Forensic Exam #1

According to EY, _______________ and ______________ employees are more likely to report fraudulent activities.

women, older people.

The ______________________ is the reactions and behaviors exhibited by a subject when telling the truth in an interview.

(Baseline.)

The PCAOB endorses which internal control framework? ________

(COSO model.)

The ________________________ statement should be studied to determine if a company has the ability to pay a significant debt.

(Cash flow

In the relatively expensive technique, detailed records are kept before and after the _________________ period to determine the amount of the fraud. During the ______________ period strict controls are imposed.

(Invigilation; invigilation.)

Statement of Financial Accounting Concepts No. 2 provides ___________________ qualities and characteristics that make financial information useful for investors and other shareholders.

(Nine)

A(n) ______________________ interview facilitates the development of cooperation.

(Non-accusatory.)

A _____________________ pen helps prevent washing checks.

(Uni-ball gel.)

A form of risk assessment is the _____________________ of a business' significant processes that auditors are required to do by PCAOB

(Walkthrough.)

Effective internal controls is a ________________ approach to forensic accounting.

(proactive.)

Companies on average pay as much as ______________ percent of total purchases as duplicate payments.

(two.)

Based upon the SEC enforcement actions from 1987 to 1999, the company's chief executive was involved about ________________ percent of the time.

70%

Chapter _____ bankruptcy is really a means of reorganization for governmental units.

9.)

When comparing a forensic audit with a financial audit, which item would indicate a financial audit?

A sampling process.

When checking for fictitious receivables, which would be less likely to be an effective technique?

A significant drop in the cash account.

The _____________________ is the largest of the forensic groups which offer a fraud or forensic certification.

ACFE or CFE)

Which would not be considered an analytical procedure?

All of the above are analytical procedures.

Which of these would not be possible signs that a person is lying?

All of the above are red flags that a person is lying.

Under the __________________________ doctrine, the owners of a corporation are held responsible for corporate acts by piercing the corporate veil and disregarding the corporate entity.

Alter ego)

Two professors' AICPA research found the most important skill of a forensic accountant was:

Analytical

The two main provisions of the FCPA are ________________________ and __________________

Anti-bribery provision; Accounting provision

Wayne Bremser defined the modern role of forensic accounting to include four elements. Which of the following is not one of the four?

Appellate support

The external auditor for WorldCom when it went bankrupt was __________

Arthur Andersen

____ was the external auditor during the WorldCom fraud.

Arthur Andersen

__________ was the auditor for Sunbeam, Waste Management, Baptist Foundation of Arizona, and Global Crossing.

Arthur Andersen

Which is not one of the six areas of litigation services that an AICPA committee suggested in 1986?

Attestation

_____________ occurs when a vendor is given an unfair advantage in an open competition for a certain contract.

Bid rigging.

When companies make large, unnecessary write-offs directly against earnings, this scheme is called a(n) __________

Big Bath.)

_______________ _______________ occurs when a vendor is given an unfair advantage in an open competition for a certain contract.

Big rigging.)

One type of overstated-income scheme called ________________________ occurs where a customer agrees to purchase goods and the seller invoices the customer but retains physical possession.

Bill-and-hold transaction.

__________ is now a required procedure to generate ideas about how fraud might be committed and concealed within the entity.

Brainstorming.)

Which certification group does not require a CPA certificate to obtain their certification?

CFE.

The forensic certification of the AICPA is the:

CFF

In North America, forensic accounting can be traced as far back as 1817 to a ___________ court decision.

Canadian

In North America forensic accounting can be traced back to ______________

Canadian court decision

A company may engage in ___________________________ by offering large discounts or other inducements to a distributor or retailer to receive large orders late in the reporting quarter to increase revenues.

Channel stuffing

The practice of booking income before receiving payments is called ____________________

Channel stuffing.

____________________ refers to a company pulling revenues into the distribution channel fraudulently.

Channel stuffing.)

The five interrelated components of internal controls do not include

Classification.

Under the ____________________ theory of fraud, there is never just one fraud incident or red flag of fraud.

Cockroach.)

Of COSO's five interrelated components of internal controls, what is the one at the top?

Control environment)

In the three-layered wedding cake, which is not one of the layers?

Criminology background

Which chairman of The House Ways & Means Committee served time in prison?

Dan Rostenkowski

_______-___________ approaches do not catch all fraud schemes such as bribery and kickbacks.

Data-driven

___________________ was the Arthur Andersen principal partner for Enron.

David Duncan

Surprise cash count is considered a ____________ type of control.

Detective)

_____________ ___________________ developed the fraud pyramid

Donald Cressey.)

The respondents in a PWC survey ranked this non-monetary fraud damage at the top of the list.

Employee morale.

____________ are the source of the most tips on a hotline.

Employees.)

____________ fraud involves the promotion and sale of nonexistent or illegal securities investments.

Equity.)

