Fraud Prevention and Deterence

"______________ is a process aimed at proactively identifying and addressing an organization's vulnerabilities to internal and external fraud. A. An internal control audit B. A management ethics assessment C. A fraud risk assessment D. A fraud examination

" A fraud risk assessment

"Under Section 404 of the Sarbanes-Oxley Act, public U.S. companies must include all of the following in their annual report EXCEPT: A. A statement identifying the framework used in performing the assessment of the effectiveness of internal controls over financial reporting B. Management's assessment of the effectiveness of the company's internal controls over financial reporting C. A statement of management's responsibility for establishing and maintaining adequate internal controls over financial reporting D. A report explaining any discovered deficiencies in the company's internal controls over financial reporting

" A report explaining any discovered deficiencies in the company's internal controls over financial reporting

"There are five principal characteristics that distinguish professional fields from other vocations. Which of the following is NOT one of them? A. A requirement for all members to have earned advanced degrees B. A specialized body of knowledge C. Standards of conduct governing professionals' relationships with clients, colleagues, and the public D. Recognition and acceptance by society

" A requirement for all members to have earned advanced degrees

"According to criminologist Donald Cressey, which of the following is NOT essential to the commission of fraud? A. Technical skill B. Absence of controls C. General information about how the company might be defrauded D. All of the above are essential

" Absence of controls

"As part of their responsibilities under the ACFE Code of Professional Ethics, in collecting evidence, fraud examiners must: A. Preserve the integrity of relevant evidence B. Obtain and document evidence such that the chain of custody is preserved C. Ensure that all necessary evidence is obtained D. All of the above

" All of the above

"During a fraud risk assessment, the assessment team should consider: A. The inherent limitations of internal controls B. Opportunities for collusion C. Internal controls that might have been eliminated due to restructuring efforts D. All of the above

" All of the above

"Efforts to control corporate crime generally include which of the following approaches? A. Consumer action B. Government intervention C. Voluntary changes in corporate attitudes D. All of the above

" All of the above

"Following the conclusion of the fraud risk assessment process, management should: A. Use the assessment findings to monitor the performance of key internal controls B. Use the results to promote awareness, education, and action planning C. Track and measure progress against agreed-upon action plans D. All of the above

" All of the above

"Fraud risk management programs should focus on: A. Responding to identified fraud B. Preventing fraud C. Detecting fraud D. All of the above

" All of the above

"Good corporate governance is based on a framework that: A. Takes into account the organization's cultural and ethical environment B. Is appropriate for the organization's legal and regulatory environment C. Remains adaptable D. All of the above

" All of the above

"Government Auditing Standards, also known as the Yellow Book, apply to which of the following types of engagements? A. Government performance audits B. Government financial audits C. Government review engagements D. All of the above

" All of the above

"In addition to the specific risks related to each of the primary categories of fraud, the fraud risk assessment team should consider: A. Risk to information technology B. Incentives for individuals to engage in fraud C. Reputation risk D. All of the above

" All of the above

"The Treadway Commission made which of the following recommendations to reduce the probability of fraud in financial reports? A. Adequate audit committee resources and authority B. A written charter for the audit committee C. A mandatory independent audit committee D. All of the above

" All of the above

"The U.S. Corporate Sentencing Guidelines provide several possible remedies that can be assessed against an organization convicted of a criminal offense. These remedies include: A. Fines B. Probation C. Restitution D. All of the above

" All of the above

"To convey their dedication to the fraud risk management program, the board of directors and senior management should provide a formal statement of commitment that: A. Is provided to all employees, vendors, and customers B. Acknowledges the organization's vulnerability to fraud C. Is in writing D. All of the above

" All of the above

"Which of the following is TRUE regarding a fraud risk assessment? A. The results should be used to develop plans to mitigate fraud risk B. It can help management identify individuals who put the organization at the greatest risk of fraud C. It can be used to improve employee fraud awareness D. All of the above

" All of the above

"Which of the following is an example of the non-shareable financial need leg of the Fraud Triangle? A. Addiction problems B. Gambling debts C. Credit card debt from excessive shopping D. All of the above

" All of the above

"Which of the following is/are included in the five fraud risk management principles described in the COSO/ACFE Fraud Risk Management Guide? A. Developing ongoing evaluations for each fraud risk management principle B. Communicating the expectations of those governing the fraud risk management program C. Performing comprehensive fraud risk assessments to identify specific fraud schemes D. All of the above

