Forensic acct 2

WRONG

A company has a whistleblower system that is entirely in English. Since their headquarters is in Boston, so there's no need to worry about other allegations made in languages other than English. Right or wrong?

TRUE

A fraud risk assessment should be documented. One method for documentation is a matrix that lists identified fraud risks, and documents the evaluation of the likelihood of occurrence, the significance of the exposure, the personnel or departments involved, existing fraud control activities, their effectiveness, the residual fraud risks, and the responses to those residual risks. T/F

Every month, as part of their management meeting, the owner and construction foreman review a list of all disbursements and all customer accounts to identify any unusual transactions. Have a copy of the bank statement sent directly to his house, and review the bank reconciliation prepared by the office manager.

A small construction company has 15 employees. There is only one person that works in the office, other than the owner. The office manager handles all aspects of cash disbursement, cash receipts and bookkeeping. The owner understands that he cannot adequately segregate the duties in the office. Which two mitigating controls would be most effective in reducing the risk of cash-related frauds? Every month, as part of their management meeting, the owner and construction foreman review a list of all disbursements and all customer accounts to identify any unusual transactions. Conduct periodic background checks on the office manager. Ask the office manager to annually certify her bookkeeping work. Have a copy of the bank statement sent directly to his house, and review the bank reconciliation prepared by the office manager.

FALSE

AICPA professional standards prohibit fee retainers on litigation services engagements. T/F

TRUE

According to a 2016 study of Daubert challenges to financial experts, more than one-third of Daubert challenges are successful, in that they resulted in the exclusion of all or some part of the expert's planned testimony. T/F

NO

Accounting Firm LLC is the auditor for Public Company Inc. Public Company is in the middle of litigation with one of its suppliers. Can a partner of Accounting Firm LLC serve as an expert witness in this litigation matter? YES/NO

FALSE

Another term for "expert witness" is "percipient witness". T/F

TRUE

Attorney-client privilege is the attorney's client's right to refuse to disclose and to prevent any other person from disclosing confidential communications between the client and his or her attorney. T/F

Rules-based test

Big Smile Company's internal auditor has begun to investigate unusual sales transactions. She has identified 3 problem transactions, all of which were entered after midnight when the office is closed. She searches the remaining population for any other transactions entered after midnight. What kind of data analytic test is this? Time-series analysis Link analysis Keyword search Rules-based test

Both lost profits and business valuation analyses typically require adjustments for marketability, size and control. Lost profits analyses do not necessarily require adjustments for size, premiums and control. Usually, lost profit are focused on lost income. Any such considerations, if needed, are embedded within the selection of a discount rate.

Business valuation in litigation and lost profits calculations have some commonalities. Which is NOT true? Business valuations typically evaluate the whole business, or a stand alone element of the business. Lost profits analysis, by contrast, may only focus on a particular element of the business. Both business valuation and lost profit require the careful consideration of discount rates that appropriately reflect the market and risk characteristics of the related economic benefits. Both lost profits and business valuation require the analyst to consider the projected future benefits as of a specific point in time. Both lost profits and business valuation analyses typically require adjustments for marketability, size and control.

TRUE

Bust-out and bleed-out schemes are both abusive schemes that involve intentional actions to transfer value out of a business for the benefit of managers, owners and insiders, while leaving fewer assets available for payment to creditors. T/F

FALSE

Damage calculations never use business valuation approaches, since courts will not award goodwill and intangible values in the context of litigation. T/F

TRUE

Disqualification of an expert due to a lack of appropriate credentials for the subject matter of the testimony or because of a poor analysis of the facts can impair a witness not only for the matter at hand but also for years to come.T/F

TRUE

During an investigation, investigators may document the chain of custody of evidence, which reflects the order in which a piece of evidence was acquired and handled and the unbroken train of accountabilIty for that evidence. T/F

TRUE

During the discovery phase of litigation, the financial expert may identify and collect evidence, educate counsel about the financial aspects of the matter, analyze facts, develop any necessary assumptions and form an expert opinion. T/F

All of them are sworn statements under oath.

Edna is a financial expert in a matter in U.S. Federal Courts. She is asked to provide answers to interrogatories, provide an expert deposition and testify at trial. Which of them is considered sworn statements under oath? None of these are sworn statements under oath. Trial testimony and deposition testimony are sworn statements under oath, but answers to interrogatories are not. At trial, the expert testifies under oath, but the other activities are not sworn statements. All of them are sworn statements under oath.

Eleanor should NOT have used the WACC to discount the projected cash flows, since she had projected the cash flows to equity holders. In the income approach, the discount rate should match the cash flows to be discounted. So, equity rates of return should be used to discount cash flows to equity. Weighted-average cost of capital should be used to discount cash flows to the enterprise (both equity and debt).

