Overstate the company's earnings. Loot the company's assets. All of the above.
All of the above.
It is likely that a price bubble exists when: The price of an asset increases sharply. The earnings related to an asset increase sharply An asset's price and its earnings increase sharply. An asset's price increases faster than its earnings.
An asset's price increases faster than its earnings.
What's the Peace method?
An interview method made up of five steps: planning and preparation for interview -manage timing -have clearly defined objectives and strategy -consider location Engage and explain -establish relationship and report at the beginning - explain the purpose -rights -ground rules -relevant procedures account, clarification, compare, and contrast (formally challenge) -obtain full account of events -clarify of compare and contrast interviewees account --identify and investigate inconsistencies closure -confirm what the interviewee has said -discuss next steps evaluation -what info was obtained -what action do i need to take? -further inquiries? how did i perform and what can i do better?
If you have a loan collateralized by real estate, what should happen to your allowance for loan losses if real estate drops 50%? Answer Your allowance should go up Your allowance should go down The allowance is not impacted by the change Trick question- we don't need an allowance for loan losses on loans collateralized by real estate
Answer Your allowance should go up
What are Human Resource procedures?
Background investigations -tailor to the risks anti fraud training -no exemptions evaluating performance and compensation programs exit interviews.
The Foreign Corrupt Practices Act is enforced by: The Department of Justice. The Securities and Exchange Commission. The Financial Accounting Standards Board. Both (a) and (b
Both (a) and (b
which of the following would not be a signal that a company may have understated its reserve for doubtful debts? a. ar increases as a percentage of sales b. the reserve for bad debts decreases as a percentage of ar c. the net amount for ar decreases as a percentage of total current assets d. all of the above
C.
which of these fraud risks would best be addressed by implementing preventative control activities? a) know history of violations of securities law or other law or regulation, or claims against the entity, its senior management, or those charger with governance alleging fraud or violations of law or regulation b) the practice by management of committing to analysts, creditors, and other third parties to achieve aggressive or unrealistic forecasts c) assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgements or uncertainties that are difficult to corroborate d) significant declines in customer demand and increasing business failures in either the industry or overall economy.
C.
Which of the following attributes of loans is not an indication of an increased risk of repayment default? Conforming to GSE underwriting standards. Having a loan-to-value ratio of 95 percent or higher. Having reduced documentation or no documentation. Being a stated income loan.
Conforming to GSE underwriting standards.
Why is an increase in accumulated negative amortization from one year to the next a signal that a decrease in earnings may follow? This shows that there may have been an increase in a high-risk portion of a lender's loan portfolio. A loan loss may follow because once the unpaid interest on a pay-option ARM loan reaches a certain percentage of principal borrowed, the loan repayment resets to a higher amount to cover the interest payments, and borrowers may be unable to pay the subsequent higher monthly payment after the payment resets and they may default. Accumulated negative amortization represents interest that will be earned in future periods but has been paid in the current period. Both (a) and (b) are correct.
Correct! Both (a) and (b) are correct.
In which of the following ways did Enron not use off-balance-sheet entities to overstate its earnings? Related-party sales. Creation of cookie-jar reserves . Recognition of profits on its own stock. All of the above
Creation of cookie-jar reserves
Which of the following is not true regarding disclosure by Enron in its financial statements? Enron disclosed that it guaranteed the performance of certain of its unconsolidated affiliates in connection with letters of credit Enron disclosed that a significant portion of its CFFO came from securitizations of its current assets. Enron disclosed all the names of all of its unconsolidated affiliates as well as the total assets and total debt of each one Enron disclosed that it engaged in related party transactions with unconsolidated, specially constructed entities.
Enron disclosed all the names of all of its unconsolidated affiliates as well as the total assets and total debt of each one
Which of the following was not a component to the calculation of the Allowance for Loan Loss reserve? Loss Given Default Unpaid Principal Balance Probability of Default Expected Prepayments
Expected Prepayments
According to GAAP, a company is allowed to recognize a profit in its financial statements in respect of the increase in the price of its own shares. True False
False
An unmitigated deficient control that results in a control objective not being met related to a significant account or disclosure generally results in a more than remote likelihood of a more than inconsequential misstatement of annual or interim financial statements and, therefore, is at least a material weakness. True False
False
Bill and hold sales that are reported in an income statement in the period before the goods are shipped to a customer are always a contravention of GAAP. Question options: True False
False
Compensating controls that operate at a level of precision that could result in the prevention or detection of a material misstatement of annual or interim financial statements definitively supports a conclusion that the deficiency is not a material weakness. True False
False
Countrywide was an example of fraudulent earnings management by understating the value of real estate. True False
False
Enron's note to its financial statements on related-party transactions for the fiscal year ended 2000 fully disclosed the extent to which it was using SPEs to generate its reported income. True False
False
Information obtained in exit interviews should be considered with heavy skepticism as employees who leave the Company are prone to making false accusations when they leave. True False
False
It is fully legitimate for a Company to record the present value of the future period's payments for servicing equipment in the period in which the leases were concluded. Question options: • True • False
False
Non-GAAP financial measures are not allowed by the SEC. True False
False
Technical compliance with GAAP in the financial statements will always protect an issuer of financial statements from enforcement actions by the SEC. True False
False
Compensating controls that operate at a level of precision that could result in the prevention or detection of a more than inconsequential misstatement of annual or interim financial statements prevent deficiencies in similar from being significant. Question options: • True • False
False would versus could
Which of the following was not a false revenue stream that was generated by Enron's use of off-balance-sheet entities Chewco and Jedi, as identified by the Powers Report? A guarantee fee. Management fees. Gain on revaluation of an asset. Revenue recognized on Enron's own stock.