A 2008 report found that the typical theft from a charity was committed by a male employee with no criminal record. T/F

False

A hockey stick pattern indicates that a business is using the bad debt account to cook the books. T/F

False

Debt outstanding greater than 30 percent of the debt limit would be a warning sign of possible trouble for a municipal entity. T/F

False

Independent auditors are charged professionally with finding asset fraud as well as material misstatement of financial statements fraud. T/F

False

Manipulating a stock option's exercise date to a lower price will decrease the corporation's deduction and increase the amount taxed to the executive as ordinary income. T/F

False

PCAOB is one of the sponsors of the Committee on Sponsoring Organizations (COSO). T/F

False

Property taxes greater than 30 percent of the tax limit would be a warning sign of possible trouble for a municipal entity. T/F

False

Reconciliation of the bank statements is considered to be a preventive control. T/F

False

SAS No. 99 prohibits clients from preparing and sending out confirmations. T/F

False

The Panel on Audit Effectiveness was authorized by PCAOB. T/F

False

The manipulator percentage for the Sales Growth Index is 30 percent and above. T/F

False

There are more business valuation courses in U.S. accounting programs than fraud courses. T/F

False

To become a CFE, a person must be a CPA. T/F

False

"What the use of _______________ _______________ was to the 19th century and _______________ ________________ was to the 20th century, forensic accounting will be to the 21st century."

Finger prints; DNA analysis

One need not be a CPA to obtain the Certified in Financial Forensics (CFF). T/F

Flase

__________ accountants take a micro view of a business

Forensic.)

______ found the smoking gun to help catch Al Capone.

Frank Wilson

Which IRS employee found a "smoking gun" in the form of an accountant's cash receipts ledger showing net profits from a gambling house, with Al Capone's name on it.

Frank Wilson.

___________ on _______________ accounting is a technique enabling fraudulent executives to use SPEs to purchase or sell overvalued ventures at unsupported values.

Gain on sale)

________ said that "what the use of finger prints was to the 19th century, and DNA analysis was to the 20th century, forensic accounting will be to the 21st century."

Gordon Brown

When revenues increase at the end of quarters and at end of the year this is called a _______________ _______________pattern.

Hockey stick.)

_______ analysis assists in the search of inequalities by using the financial statements of some prior year as the base and expressing the components of a future year as percentages of each components in the base year.

Horizontal.)

Fraud is an ___________________ act that results in a material misstatement in financial statements that are the subject of an audit

Intentional.)

Check forgery can be both a(n) ____________ and a(n) ____________ fraud.

Internal, external)

The ______________ organization mission is to help practitioners win back assets that rightfully belong to victims.

International Association of Asset Recovery (IAAR))

___________, _________________, and ________________ usually move in tandem because customers do not pay up front if they can avoid it.

Inventory, sales, and receivables.)

Which of these would not be considered a proactive approach for fraud investigation

Investigating complaints.

____________ requires keeping detailed records before and after the _______________ period to determine the amount of fraud.

Invigilation, invigilation.)

_____________ began to emphasize fraud detection in the FBI.

J. Edgar Hoover

_______ is given credit for being the first forensic accountant.

James McCleland

_____________ involves building up balances in two or more bank accounts based upon floating checks drawn against the other account.

Kiting.)

______________ involves building up balances in bank accounts based upon floating checks drawn against similar accounts in other banks.

Kiting.)

These are considered to be types of external fraud, except

Lapping

______________ involves recording of payments on a customer's account sometime after the receipt of the payment.

Lapping.)

A _______________ ________________ could compare the mailing addresses of company executives and the cell phone numbers they have dialed during a time frame.

Link analysis.)

Under a __________ ______________ system invoices are mailed to the customers along with a remittance envelope addressed to the bank

Lockbox.)

Who is responsible for internal controls?

Management.

Which would less likely be considered a journal entry fraud symptom?

Many round numbers.

_________-to-___________ accounting was a useful tool for Enron in its deceptive earnings management.

Mark-to-market)

Who is given credit for first coining the phrase "forensic accounting"?

Maurice E. Peloubet

___________ is the father of the term forensic accounting.

Maurice E. Peloubet

Which is not one of the three "M's" of financial reporting fraud?

Misdirection.

Which variable is not in P.D. Goldmann's Fraud Pentagon?

Motive

The Value Examiner is published by

NACVA.

________ organization basically controls the forensic accounting area.

No)

Which would not be a "trier of the facts?"

None of the above.

__________ is the factor in the fraud pyramid where a forensic accountant can have the greatest impact.

Opportunity)

_________ was the major Italian company that had major fraudulent financial statements.

Parmalot

___________ is an anti-fraud service by many banks whereby a business installs software on the business computer

Positive Pay.)

Continuing ____________ of a firm's founder is a red flag that points to a poor management philosophy.

Presence)

Job rotation is an example of a(n) ____________ control.

Preventive)

________________ are often issued with many expenses excluded resulting in "hide and seek" earnings.

Pro formas.)