Eleanor is analyzing the business value of Mixed Up Mechanics LLC. She is currently focusing on the income approach. Eleanor has performed the following procedures: She developed a model of expected future cash flows to equity shareholders using reasonable and well-supported assumptions Mixed Up Mechanics had some unusual expenses, mostly related to payments to family members of the owner. Eleanor made normalizing adjustments to eliminate these expenses and ensure that projected cash flows were consistent with other companies Eleanor tested the reasonableness of the expected growth rate based on existing business plans, company-specific factors and the growth of the industry as a whole. She discounted the expected cash flows using the Weighted Average Cost of Capital (WACC) Which of the following is a TRUE statement about Eleanor's work? Eleanor should NOT have used the WACC to discount the projected cash flows, since she had projected the cash flows to equity holders. Eleanor should NOT have considered the existing plans for the business, because this is prohibited in an Ex Ante analysis. Eleanor improperly adjusts the expected expenses to eliminate expenses to family members, since such adjustments depart from historical experience. All of Eleanor's procedures were appropriate.

The correct answer is "Forms W-2". These are helpful for individual bankruptcies, but would not be a significant source for information in a corporate bankruptcy.

Elena has been retained by the attorney for the Creditors Committee to assist in a forensic search for concealed assets in a corporate bankruptcy matter. Which of the following is NOT an appropriate strategy to search for assets? Searching Forms W-2 for undisclosed assets Search for unbilled client accounts that might indicate assets that have not been recorded Review of vendors and accounts payable to search for payments that are not for legitimate business purposes Search for intangible or non-book assets.

In order to be adequately prepared for her deposition, Ella should personally review all the relevant underlying evidence, including any evidence that is in conflict with her analysis, understand the bases for all assumptions, and be familiar with all the detailed calculations before her deposition.

Ella is a partner in RegionalStar LLP, a mid-tier accounting firm. Ella is an actuary and CPA, and usually provides insurance-related consulting services. She has agreed to serve as an expert witness in a litigation matter involving pension-related actuarial calculations and the reporting of pension liabilities for tax purposes. Ella has had a team of 4 people working on the underlying assignment. None of them have worked on a litigation assignment before. The staff members have built the actuarial models in the same way as usual, and make the same kinds of assumptions that are normally made for this kind of analysis. The senior manager on the team has done all the detailed technical review. Ella has confidence in her team and their skill. Ella has been briefed on the model, has performed a top-side review and has handled all the client interaction. Ella is preparing for her deposition. Which of the following is a TRUE statement? In order to be adequately prepared for her deposition, Ella should personally review all the relevant underlying evidence, including any evidence that is in conflict with her analysis, understand the bases for all assumptions, and be familiar with all the detailed calculations before her deposition. Since the assumptions in the financial model are consistent with those used in non-litigation engagements, Ella does not need to form a basis for them with underlying evidence.. Ella can reasonably rely on the work of her team without conducting a detailed review because of the skill and experience of the senior manager. Since Ella will be testifying about her own, objective opinion, she should avoid spending time on analysis of the legal pleadings and the opposing expert report so that her integrity is not impaired.

FALSE

Elmo is a sole practitioner CPA. He has been a tax compliance specialist for 30 years. One of his tax clients has asked him to serve as an expert in a matter involving patent infringement. The client needs an expert to testify as to the reasonable royalty to be paid for licensing telecommunications technology. Elmo knows the client very well and has been considering the tax consequences of intellectual property for the client as part of his tax engagement. Elmo has attended a CPE seminar on intellectual property taxation, but has never been involved in the licensing of technology. Elmo believes that he can take the engagement, because he is willing to study the subject diligently and because his CPA is a well-recognized credential. Is this true? T/F

FALSE

Emily is a financial expert in a civil litigation matter. She has been asked to assist the attorneys taking the deposition of an opposing expert. The most common approach for this kind of work is for Emily to ask the deposition questions that are related to her area of expertise. T/F

TRUE

Expert opinions are exempt from generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS), although the application of GAAP and GAAS may be relevant if they are the subject matter of the dispute. T/F

This is false. As noted in the Litigation Services Handbook at p. 11.5, the term "fair value" has several uses with different meanings. In certain kinds of cases, fair value has a specific legal meaning defined by state law and case law. They are not necessarily consistent between jurisdictions and case types. Experts should consult with the attorney or client to ascertain the appropriate standard of value for the case at hand.