" All of the above

"Which of the following offenses is addressed by the whistleblower protections provided by the Sarbanes-Oxley Act? A. Firing an employee of a nonpublic U.S. company for providing information about an alleged federal offense to law enforcement B. Firing an employee of a public U.S. company for providing information as part of a fraud investigation C. Threatening an employee of a public U.S. company for testifying regarding an alleged violation of securities laws D. All of the above

" All of the above

"Which of the following parties has some responsibility regarding an organization's fraud detection and prevention efforts? A. Board of directors B. Management C. In-house legal counsel D. All of the above

" All of the above

"According to the 2018 Report to the Nations, the majority of occupational frauds are committed by ____________; median losses are highest in frauds committed by ___________. A. Owners/executives; employees B. Employees; owners/executives C. Owners/executives; managers D. Employees; employees

" Employees; owners/executives

"A corporation cannot be held criminally liable for its employees' actions if there were specific policies in place that prohibited the activity undertaken by the employees. A. True B. False

" FALSE

"Fraud risks that remain after the effect of internal controls are considered inherent risks. A. True B. False

" FALSE

"In the context of a fraud examination, the preservation of integrity requires that the fraud examiner avoid all differences of opinion regarding all material matters with the other parties to the engagement. A. True B. False

" FALSE

"The fraud risk assessment should include input from both management and auditors to ensure a holistic view of the organization's risks, but it should exclude all others to maintain the independence and objectivity of the assessment process. A. True B. False

" FALSE

"The individuals conducting the fraud risk assessment should incorporate their existing biases regarding employees and processes into their assessment of overall fraud risk. A. True B. False

" FALSE

"The majority of people who commit occupational fraud are repeat offenders with prior criminal records. A. True B. False

" FALSE

"To be in compliance with the ACFE Code of Professional Ethics, fraud examiners must have an expert level of skill and knowledge for every circumstance that might be encountered in a fraud examination. A. True B. False

" FALSE

"Under the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing, an organization's internal audit function is required to hold primary responsibility for all internal fraud investigations. A. True B. False

" FALSE

"Which of the following is NOT one of the core principles of sound corporate governance? A. Transparency B. Responsibility C. Fairness D. Independence

" Independence

"Which of the following parties is ultimately responsible for the prevention and detection of fraud within an organization? A. Management B. Internal auditors C. Board of directors D. External auditors

" Management

"According to ACFE research, employees are the most common source of tips that lead to the detection of fraud. A. True B. False

" TRUE

"According to the COSO Internal Control model, an organization should perform both ongoing evaluations and periodic, separate evaluations to ascertain whether the components of internal control are present and functioning. A. True B. False

" TRUE

"According to the U.S. Corporate Sentencing Guidelines, a corporate policy that mitigates the effect of an occurrence of fraud can reduce an organization's fine for criminal conduct by as much as 95%. A. True B. False

" TRUE

"According to the U.S. Corporate Sentencing Guidelines, the presence of an effective program to prevent and detect fraud within a company can lead to a reduction of the sentence in a federal criminal case. A. True B. False

" TRUE

"COSO recommends that corporations implement control activities through formal policies that establish what is expected and procedures that put policies into action. A. True B. False

" TRUE

"Failing to properly supervise all assistants and others who are delegated work on a fraud examination engagement is a violation of the ACFE Code of Professional Ethics. A. True B. False

" TRUE

"In identifying the inherent fraud risks that could apply to the organization, the fraud risk assessment team should specifically discuss the potential for management override of controls. A. True B. False

" TRUE

"Misbehavior is less likely to be detected and punished in a complex organizational structure than in a simple organizational structure. A. True B. False

" TRUE

"Research has shown that most individuals feel that breaking the law is morally wrong and that laws should be obeyed even when they do not agree with them. A. True B. False

" TRUE

"Unless specific unacceptable conduct is detailed in an anti-fraud policy, there can be legal problems in discharging a dishonest employee. A. True B. False

" TRUE

"Which of the following is TRUE regarding organizational structure? A. Companies with departments that are isolated geographically have a reduced risk of fraud B. The existence of many specialized departments within a company generally increases the overall risk of fraud within the organization C. Misbehavior is more likely to be detected in a complex organizational structure than in a simple organizational structure D. All of the above

" The existence of many specialized departments within a company generally increases the overall risk of fraud within the organization

"In general, the lowest level of reference for making moral decisions is: A. Philosophical principles B. The law C. Individual standards D. None of the above