The ________________ is an independent, full-time oversight board with broad authority to regulate auditors of public companies

Public Company Accounting Oversight Board (PCAOB).)

The three phases of fraud would not include:

Rationalization.

_______ auditing occurs when there are reasons to suspect that fraud may have occurred.

Reactive.)

Which would not be considered a preventive control?

Reconciliations.

Which is not one of the three ways to overcome the risk of management overriding controls?

Recording fictitious journal entries

_______ refers to someone who is about to cheat will adjust the definition of cheating to exclude his or her actions.

Reframing)

Behavioral psychologists call rationalization by the term _________

Reframing.)

___________ financial statement fraud accounted for more than 60 percent of the fraud cases in the 2010 COSO fraud study.

Revenue)

Which is not an area where rounded numbers would not be expected?

Rounded number are not expected on all the above.

Even the guarantor of the soundness of U.S. financial statements, the ______________, has failed at basic accounting according to the GAO.

SEC.)

The SEC in securities fraud cases generally uses the term ________________ meaning fraudulent intent.

Scienter.)

The bad guy in the Canadian Mountie illustration dealing with the $2.5 trillion worth of fake bonds was a ______

Scotland Yard scientist

Which of these companies was not considered to be a personal piggy bank situation?

Sears.

____________ _________________ discovered the Enron fraud in 2001 when he/she was using an Excel spreadsheet to calculate the various division' profitability

Sherron Watkins

___________ involves converting business receipts to one's personal use and benefit, by such techniques as cash register theft or off-hours sales, which would be called _______________ fraud.

Skimming, off-the-books.)

Fighting fraud is a marathon and not a __________

Sprint.)

There are only three things certain in life: death, ______________ and __________________.

Taxes; fraud.)

Which would not be considered a source document

Too many beginning 9 digits.

The other name for the Committee of Sponsoring Organizations (COSO) is the __________________ Commission.

Treadway

___________ is a court, regulatory body or governmental body. Also included could be an agent, a grand jury, an arbitrator, or a mediator.

Trier-of-the fact)

A kickback scheme may involve a vendor/supplier and an employee who works in cahoots to underreport inventory or payment of an inflated price. T/F

True

An Ernst & Young's 2002 survey indicates that women and older employees are more likely to report fraudulent activities. T/F

True

Asset misappropriation occurs more often than any other type of fraud. T/F

True

Bribery would be considered a form of corruption. T/F

True

Check spreads show patterns of activities and can gather data for the net worth method. T/F

True

Checks are the most common payment form targeted by fraudsters. T/F

True

Control risk is a risk that a material error in the balance or transaction class will not be prevented or detected. T/F

True

External auditors, in general, do not audit proactively. T/F

True

Forensic accounting is considered to be principles-based. T/F

True

In the Updated COSO Cube, control environment refers to "tone at the top." T/F

True

Many of the companies indicted by the SEC after Enron had one thing in common: CEOs were making about 75 percent above their peers. T/F

True

Max Lourie was one of the first people to suggest that accounting programs should offer forensic accounting courses. T/F

True

Omitted liabilities are the mirror image of fictitious revenues and assets. T/F

True

Preemptory refers to the fact that forensic accountants may take a preventive approach as a result of normal operations. T/F

True

Under AU Sec. 316, an auditor is required to perform tests of detail to address the risk of management override. T/F

True

Satyam means ______________

Truth.

Which would not be considered a source document to look for red flags?

Unexplained entry adjustment

Which is probably the most common type of regular external auditing opinion?

Unqualified with explanation opinio

____________ presents every item in a financial statement as a percentage of the largest item in the statement.

Vertical analysis.)

_______________ evidence was used by prosecution to send Joya William to prison for trying to sell Coca-Cola formula to Pepsi

Video or surveillance.)

_________________ crime has been called a type of crime by the advantaged.

White collar)

______ is an investigative technique used by the SEC to investigate specific companies in an industry for cooking the books.

Wildcatting)

The SEC has adopted the proactive strategy of _________________, where investigations into entire industries and business sectors are begun after evidence emerges from only one company in the group regarding financial reporting problems.

Wildcatting.

The _______________ department or division in an organization probably has more fraud.

accounting.)

If _______________________________ exceed 15 percent of annual sales and ____________ exceeds 25 percent of COGS, be careful.

accounts receivable, inventory.)

An ______________ opinion should be issued when the internal controls over financial reporting are not effective.

adverse.)

At the start of an interview a forensic accountant should develop a ________________ by asking questions that the interviewer knows the answer.

baseline.)

A(n) ________________ chart is a pictorial display of personal relationships among related or unrelated parties

genogram.)

The ______________________________ pattern refers to the situation where companies managing their earnings will have a significant increase in revenues near the end of a quarter or year end.

hockey stick.)

Fighting fraud is a _______________ and not a sprint.

marathon)

A forensic accountant should ____________ express an opinion in a report regarding the guilt or innocence of any person or party.

not or never

An anonymous tip is a type of ________________ for purposes of a forensic accountant.

predication.)