Fair value is a well-recognized standard of value with a clear definition that is consistent from court to court. T/F

TRUE

Family law engagements can include both fraud investigation elements, such as searching for undisclosed or diverted assets, and business valuation elements. T/F

TRUE

Forensic accountants working in family law may be asked to trace the origin of assets to determine whether the property should be classified as marital or community property or the separate property of one spouse. T/F

50 weeks. The remaining period of the contract after the breach.

Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. The case went to trial 2 years after the date of the SuperDuperMarket's cancellation of the contract. SuperDuperMarket was found to have acted wrongfully. Normally, what would be the damage period? 50 weeks. The remaining period of the contract after the breach. 52 weeks. This contract was doomed from the outset. Indefinite. Frozen Fish's business value will be permanently impaired. 102 weeks. There were 50 weeks remaining in the contract. Frozen Fish might have been able to renew the contract for another year.

TRUE

Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. (This paragraph is the same as the prior question.) Frozen Fish Company's efforts to sell the specialty products to another buyer is an example of mitigating damages. T/F

The amount of revenues anticipated under the contract terms, less the revenues actually earned.

Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. (This paragraph is the same as the prior question.) The case went to trial 2 years after the date of the SuperDuperMarket's cancellation of the contract. SuperDuperMarket was found to have acted wrongfully. What would be an appropriate measure of lost revenues? The revenues under the contract. The revenues that Frozen Fish might have earned over the contract term plus any potential contract renewals. The difference between the revenues stipulated in the agreement and the market value of the contract. The amount of revenues anticipated under the contract terms, less the revenues actually earned.

Documents suppoting the actual costs incurred and any budgets or forecasts of costs that Frozen Food had prepared before the breach occurred.

Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. (This paragraph is the same as the prior question.) Which of the following is likely to be the best evidence associated with costs in a damage calculation? Monte Carlo analysis Cost estimates based on benchmarking studies. Costs of other market participants. Documents suppoting the actual costs incurred and any budgets or forecasts of costs that Frozen Food had prepared before the breach occurred.

TRUE

Generally, under the U.S. federal bankruptcy laws, liabilities are quantified by class. All of the priority claims must be paid in full before any payments will be made to general unsecured claims. T/F

The correct (untrue) answer is "The market approach cannot be used for valuation of restricted shares, since they are not freely marketable." The market approach can be used when the subject company or the subject interest is not freely marketable, with appropriate adjustments. However, the analyst might weigh the values indicated by other approaches more heavily in reaching a final opinion of value.

Henry may need to make adjustments to derive a value for a minority interest with limited marketability. The indications of value from publicly-traded companies usually represent values of minority interests. The indications of value from merger and acquisitions transactions usually represent values of controlling interests. The market approach cannot be used for valuation of restricted shares, since they are not freely marketable.

FALSE

If a fraud risk assessment is competent and thorough, it rarely needs to be updated. T/F

Disgorgement or restitution damages

In a recent legal case, the Court ordered Defendant Corporation to pay damages to Plaintiff Corporation. The amount of the damages was calculated based on the gains that Defendant Corporation had earned as a result of its wrongful conduct. What kind of damage award was this? Disgorgement or restitution damages Lost profits damages Compensatory damages Punitive damages

TRUE

In determining the lost earnings of children, the expert generally cannot rely on established earnings history. For these cases, the expert may be able to calculate projected earnings using national average earnings rates by age, gender and education level based on government surveys and otherwell-recognized studies. T/F

FALSE

In order to maximize fraud deterrent effects, all the elements of the fraud control structure should be made known to employees, vendors and stakeholders. T/F

TRUE

In the context of litigation, damages are generally NOT recoverable for losses beyond an amount that the evidence permits to be established with reasonable certainty. T/F

PREMISE

Jack is valuing a business called Teetering Inc. It is struggling financially. Teetering Inc. has a lot of specialized equipment. If the company is able to stay afloat, the equipment will help the company be profitable over the long term. But, if the company is forced to liquidate it could take a long time to find a buyer for the specialized equipment. Jack's opinion of value of the company will differ based on whether it is considered to be a going concern, whether it is liquidated in orderly manner, or if it is liquidated in a fire sale. The assumption regarding the most likely set of transaction circumstances related to Teetering, Inc. is called the ______of value.

Since family law is unique, the expert need not consider the normal standards of business valuation in studying the value of Judy's business in the context of divorce.