" The law

"Who is responsible for holding the board of directors accountable for proper governance and oversight? A. Executive management B. The chairman of the board C. The external auditors D. The shareholders

" The shareholders

"Components necessary to develop, implement, and manage a comprehensive ethics program include: A. A vision statement B. A designated ethics official C. Sanctions for unethical behavior D. All of the above

" all of the above

"A detailed anti-fraud policy should outline the types of actions that are considered to be fraud. Which of the following should be included on that list? A. Forging or altering documents B. Using company equipment for personal reasons C. Disclosing proprietary information to competitors D. All of the above

" All of the above

"According to AU Section 240, the auditor's assessment of the risk of material misstatement due to fraud at the financial statement level should have an effect on which of the following aspect(s) of an audit? A. Assignment and supervision of personnel B. Consideration of accounting principles used C. Choice of auditing procedures D. All of the above

" All of the above

"According to COSO, an internal control system should be designed to provide reasonable assurance regarding the achievement of the organization's objectives pertaining to which of the following? A. The reporting of financial and nonfinancial information to internal and external parties B. The effectiveness and efficiency of the organization's operations C. The organization's adherence to the laws and regulations to which it is subject D. All of the above

" All of the above

"According to Dr. Steve Albrecht's Fraud Scale model, the variables that drive the occurrence of occupational fraud include: A. Perceived opportunity B. Personal integrity C. Situational pressure D. All of the above

" All of the above

"According to the OECD Principles of Corporate Governance, an entity's corporate governance framework should: A. Encourage active cooperation between corporations and stakeholders in creating wealth and jobs B. Ensure the equitable treatment of all shareholders, including minority and foreign shareholders C. Ensure the timely and accurate disclosure of all material matters regarding the corporation D. All of the above

" All of the above

"According to the authors of Crimes of the Middle Classes, which of the following factors have contributed to the rising problem of economic crime? A. The increased opportunity for wrongdoing as a result of advancing information technologies B. The continued pressures of a culture that rewards affluence and success C. The economy's increased reliance on credit D. All of the above

" All of the above

"An effective system of internal controls: A. Increases the perception that fraud will be detected B. Involves balancing preventive controls and detective controls C. Mitigates the risk of fraud, but cannot completely eliminate it D. All of the above

" All of the above

"An organization's fraud risk management program should include which of the following components? A. Quality assurance activities B. Whistleblower protection policies C. A way to disclose conflicts of interest D. All of the above

" All of the above

"As part of an organization's fraud risk management program, employees at all levels should: A. Understand how noncompliance might create an opportunity for fraud to occur B. Cooperate in investigations into suspected or alleged fraud incidents C. Provide input into the design and implementation of fraud control activities when requested by management D. All of the above

" All of the above

"During a performance audit of a government agency, the auditor identifies information indicating fraud might have occurred. Which of the following statements is TRUE regarding how the auditor should respond? A. If the fraud is deemed both significant to the audit objectives and likely to have occurred, the auditor should extend the audit steps to determine the effect of the fraud on the audit findings B. If the fraud is deemed significant to the audit objectives, the auditor should extend the audit steps and procedures to determine whether fraud has likely occurred C. If the fraud is deemed insignificant to the audit objectives, the auditor should perform additional audit work as a separate engagement or refer the matter to the authorities D. All of the above

" All of the above

"During an audit, auditors should validate that the organization is appropriately managing the moderate-to-high fraud risks identified in the fraud risk assessment. Ways to do so include: A. Designing and performing tests to evaluate whether the identified controls are operating effectively and efficiently B. Identifying and mapping the existing controls that pertain to the moderate-to-high fraud risks identified in the fraud risk assessment C. Identifying within the moderate-to-high fraud risk areas whether there is a moderate-to-high risk of management override of internal controls D. All of the above

" All of the above

"For companies that fall under the provisions of the Sarbanes-Oxley Act, the CEO and CFO must personally certify the company's annual and quarterly SEC filings. Which of the following statements must be included in the certifications by the CEO and CFO? A. That they have personally reviewed the company's financial statements B. That they are responsible for the company's internal controls C. That they have disclosed to their auditors and the audit committee any fraud that involves employees who have a significant role in the internal controls D. All of the above

" All of the above

"Good corporate governance practices: A. Define the relationships and expectations of the parties involved B. Provide clear lines of accountability and reporting C. Ensure that no single party is capable of making all the business decisions without influence, input, or approval of other parties D. All of the above