Gain on revaluation of an asset.
Edison Schools is presented in the chapter as an example of: Failure to disclose related-party transactions. Inadequate disclosures in its Management Discussion and Analysis (MD&A). Improper accounting for payments in violation of the Foreign Corrupt Practices Act. Inappropriate accounting for roundtrip transactions.
Inadequate disclosures in its Management Discussion and Analysis (MD&A).
Countrywide is an example of what kind of fraud?
Inadequate loan disclosures in SEC filings Underestimation of allowance for moan losses
Adelphia's overstatement of its number of cable subscribers in its 10-K reports: Is an example of a revenue recognition practice that contravenes GAAP. Caused it to overstate its earnings. Is an example of the failure to properly disclose related-party transactions. Is an example of the improper use of non-GAAP measures
Is an example of the improper use of non-GAAP measures
Which of the following was not a signal in Enron's financial statements of its financial problems? (a) (b) (c) . (d) Receivables increased as a percentage of sales. Its debt-to-equity ratio decreased over time. It used death-spiral financing in which it guaranteed that if Enron's stock fell below certain specific amounts, it would issue more shares or pay cash to SPEs All of the above were signals.
Its debt-to-equity ratio decreased over time.
during the course of preparing annual financial statements, a registrant is evaluating the materiality of two misstatements. The first was an improper expense accrual in the amount of 1000, which was recorded in the prior year and subsequently reversed through income in the current year. The second is an overstatement of accounts receivable of 600 due to inappropriate revenue recognition. what is the magnitude of the error on a rollover basis? a 400 b 1000 c 0 d 1600
Rollover means the income statement d
Assume litigation will follow? true false
TRUE
securitization
The process that Fannie Mae allowed through pooling together large quantities of loans and selling interests in those loans to investors in the form of securities.
How is improper use of non gaap financial measures a fraud scheme?
They misused non financial measures such as how many customers were subscribing and what growth was like to mislead how the company was doing
Aggregation of control activities deficiencies by significant account balance and disclosure is necessary since the existence of multiple control deficiencies related to a specific account balance or disclosure increases the likelihood of misstatement. True False
True
Enron used off-balance-sheet entities to overstate earnings via related party sales and loans disguised as sales. True False
True
In the Edison matter, the primary issue rasied by the SEC was whether Edison could report the gross amount of the fee per student as revenues in its income statement and then separately deduct the district-paid expenses or whether it had to report the net payment from the district (i.e., fees minus expenses) as revenues. True False
True
Information in Enron's note to its financial statements on related-party transactions for the fiscal year ended 2000 was a signal that Enron was generating a significant portion of its income from related-party transactions with SPEs. True False
True
One of the issues facing Krispy Kreme was that same-store revenue (i.e., revenue of existing franchises) was growing much more slowly than parent-company revenue, which was boosted by the opening of new stores. True False
True
One of the signals of the improper use and disclosure of related-party transactions is references in the notes to the financial statements that indicate the intermingling of a company's assets or liabilities with those of its major shareholders, officers, or directors. True False
True
The Management Discussion and Analysis (MD&A) section in the SEC filings of publicly traded companies discusses the issuer's financial condition and results of operations to enhance investor understanding of financial statements. True False
True
When a company guarantees the debt of its unconsolidated affiliates, it is a signal that these entities may be used to raise debt without recording it on the sponsoring company's balance sheet. True False
True
When conducting a fraud investigation, it is best practice to assume that there will be litigation that follows. True False
True
nron used contrived put options from an off-balance-sheet entity to justify the revaluation of an investment in a company's shares that it was not allowed to sell until a later date. True False
True
Preparation of an interview:
Understand the objective of the interview choose the right location -ccomfortable and safe for the interviewee but not familiar outline versus list of questions -outline better because you aren't locked in evidentiary documents
Fraud detection procedures:
Whistleblower hotlines -strongest form of detection. Share information with board members, ceo, etc to gain any information -preserve integrity Process controls -reconciliations -independent reviews -physical inspections -audits Technology tools enhance the ability of mgmt at all levels to detect fraud -identify hidden relationships among people, orgs, and events -identify suspicious transactions -monitor fraud threats and vulnerabilities -consider and analyze thousands or millions of transactions Formal Documetnation Designate and document individuals responsible -who designed the process itself -who will investigate tips -who implemented the controls and how Ongoing assessment of fraud prevention continuous monitoring of fraud detection using measurable criteria
Which one of the following statements regarding pay-option ARM loans is not correct? Some borrowers of pay-option ARM loans choose to make monthly payments that are not large enough to cover the interest that accrues on the loans each month. If a borrower chooses to make monthly payments that do not cover the monthly interest on the loan, the difference between the interest that accrues and the interest that is paid is accrued and added to the loan amount as an asset on the balance sheet. With pay-option loans, the difference between the interest that accrues each month and the lower amount that borrowers choose to pay is known and reported in financial statements as the "loan delinquency amount." "Accumulated negative amortization" refers to the accumulated shortfall between the interest that has accrued on a loan and the amount of interest that a borrower has paid.