Jane and Judy are divorcing. Jane is the sole owner of a profitable business. The business was the primary source of income for the family during the marriage. Judy has been a homemaker for years while Jane has built her business. In this jurisdiction, Judy is entitled to receive some portion of the value of Jane's business in the divorce. Which of the following is NOT true? Since family law is unique, the expert need not consider the normal standards of business valuation in studying the value of Judy's business in the context of divorce. Generally, in determining the profitability of Judy's business, the expert should identify any nonbusiness expendiures paid through the business and any above- or below-market compensation and make necessary adjustments. The expert should carefully consider the laws and generally accepted approaches in the courts in which Jane and Judy's divorce proceedings will be heard. A financial expert should consider the interplay between the value of the business and the calculation of income available for child support or spousal support.

Perform a conflict check to ensure that neither she nor her firm has a conflict of interest that would prevent her retention.

Jane is a forensic accounting practitioner. Ralph Attorney has contacted her to serve as an testifying expert in a matter involving Bilco Publishing. He is excited about the case and is planning to send Jane a package of confidential documents for her initial review. What should Jane do first? Describe her experience by sharing the details of her work for other clients, including the challenges the clients faced and how she addressed them.in her work. Sign an engagement letter to ensure that liability and confidentiality provisions are in place. Review the confidential documents on a no-names basis to ensure that the case is appropriate for her expertise. Perform a conflict check to ensure that neither she nor her firm has a conflict of interest that would prevent her retention.

Ex ante analysis

Jodi has been asked to express an opinion of value for Bach Pianos Incorporated, a private company. The valuation date for Jodi's analysis will be December 31, 2015. Jodi is aware that there was a fire at the main production facility in March 2016. Jodi is planning to exclude the impact of the fire in her valuation opinion, since it had not occurred as of the valuation date. What is the term to describe this analytical perspective? Ex ante analysis Ex post analysis Subsequent events analysis Daubert analysis

The approach may be overly broad, resulting in wasted effort and a large number of false positives.

Jonathan is investigating whether the 500 company employees have obtained expense reimbursements that they were not entitled to. He pulled 3 months of his expense reimbursement activity, and plans to vouch all of the transactions over $500 to the supporting documentation. This approach yielded 2000 transactions to investigate. What is one of the risks of this strategy? It is illegal in the US to investigate expense reimbursement allegations without providing legal counsel to the employees. The approach may be overly broad, resulting in wasted effort and a large number of false positives. This approach may be risky for Jonathan's career. If the expense reimbursments are proper, Jonathan will be criticized. Tracing and vouching are not appropriate forensic techniques for identifying improper expense reimbursement, since they are external audit procedures.

Yardstick or benchmark approaches comparing Juan's store to other businesses just like his.

Juan opened a new burrito store. It had been open only two months when a truck from the Big Food Supply Company (BFS) drove through the storefront. Luckily, no one was injured, but the store had to be closed for 6 months while repairs were made. Juan sued BFS, who was found to be responsible. Juan never prepared business plans or forecasts, and he had only two start up months transaction history. It is clear that the first two months were not representative of what the burrito store would have earned in future months, since there were a lot of start up costs and sales patterns had not yet normalized. Which approach would be most appropriate to determine his lost profits? A "before and after" approach relying on the two start-up months' data. Juan's damages can not be calculated because there is no way to establish damages with insufficient sales and cost history. Yardstick or benchmark approaches comparing Juan's store to other businesses just like his. A disgorgement approach based on Big Food Supply Company's profits.

TRUE

Keyword searching scans free text fields and unstructured data to identify suspicious or high-risk language within data. T/F

TRUE

Lost profits generally means the difference in profits between (a) what the plaintiff would have earned but for the defendant's actions and (b) the actual profits made by the plaintiff. T/F

FALSE

Many attorneys insist on contingent fee arrangements for testifying expert services, since winning the case is the ultimate goal. T/F

TRUE

Mediation generally involves the use of a neutral third party to facilitate the parties' negotiations in the context of a dispute. The mediator renders no decision and has no authority to impose a solution. Rather, the mediator seeks to resolve the dispute through a voluntary process. T/F

false

Once an accountant has become an experienced forensic practitioner, they are qualified to provide legal advice regarding whether legal privileges will apply to specific investigation outputs. t/f

TRUE

One method for accomplishing litigation discovery is "request for production". These are requests for one party in a litigation to produce or make available certain specifically identified evidence, such as documents or electronic evidence. T/F

Yes, because Patrice was a consulting expert and was not a testifying expert.