" All of the above

"In the context of a fraud examination, a mindset of professional skepticism means: A. Fraud examiners should relax their attitude of skepticism only when the evidence shows no signs of fraud B. Fraud examiners should always begin their assignments with the belief that something is amiss C. The fraud examiner's professional skepticism can be dispelled only by evidence D. All of the above

" All of the above

"In the context of fraud examination, integrity requires: A. Independence of mental attitude and avoidance of conflicts of interest B. Subordination of desires for personal gain to the interests of clients, employers, and the public C. An ability to analyze situations where no professional rules are specifically applicable and determine right from wrong D. All of the above

" All of the above

"Management at Blue Sky Inc. has decided to implement a formal risk management program and is using a risk management framework as a starting point. In developing the program, management should tailor the framework to the organization's: A. Regulatory environment B. Culture C. Financial condition D. All of the above

" All of the above

"Professional organizations, such as the Association of Certified Fraud Examiners, have codes of ethics because: A. They provide more direct solutions to professional ethical dilemmas than might exist under general ethical principles B. They serve as a reference and benchmark for ethical guidance C. They facilitate practical enforcement and profession-wide internal discipline D. All of the above

" All of the above

"Risk management includes which of the following activities with regard to the risks that threaten an organization? A. Identification B. Treatment C. Monitoring D. All of the above

" All of the above

"The ACFE Code of Professional Ethics prohibits fraud examiners from engaging in undisclosed conflicts of interest. Which of the following situations should a fraud examiner avoid to ensure compliance with this rule? A. Undertaking an engagement to secretly infiltrate the fraud examiner's employing organization and transmit inside information to another party B. Undertaking engagements that create a hardship or loss to the fraud examiner's full-time employer C. Undertaking engagements for both sides to a particular controversy or issue D. All of the above

" All of the above

"The external auditor should perform which of the following procedures to obtain information to use in identifying the risks of material misstatement due to fraud? A. Evaluate any unusual or unexpected relationships that have been identified in performing analytical procedures B. Evaluate whether the information obtained from the risk assessment procedures indicates that fraud risk factors are present C. Make inquiries of management and others within the entity to determine whether they have knowledge of any actual, suspected, or alleged fraud affecting the entity D. All of the above

" All of the above

"The fraud risk assessment team might include: A. The general counsel B. Accounting and finance personnel C. External consultants D. All of the above

" All of the above

"The fraud risk assessment team should include: A. Individuals who are credible B. Individuals with diverse knowledge, skills, and perspectives C. Individuals with experience gathering and eliciting information D. All of the above

" All of the above

"The term occupational crime covers which of the following types of white-collar offenses? A. Crimes by officials B. Crimes by professionals C. Crimes by individuals D. All of the above

" All of the above

"Under the provisions of the Private Securities Litigation Reform Act of 1995, if an auditor ""detects or otherwise becomes aware that an illegal act"" has or might have occurred, which of the following is the auditor then required to do? A. Inform the appropriate level of management as soon as practicable B. Determine and consider the possible effects of the act on the company's financial statements C. Ensure that the audit committee is adequately informed of any detected illegal acts unless such acts are "clearly inconsequential" D. All of the above

" All of the above

"Which of the following elements is required for a corporate compliance program to be effective? A. Due diligence in the hiring process B. Appropriate incentives for compliance with the program C. Consistent punishment for employees who violate the program D. All of the above

" All of the above

"Which of the following factors should an organization consider when designing the components of its compliance and ethics program? A. Recurrence of similar conduct B. Industry size and standards C. Organization size D. All of the above

" All of the above

"Which of the following factors should auditors discuss during their fraud brainstorming session, as required by AU Section 240? A. How a company's assets could be misappropriated B. Factors that indicate a culture that enables individuals to rationalize committing fraud C. How and where the financial statements might be susceptible to fraud D. All of the above

" All of the above

"Which of the following influences the level of fraud risk faced by an organization? A. The geographic regions in which it operates B. The ethics of its leadership team C. The effectiveness of its internal controls D. All of the above

" All of the above

"Which of the following is TRUE about the fraud risk assessment process? A. Management and auditors should share ownership of the process and accountability for its success B. Conducting an effective fraud risk assessment requires thinking like a fraudster C. The assessment team must be perceived as independent and objective by others for the assessment to be effective D. All of the above