With pay-option loans, the difference between the interest that accrues each month and the lower amount that borrowers choose to pay is known and reported in financial statements as the "loan delinquency amount."
tranching:
a process of carving up or separating a pool of mortgages into different classes, or tranches, of securities which absorb different default losses.
If the value of a company's beginning inventory is overstated but its ending inventory is correctly stated, then: Question options: a) Its gross margin will be understated. b) Its gross margin will be overstated. c) Its cost of goods sold expense will be understated. d) None of the above.
a) Its gross margin will be understated.
Which of the following manipulations by the lessor would have the effect of overstating revenues for sales-type leases? Question options: a) Overstating the estimated residual values of its leased assets. b) Selling or factoring legitimate sales-type leases. c) Using a higher discount rate when discounting future lease payments. d) None of the above.
a) Overstating the estimated residual values of its leased assets.
Enron is an example of
abuse of mark to market accounting improper use of SPE's Understating debt overstating earnings misclassifying prepays as sales.
Important detection methods include
an anonymous reporting mechanism
a bubble
an inflated price for an asset that is not justified on the grounds of its actual value. Example: a shared price that is not supported by its earnings.
An overstatement of goodwill on the acquisition of a company can be accomplished by: Question options: a) A bargain purchase price of the acquired company that is below its net asset value. b) An understatement of the value of the assets of the acquired company c) An understatement of reserves required for the restructuring of an acquired company. d) An understatement of the liabilities of the acquired company.
b) An understatement of the value of the assets of the acquired company
If a company misclassifies an expense as an asset, this will likely cause which of the following signals? a) Accounts receivable increase as a percentage of sales. b) Asset turnover ratio decreases. c) Asset turnover ratio increases. d) Fixed expenses increase as percentage of sales.
b) Asset turnover ratio decreases.
When a Company factors or sells its accounts receivable to avoid reclassifying them as operating leases instead of sales-type leases, this has the effect of: Question options: a) Decreasing the amount of revenue it reported. b) Increasing the amount of revenue it reported. c) Decreasing its reported CFFO. d) None of the above.
b) Increasing the amount of revenue it reported.
Which of these fraud risks would best be addressed by implementing preventative control activities? a) Known history of violations of securities law or other law or regulation, or claims against the entity, its senior management, or those charged with governance alleging fraud or violations of law or regulation b) The practice by management of committing to analysts, creditors, and other third parties to achieve aggressive or unrealistic forecasts c) Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate d) Significant declines in customer demand and increasing business failures in either the industry or overall economy
c) Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate
Which of the following would not be a signal that a company may have understated its reserve for doubtful debts? Question options: a) Accounts receivable increases as a percentage of sales. b) The reserve for bad debts decreases as a percentage of accounts receivable c) The net amount for accounts receivable decreases as a percentage of total current assets. d) ALL OF THE ABOVE
c) The net amount for accounts receivable decreases as a percentage of total current assets.
On December 20, Zee Company, an office supply company, placed an order for goods from Papyrus Company, a paper manufacturer. Zee wanted the goods to be shipped only in March the next year (FOB destination), and a clause to that effect was included in the sales contract. Zee placed the order early to ensure that it would receive the goods in March in the event that Papyrus Company received orders for more inventory than it could fulfill the next quarter. Papyrus Company should not have recognized the sale to Zee Company as a bill and hold sale in its December 31 financial statements because: a) The buyer must have a substantial business purpose for ordering the goods on a bill and hold basis. b) Bill and hold sales recognize the revenue from a sale, but fail to recognize the cost of goods sold. c) The risks of ownership must have passed to the buyer. d) Zee Company had not paid for the goods by December 31.
c) The risks of ownership must have passed to the buyer.