Patrice is a CPA who has been retained by Joe Bob and Beth LLP law firm to provide forensic accounting services in a litigation matter. She had a variety of tasks in the engagement, including gathering and analyzing financial records of the defendant and reviewing the financial documents produces by the other side. Another CPA was hired to testify on accounting and auditing matters and an investments specialist was hired to testify on investment strategy matters. Patrice provided comments and suggestions to the CPA and investment specialist, assisted in the quality review of their reports, and helped them prepare for their depositions. Patrice also assisted in analyzing and critiquing the opposing expert's work. Patrice's involvement was never disclosed to the opponents and none of her work product was produced in response to a subpoena that requested for production of the workpapers of the testifying experts. Did Patrice's work comply with AICPA professional standards and normal litigation requirements? Yes, because Patrice was a consulting expert and was not a testifying expert. No, because all CPAs working on the litgation matter are required to produce all relevant documents whether or not they are testifying. No, because Patrice's engagement is inappropriate under AICPA standards. Yes, because AICPA requirements prohibit disclosure of confidential client information in this situation.

TRUE

Periodic reassessment of fraud control activities should include: Ensuring that existing controls are working as designed; Refreshing and updating the fraud risk assessment and design of the controls; and Seeking efficiencies and filling gaps. T/F

TRUE

Prejudgment interest is used to compensate the plaintiff for the interest not earned on lost profits from the date of the incident or event giving rise to damages to the date of trial. T/F

TRUE

Prior to accepting a litigation-related engagement, the forensic accountant should consider whether they or their firm is professionally competent, objective and free of conflicts of interest with respect to the litigation matter. T/F

FALSE

Proximate causation means that the losses were reasonably certain. T/F

FALSE

Punitive damages are directly tied to the plaintiff's economic losses. T/F

Ricardo's knowledge, skill, experience training or education in technical matters relating to this case.

Ricardo is a CPA. Ricardo has been retained to provide expert testimony on behalf of the defendant in a business litigation matter in U.S. Federal Court. The plaintiff's counsel filed an objection with the court, asserting that Ricardo is not qualified to provide expert testimony in this matter. What kind of information could Ricardo and defendant's counsel provide to the Court that might overcome this objection? Ricardo's knowledge, skill, experience training or education in technical matters relating to this case. Affidavits and letters of recommendation attesting to Ricardo's integrity. Evidence obtained from the plaintiff in discovery. Ricardo's underlying calculations and workpapers.

Whether the analytical approach used achieves the result or opinion that the client desires.

Ricardo's knowledge, skill, experience training or education in technical matters relating to this case. Whether the analytical approach used achieves the result or opinion that the client desires. Whether the theory or technique is tested or testable. Whether the approach or methodology has been subjected to peer review or publication. Whether the approach used by the expert is generally accepted within the professional community. All of the above are appropriate considerations.

Yes, the company is insolvent under the cash flow test. Even though the company has assets in excess of liabilities (the balance sheet test), it is unable to pay its debts when they come due (cash flow insolvency.)

Robert is the CFO of a privately-owned company. The company had acquired three other businesses in the last few years. The balance sheet includes goodwill and intangibles associated with the acquisition of three other businesses. Robert has conducted recent impairment testing and believes that the goodwill and intangibles are fairly stated because the underlying businesses are profitable. The assets on the corporate balance sheet far exceed the liabilities. However, because of the debt that the corporation has undertaken, and because of the timing of certain corporate expenses, the corporate division has been spending much more cash than is coming in. As a result, the company does not have enough money to pay all the employees this month. Is the company insolvent? Y/N

SPOILATION

Rudolpho is an accountant at LittleBigDude, Inc. LittleBigDude is in litigation with GiantTiny Corp. GiantTiny has subpoenaed all of LittleBigDude's records involving a specific contract. Rudolpho realizes that some of the documents covered by the subpoena will undermine LittleBigDude's legal case. Instead of producing the documents, Rudolpho shreds them late at night. Later, he confesses to having done so. What is the term for Rudolpho's actions?

TRUE

The "before and after" method and the "but for" method describe the same general approach to damages. The underlying theory is that damages should be determined by comparing: A. the profits or net worth before the event or action that caused a loss to B. the profits or net worth after the event or action that cause a loss. T/F

FALSE

The Federal Rules of Civil Procedure and Federal Rules of Evidence apply to all expert witness services provided in the United States. T/F

COMPLAINT

The first legal pleading in a civil litigation matter in the U.S. is called the _____________?

TRUE

The method of determining pre-judgment interest and the applicable interest rate will depend on many factors, including the court, the jurisdiction and the facts and circumstances of the case. T/F

FALSE

The professional standards of the AICPA prohibit CPAs from serving as a neutral arbitrator or mediator in commercial dispute. T/F

Daubert v. Merrell Dow Pharmaceuticals

The seminal court case that provides guidance on the admissability of expert testimony in U.S. federal courts is: Plessy v. Ferguson Mattco Forge, Inc. v. Arthur Young and Co. Shadow Traffic Network, et al. v. The Superior Court of Los Angeles County Daubert v. Merrell Dow Pharmaceuticals

DIP

There is a special type of financing that is provided to companies that are in the process of Chapter 11 reorganization. It is called ________ financing.