" All of the above

"Which of the following is TRUE regarding financial audits conducted in accordance with generally accepted government auditing standards (GAGAS)? A. The fraud-related responsibilities of the auditor are fundamentally the same as those required of auditors under AU Section 240 B. When the audit report discloses identified fraud, it should also include the views of responsible officials concerning the fraud C. In addition to considering fraud during the audit, the auditor must also consider instances of noncompliance and abuse D. All of the above

" All of the above

"Which of the following is TRUE regarding the process of defining the objective of the fraud risk management program? A. Management must balance the investment in anti-fraud controls with the benefit of those controls and the amount of risk it is willing to accept B. Management should examine previous fraud occurrences to determine how the ideal fraud risk management program would have prevented them C. Management should express risk appetite in a manner that is appropriate for and unique to the organization's culture and operations D. All of the above

" All of the above

"Which of the following is a principle pertaining to the information and communication component of COSO's Internal Control—Integrated Framework? A. The organization obtains or generates and uses relevant, quality information to support the functioning of internal control B. The organization communicates with external parties regarding matters affecting the functioning of internal control C. The organization internally communicates information—including objectives and responsibilities for internal control—necessary to support the functioning of internal control D. All of the above

" All of the above

"Which of the following is a requirement regarding internal control over financial reporting (ICOFR) under the Sarbanes-Oxley Act? A. Management must acknowledge its responsibility for establishing and maintaining adequate ICOFR B. Management must identify the framework used in performing its assessment of ICOFR C. The auditor must issue an opinion on the effectiveness of the ICOFR D. All of the above

" All of the above

"Which of the following is a responsibility of the audit committee under the Sarbanes-Oxley Act? A. Resolving disputes about financial reporting between the auditors and management B. Pre-approving all audit and non-audit services provided by the external auditor C. Hiring, overseeing, and paying the company's external auditors D. All of the above

" All of the above

"Which of the following is a responsibility that the internal auditor should carry out in conducting audit engagements? A. Evaluate the indicators of fraud and decide whether any further action is necessary or whether an investigation should be recommended B. Evaluate whether management is actively retaining responsibility for oversight of the fraud risk management program C. Consider fraud risks in the assessment of internal control design and determination of audit steps to perform D. All of the above

" All of the above

"Which of the following is among the board of directors' responsibilities pertaining to fraud risk management? A. Overseeing the organization's fraud risk management activities B. Raising awareness of the risks of fraud throughout the organization C. Setting realistic expectations of management to enforce an anti-fraud culture D. All of the above

" All of the above

"Which of the following is considered a white-collar crime? A. A stockbroker profits from trades made based on insider knowledge about a company B. A city official receives kickbacks for tailoring contract requirements to specific vendors C. An accounting clerk steals incoming payments from customers and makes falsified journal entries to cover her tracks D. All of the above

" All of the above

"Which of the following is one of the five fraud risk management principles described in the COSO/ACFE Fraud Risk Management Guide? A. Fraud risk management monitoring activities B. Fraud investigation and corrective action C. Fraud risk assessment D. All of the above

" All of the above

"Which of the following is one of the ways Silk and Vogel found that businesses rationalize illegal or noncompliant conduct? A. Violations aim to protect the job security of employees B. Compliance with government regulations is too costly C. The damage done by violations is diffused among a large number of parties D. All of the above

" All of the above

"Which of the following is required of auditors during an audit of internal controls over financial reporting conducted in accordance with PCAOB AS 2201? A. Assessing controls over journal entries and adjustments made during the end of the period B. Evaluating the controls enacted to address the risk of management override of other controls C. Evaluating controls specifically designed to mitigate the motivations for management to engage in financial statement fraud D. All of the above

" All of the above

"Which of the following represents one of the legs of the Fraud Triangle? A. Perceived opportunity B. Perceived non-shareable financial need C. Rationalization D. All of the above

" All of the above

"Which of the following statements is TRUE in regard to an organization's fraud risk management program? A. Formal sanctions for intentional noncompliance must be well-publicized and carried out in a consistent and firm manner B. A specific team or individual should be designated as responsible for monitoring compliance and handling suspected instances of noncompliance C. There should be measures in place to address failures in the design or operation of anti-fraud controls, as well as fraud occurrences D. All of the above

" All of the above

"Which of the following types of personnel can potentially bind a corporation through their own misconduct? A. Low-level employees B. Independent contractors C. Executive officers and directors D. All of the above