Which of the following costs can be capitalized without contravening GAAP? Question options: a) Customer acquisition costs. b) Software development costs. c) Interest costs related to amounts invested in assets under construction. d) All of the above.
d) All of the above.
If a company overstates the reserves of a company that it acquires and increases goodwill by a corresponding amount in the period of the acquisition in order to release the reserves in a later period, which of the following will occur? a) No decrease in operating income, but a decrease in net income in the group's consolidated income statement in the period of the acquisition. b) A decrease in the amount of the group's operating income in its consolidated income statement in the period of the acquisition. c) An increase net income in the period of the acquisition. d) No decrease in operating income and no decrease net income in the period of the acquisition.
d. The only changes have been made to the balance sheet
what was fanny mae
established in order to buy up mortgages that were guaranteed by the federal housing administration
Adelphia account is an example of
failure to disclose related party transactions and improper use of related party transactions improper use of non gaap financial measures
bill and hold sales that are reported in an income statement in the period before the goods are shipped to a customer are always a contravention of GAAP true false
false
it is fully legitimate for a company to record the present value of the future period's payments for servicing equipment in the period in which the leases were concluded true false
false
pooling a number of loans and selling interests in those loans to investors as securities is known as tranching true false
false
Background investigations are a strong fraud detective control true false
false. its a preventative control
do we start close to the target or further away when conducting interviews?
further away so we can gather information as we get close to the actual target.
bellsouth is an example of
improper accounting for foreign payments in violation of the foreign corrupt practices act.
during the course of preparing annual financial statements, a registrant is evaluating the materiality of two misstatements. The first was an improper expense accrual in the amount of 800, which was recorded in the prior year and subsequently reversed through income in the current year. The second is an overstatement of AR of 400 due to inappropriate revenue recognition. The third is an over accrual of vacation liability of 300 which occurred in the current year. What is the amount of error on an roll over basis?
improper expense accural - 800 Overstatement of 400 due ot imp reve rec - 400 over accural of expense - (300) error of 900
Edison school is an example of
inadequate disclosures in its MD&A
What could the ongoing communication efforts of employee awareness provide?
information on the potential disciplinary, criminal, and civil actions that the organization could take against the individual.
kripsy kreme is an example of
innapropriate accounting for round trip transactions
What does detection involve?
involves activities and programs designed to identify fraud or misconduct that is occurring or has occurred -not intended to prevent but catch fraud -they work in the background
during the course of preparing annual financial statements, a registrant is evaluating the materiality of two misstatements. The first was an improper expense accrual in the amount of 800, which was recorded in the prior year and subsequently reversed through income in the current year. The second is an overstatement of AR of 400 due to inappropriate revenue recognition. The third is an over accrual of vacation liability of 300 which occurred in the current year. What is the amount of error on an iron curtain basis?
iron current deals with balance sheet overstatement of ar - 400 overstatement of liability - 300 error of 100
How does employee awareness help in fraud prevention?
key because they will be aware of fraud risk management program, including the types of fraud that can occur.
what's the biggest control weakness contributing to fraud? the smallest?
lack of internal controls (33%) lack of reporting mechanism (.7%)
subprime loans
loans with a higher risk of default
a signal of improper use and misleading disclosure of related party transactions:
notes in the FS indicating that the company is involved in business transactions with related parties Mixing a company's assets or liabs with those of other parties
Prevention encompasses:
policies, procedures, training, and communication
signals of krispy kremes operational problem of opening too many franchises
rise in franchise acquisition rights growth of existing store sales less than growth in company sales
What kind of simulator was used in class to demonstrate the magnitude of the huge real estate bubble that emerged in 2007? roller coaster Airplane Sims Mario Kart
roller coaster
What should this awareness enforce?
the notion that all of the techniques in the program established are real and will be enforced
What was freddie mac
to keep money flowing to mortgage lenders in support of homeownership and rental housing
round trip transactions
transactions that involve simultaneous pre arranged sales transactions, often of the same product, in order to create a false impression of business activity or revenue
As a result of the process of tranching, a ratings agency could give a higher credit rating to a class of securities carved from a pool of loans than would be given to other classes of securities carved from the same pool of loans. true false
true
The 80/20 loan is a mortgage loan whereby the borrower takes out a loan for 80 percent of the purchase price and a second loan for 20 percent of the purchase price, leaving the borrower with no equity in the house at the time of the loan. true false
true
leveraged transactions are frequent catalysts in boom-bust cycles true false
true
Examples of Authority Limits
when does it require two signatures? add some scrutiny