Analysis of the contract provisions involving supply interruptions and determination of potential legal remedies.

Tornado Group has sued its supplier, Big Wind Inc. for breach of contract to supply air handling equipment in support of Tornado Group's requirements. As a result of not having the equipment it needed, Tornado Group lost a number of customer contracts. Which of the following services would NOT normally be provided by forensic accountants in this kind of dispute? Calculation of the profits that Tornado Group would have earned if they had not lost the customer contracts. Analysis of the contract provisions involving supply interruptions and determination of potential legal remedies. Gathering business records and evidence associated with the litigation matter and preparation of materials for production in the discovery process. Assistance with developing or managing the electronic documents repository for the litigation matter,including the management of electronically-stored information.

TRUE

True or False? A petition filed under the Bankruptcy Code results in an automatic stay of the creditors' actions and prohibits any party, with some exceptions, from interfering with the debtor or its property until the court has modified or removed the stay. T/F

FALSE

Under the Federal Rules of Civil Procedure, it is relatively common to "ambush" the opponent in litigation by providing new evidence or expert opinions during the trial phase of a litigation case. T/F

An allegation or reason to investigate.

What is an investigation predicate? An initial fraud theory. A custodian of paper or electronic evidence. An allegation or reason to investigate. The person or governing body that is responsible for the decision-making about the investigation.

The person or governing body that has decision-making authority over the investigation.

What is an investigation sponsor? The law firm or lawyer that provides legal counsel. to the investigation team. The person who recommends indviduals for membership in the Association for Certified Fraud Examiners. The person or business that provides the financial resources necessary to execute the investigation. The person or governing body that has decision-making authority over the investigation.

The price in cash at which an asset will change hands between a hypothetical buyer or seller, acting at arms' length, not under compulsion, in an open and unrestricted market and with reasonable knowledge of relevant facts.

What is the definition of fair market value? The price in cash at which an asset will change hands between a specific buyer and specific seller, acting at arms' length, not under compulsion, in an open and unrestricted market and with reasonable knowledge of relevant facts. The value determined by a qualified business appraiser using the average of market, income and asset approaches with reasonable and appropriate assumptions The price in cash at which an asset will change hands between a hypothetical buyer or seller, acting at arms' length, not under compulsion, in an open and unrestricted market and with reasonable knowledge of relevant facts. The price in cash at which an asset will change hands between a buyer or seller, acting at arms' length, on a going concern basis, in an open and unrestricted process and with reasonable knowledge of relevant facts.

Any or all of these answers could be one of the goals of an expert deposition.

When an opposing attorney takes a forensic accounting expert's deposition, what is his or her goal? To identify and highlight the weaknesses in the expert's report and in the opponent's case, in order to encourage settlement or, at a minimum, to force the expert to correct the analysis before trial. To size up the witness and to learn as much as possible about the opinions and the bases for the opinions that will be offered at trial. To identify weaknesses in the expert's report without alerting the expert, so that the weaknesses can be revealed at trial. Then, the expert's testimony may be discredited and be given little or no weight by the judge and jury. Any or all of these answers could be one of the goals of an expert deposition.

FALSE

When evaluating the significance of a risk exposure, the forensic accountant's only focus should be the potential dollar value of exposures in comparison to 5% of assets or other quantitative measure of materiality. T/F

All of the above.

Which kinds of techniques are used in both forensic settings and in external audit settings? Interviews of knowledgeable people Ratio analysis Vouching or tracing selected transactions All of the above.

Attestation standards

Which of the following AICPA standards or rules do NOT apply to CPA members who are performing litigation services engagements? Integrity and Objectivity Rule Attestation standards Sufficient Relevant Data rules Confidential Client Information Rule

All of these are types of data visualization.

Which of the following are data visualization techniques? Link analysis Geospatial analysis and data mapping Heat maps All of these are types of data visualization.

Likelihood of occurrence Significance of exposure

Which of the following attributes should be evaluated in a fraud risk assessment? (Check all that apply.) Country of origin Likelihood of occurrence Significance of exposure Availability of data for analytics

An expert witness has specialized knowledge that helps a judge or jury understand the evidence.

Which of the following best describes the role of an expert witness? An expert witness has specialized knowledge that helps a judge or jury understand the evidence. An expert witness works for an attorney to advocate for a client. An expert witness has a duty to take the client's position in the matter. Because of their specialized skills, knowledge, education and training, judges and juries must accept the opinion of the expert.