" All of the above

"Which of the following individuals would generally be the best choice for a sponsor for a fraud risk assessment? A. A staff accountant B. A CFO who has been known to command the use of extremely aggressive earnings-management practices C. An independent audit committee member D. A mid-level sales manager

" An independent audit committee member

"According to the 2018 Report to the Nations, which of the three major categories of occupational fraud is the most common? A. Asset misappropriation B. Identity theft C. Corruption D. Financial statement fraud

" Asset misappropriation

"In response to a risk identified during a fraud risk assessment, management chooses to accept the risk, rather than to implement any responsive measures. This approach is known as: A. Mitigating the risk B. Avoiding the risk C. Assuming the risk D. Transferring the risk

" Assuming the risk

"In response to a risk identified during a fraud risk assessment, management decides to eliminate an asset or discontinue an activity because the control measures required to protect the organization against the identified threat are too expensive. This response is known as: A. Avoiding the risk B. Transferring the risk C. Mitigating the risk D. Assuming the risk

" Avoiding the risk

"Which of the following is true according to the differential reinforcement theory? A. Behavior is weakened by positive stimuli. B. Behavior is reinforced when rewards are gained. C. Behavior is weakened when punishment is avoided. D. Behavior is reinforced by negative stimuli.

" Behavior is reinforced when rewards are gained.

"According to AU Section 240, the auditor is primarily concerned with fraud that: A. Causes a material misstatement in the financial statements B. Is determined to meet the legal definition of fraud C. Involves the misappropriation of company assets D. Is perpetrated by one or more members of management Submit Answer

" Causes a material misstatement in the financial statements

"As a strategy to control crime, _________ is designed to achieve conformity to the law by providing economic incentives for voluntary adherence to the law and using administrative efforts to control violations before they occur. A. Compliance B. Deterrence C. Prevention D. None of the above

" Compliance

"The two primary strategies to control corporate criminal behavior are: A. Compliance and deterrence B. Enforcement and compliance C. Deterrence and enforcement D. None of the above

" Compliance and deterrence

"Which of the following is NOT one of the principles involved in the risk assessment process, as laid out by COSO? A. Setting clear organizational objectives B. Considering the potential for fraud C. Assessing changes that could significantly impact the internal control system D. Conducting ongoing monitoring of the risk management strategy

" Conducting ongoing monitoring of the risk management strategy

"Preventive anti-fraud controls include all of the following EXCEPT: A. Segregation of duties B. Hiring policies and procedures C. Fraud awareness training D. Continuous audit techniques

" Continuous audit techniques

"The term _______ refers to the oversight responsibilities of different parties for an organization's direction, operations, and performance. A. Corporate compliance B. Risk management C. Corporate governance D. Fraud risk assessment

" Corporate governance

"The payment of bribes to procure business is considered a fraud risk pertaining to which category of fraud? A. Corruption B. Fraudulent financial reporting C. Asset misappropriation D. None of the above

" Corruption

"The theory of differential association is used frequently to explain white-collar criminality. Which of the following is one of the assertions or principles of differential association? A. People are genetically predisposed to be criminals. B. Criminal behavior is acquired through participation with intimate personal groups. C. Criminal behavior is explained by an individual's general needs and values. D. Learning is the same as pure imitation.

" Criminal behavior is acquired through participation with intimate personal groups.

"Edward Gross and other criminologists have asserted that organizations are inherently: A. Exploitative B. Averse to misconduct C. Criminogenic D. None of the above

" Criminogenic

"In the area of criminological theory, ____________ is the theory that tries to prevent crime by using the threat of criminal sanctions. A. Deterrence B. Adherence C. Punishment D. None of the above

" Deterrence

"The criminologist responsible for the well-known hypothesis of the Fraud Triangle is: A. Donald R. Cressey B. Marshall B. Clinard C. Immanuel Kant D. None of the above

" Donald R. Cressey

"The purpose of corporate governance is to: A. Prevent and detect financial misstatements, whether caused by errors or fraud. B. Encourage the efficient use of resources and require accountability for the stewardship of those resources. C. Ensure the accuracy and reliability of the organization's financial reports. D. Provide reasonable assurance regarding the organization's compliance with applicable laws and regulations.

" Encourage the efficient use of resources and require accountability for the stewardship of those resources.