Common equivalents approach The three broad types of business valuation approaches are the Income Approach, the Market Approach and the Asset Approach. The common equivalents approach was made up.

Which of the following is NOT a business valuation approach? Common equivalents approach Market approach Income approach Asset approach

A lawsuit in the bankruptcy court

Which of the following is NOT a form of alternative dispute resolution (ADR)? Arbitration proceedings Mediation Private trials or forums A lawsuit in the bankruptcy court

All of these are potential bases to exclude an expert report based on challenges to reliability of the opinion.

Which of the following is NOT a potential basis for exclusion of an expert report based on a reliability challenge? All of these are potential bases to exclude an expert report based on challenges to reliability of the opinion. Lisa prepared an opinion of value based on a using a shortcut rule of thumb often used by industry participants, without other bases for her opinion. Jane performed a statistical analysis of securities prices, but omitted 5 trading days from the data set. Carl is testifying as a financial expert. He analyzed all the transactions that were provided by counsel, but the information that the attorneys provided was incomplete.

Fictitious submission of inflated invoices by bankruptcy professionals. Fictitious invoices by bankruptcy professionals may be fraudulent, but they are not part of bust-out schemes.

Which of the following is NOT a red flag of a possible bust-out scheme? Reliance on part-time employees, leased facilities and llitle substantive business activity. Taxes not paid or filed. Fictitious submission of inflated invoices by bankruptcy professionals. Short-lived companies with little business history.

Copies of expert reports associated with other cases in which the expert has testified.

Which of the following is NOT a required expert witness disclosure for witnesses testifying in US Federal courts? Compensation to be paid for the study and testimony in the case. Facts or data considered by the witness in forming the opinion(s) to be expressed. A complete statement of all the expert's opinions that will be presented at trial. Copies of expert reports associated with other cases in which the expert has testified.

Bankruptcy is a legal process. Most bankruptcies are governed by state laws, which vary from state to state. Most bankruptcies are governed by federal laws, most importantly Title 11 of the federal code (the Bankruptcy Code). While some bankruptcies are handled under state jurisdiction, this is less common.

Which of the following is NOT a true statement about bankruptcy? Creditors may object to a debtor's plan of reorganization and offer a competing plan. Bankruptcy is a legal process. Most bankruptcies are governed by state laws, which vary from state to state. Bankruptcy services can include a wide range of forensic accounting activities, including financial analysis, asset searches, investigations, and business valuation. Chapter 11 of the Bankruptcy Code governs the process for corporate reorganizations in bankruptcy.

In order to ensure the reliability of the business valuation, the analysts uses the pricing guidance without adjustments. It is incorrect to say that analysts uses the pricing guidance without adjustments. Normalizing adjustments are frequently made so that the information from the guideline companies is comparable to that of the subject company.

Which of the following is NOT a true statement about the market approach? There are databases of merger and acquisition transactions that can be used to gather pricing guidance by reference to completed transactions for companies similar to the subject company. One important decision in the guideline company method is the selection of a group of publicly-traded companies for the purposes of pricing guidance. It's important to select companies with similar characteristics to the subject company. In order to ensure the reliability of the business valuation, the analysts uses the pricing guidance without adjustments. Market prices are usually expressed as a multiple of some business measure, such as earnings or cash flow. These multiples are then used to price the same measures for the subject company.

An employment bonus to the CEO made 6 months before the bankruptcy, at a time when the company was solvent. An employment bonus made to the CEO six months before the bankruptcy is not a preference payment (because they are usually limited to 90 days pre-petition.) If the company was solvent at the time of the transfer, the bonus would not be considered a constructively fraudulent transfer. There's no evidence that the payment was actually fraudulent, so this payment would not be voidable.

Which of the following is NOT likely to be a potentially voidable transfer in bankruptcy? Transfers that hinder or delay creditors access to assets. An employment bonus to the CEO made 6 months before the bankruptcy, at a time when the company was solvent. Preference payments made within 90 days that do not fall within a safe harbor. A dividend to the equity holders of a closely-held company made 18 months before the bankruptcy at a time when the company was insolvent.

There is no professional liability exposure for CPAs providing litigation services.

Which of the following is NOT true about expert depositions? Information gathered during the deposition may be used to form a basis to exclude the expert's testimony in whole or in part. The witness is obligated to testify under oath and answer all questions truthfully. Information gathered during the deposition may be used to develop critiques and cross-examination questions at trial. There is no professional liability exposure for CPAs providing litigation services.

Calculations of lost earnings always exclude incentive compensation, such as commissions or bonuses, because such damages are contingent on performance criteria.

Which of the following is NOT true regarding the calculation of lost earnings damages? Lost earnings generally do not include passive income, such as income from securities or dividends. In most jurisdictions, plaintiffs have a duty to mitigate their damages,including taking reasonable steps to work for compensation. Calculations of lost earnings always exclude incentive compensation, such as commissions or bonuses, because such damages are contingent on performance criteria. Damages experts carefully study earnings history, including all components of compensation, to develop appropriate estimates of lost future income.

The expert must establish commercial damages with reasonable certainty, but the damages associated with lost earnings of individuals does not need to meet this standard, because of the difficulty in predicting earnings into the future.

Which of the following is NOT true with respect to damage calculations? The expert must establish commercial damages with reasonable certainty, but the damages associated with lost earnings of individuals does not need to meet this standard, because of the difficulty in predicting earnings into the future. When calculating the damages for breaches of commercial contracts, expert must use reliable methods and assumptions. If they do not, their testimony may be excluded or may be subject to rigorous cross-examination. Commercial damages, including measurement of lost profits, are typically calculated on a pre-tax basis. Damages for the lost earnings of individuals are usually calculated on an after-tax basis.

If the investigation is not competently executed by objective people, it may not be reliable.

Which of the following is a true statement? If the investigation is not competently executed by objective people, it may not be reliable. If an investigation team is not independent, as defined by the American Institute of Certified Public Accountants, the investigation outputs may not be relied upon. If a chief executive officer (CEO) has been accused of wrongdoing, the Internal Audit Director is generally considered to be independent, as long as they are sufficiently critical and even-handed in their approach. If an investigation has not been competently executed, it can always be reperformed to obtain a reliable result.

All of these might be investigation evidence.

Which of the following is not a common source of fraud investigation evidence? Electronic communications, including email. General ledger and transaction data. Observation Interviews of knowledgeable people Data analytics Google and public records searches Documents and contracts All of these might be investigation evidence.

The correct answer is "The development or selection of cost of capital is an important valuation judgment that is based on market rates of return, the risks associated with the stream of economic benefits being analyzed and other factors."

Which of the following is true with respect to cost of capital used in business valuation? The cost of capital is fixed for each type of asset. Analysts should look up the cost of capital from reputable reference sources like the Duff and Phelps / Ibbotson study of rates of return. The development or selection of cost of capital is an important valuation judgment that is based on market rates of return, the risks associated with the stream of economic benefits being analyzed and other factors. CAPM, Build Up Method and the Black-Scholes-Merton models are all approaches for developing the cost of capital. When discounting a stream of benefits to equity holders, the analyst typically uses the weighted average cost of capital (WACC).

AICPA - Certified Global Managment Accountant (CGMA) The CGMA is a recognized credential for managerial accounting, not for business valuation.

Which of the following organizations (or credentials) is NOT recognized for providing training and credentials in business valuation? AICPA - Certified Global Managment Accountant (CGMA) American Society of Appraisers (ASA) National Association of Certified Valuators and Analysts (NACVA) Certified Financial Analyst (CFA)

Because fraud allegations are non-routine and vary significantly based on the facts and circumstances, it is best to wait until events to occur before planning investigation processes.

Which of the following statements is not true? Knee-jerk or emotional responses to fraud allegations are unhelpful, but common. As an organization undertakes investigations of potential fraud, it should give due consideration to the scope, severity, credibility, and implications of the allegation. An organization can improve its chances of loss recovery, while minimizing exposure to litigation and damage to reputation, by establishing and carefully prepallning investigation and corrective actions and processes. Because fraud allegations are non-routine and vary significantly based on the facts and circumstances, it is best to wait until events to occur before planning investigation processes.

Attorney work product doctrine. Attorney-client privilege

Which phrases describe a legal privilege that might potentially pertain to the work of attorneys and investigators in a fraud investigation or legal dispute? (Check ALL that apply.) CPA-client privilege. Attorney work product doctrine. Attorney-client privilege. Doctrine of investigational authority.

If they come from disgruntled employees, they should be given less weight.

Which statement is not true about whistleblower allegations? They can come to the organization's attention in many ways. If they come from disgruntled employees, they should be given less weight. Organizations should have a business process for triaging allegations that results in review by someone with appropriate authority. If the whisteblower allegation involves a member of senior management, the allegation should be reviewed by a designated member of the board.

Duplicate search

You are investigating an allegation that vendors may be submitting invoices twice in the hope that they will be paid multiple times. Which of the following data analyses would be the easiest way to identify such invoices? Duplicate search Benford's law analysis Textual analysis Correlation analysis