"Which of the following is NOT an effective response for addressing the risk of material misstatement due to fraud during a financial statement audit? A. Using differing sampling methods when collecting data for audit testing B. Assigning specialists to assist regarding a particularly technical issue C. Engaging in consistent auditing procedures each year D. Implementing auditing procedures on an unannounced basis

" Engaging in consistent auditing procedures each year

"According to COSO, _________ is the culture, capabilities, and practices, integrated with strategy-setting and its performance, that organizations rely on to manage risk in creating, preserving, and realizing value. A. Internal control B. Fraud prevention C. Enterprise risk management D. Corporate governance

" Enterprise risk management

"The primary purpose of AU Section 240 is to: A. Establish auditors as being primarily responsible for the prevention and detection of fraud within an organization B. Emphasize that the primary responsibility for establishing internal controls rests with auditors C. Establish standards for auditors in fulfilling their responsibilities related to fraud during a financial statement audit D. All of the above

" Establish standards for auditors in fulfilling their responsibilities related to fraud during a financial statement audit

"Which of the following should be covered in employee anti-fraud training? A. A detailed explanation of the company's anti-fraud controls B. The exact procedures that management uses to detect fraud C. Examples of past transgressions and how they were handled D. All of the above

" Examples of past transgressions and how they were handled

"Fraudulent customer payments, corporate espionage, and hacking schemes are all fraud risks pertaining to which of the following categories? A. Asset misappropriation B. Reputation risk C. Regulatory and legal misconduct D. External fraud

" External fraud

" "Rachel, an independent CFE, was hired by Laura, the CEO of Black and White Inc., to investigate a case of alleged vendor overbilling. During the investigation, Rachel learns that Laura is involved in an unrelated fraud scheme. Under the ACFE Code of Professional Ethics, Rachel should resign from the engagement without disclosing the evidence against Laura. A. True B. False

" FALSE

"A fraud risk assessment report should contain a detailed, comprehensive list of every assessment finding and all suggested responses so that management can address each issue within the company, no matter how small. A. True B. False

" FALSE

"A fraud risk assessment report should reflect the assessment team's subjective perspective and opinions that were formed during the assessment engagement. A. True B. False

" FALSE

"A mid-level manager at the XYZ Company inflated revenue figures to meet the company's quarterly targets. The officers and directors of XYZ did not know the fraud was occurring; therefore, the company cannot be held criminally liable for the fraud. A. True B. False

" FALSE

"A person's social status plays no role in his ability to commit white-collar crime. A. True B. False

" FALSE

"According to Diane Vaughan, an employee who is truly loyal to a company would never commit fraud on the company's behalf. A. True B. False

" FALSE

"According to PCAOB AS 2201, an auditor should implement a bottom-up approach when auditing an entity's internal controls over financial reporting. A. True B. False

" FALSE

"According to The Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing, due professional care implies infallibility. A. True B. False

" FALSE

"According to The Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing, internal auditors must apply the care and skill of an expert whose primary responsibility is investigating fraud. A. True B. False

" FALSE

"According to the 2018 Report to the Nations, more frauds are uncovered by external audit than by any other form of detection. A. True B. False

" FALSE

"According to the U.S. Corporate Sentencing Guidelines, the payment of full restitution to victims of crime is considered an adequate form of punishment. A. True B. False

" FALSE

"An entity's corporate culture is most effectively assessed using a checklist of initiatives to make sure all the elements of a strong tone at the top are in place. A. True B. False

" FALSE

"An organization's board of directors does not necessarily have to be knowledgeable about the implementation of an organization's compliance and ethics program if the board has delegated that responsibility to a compliance officer. A. True B. False

" FALSE

"During a performance audit of a government agency, if the auditor identifies information indicating fraud might have occurred, the auditor should stop the audit and contact the Inspector General's office for a criminal investigation. A. True B. False

" FALSE

"During an admission-seeking interview of a fraud suspect, Gary, a Certified Fraud Examiner, accuses the suspect of having committed a fraud. Gary's accusation violates the ACFE Code of Professional Ethics. A. True B. False

" FALSE

"During the course of a fraud examination, Omar, an employee of XYZ Inc., approaches Maryam, a Certified Fraud Examiner and fellow employee of XYZ, and tells Maryam that he knows of a major fraud being committed by company management. However, Omar says he can only provide details if Maryam promises him absolute confidentiality. In response to Omar's condition, Maryam should agree to keep the source of the information confidential, even though she knows she will eventually have to reveal Omar's identity. A. True B. False

" FALSE

"Harassing an employee of a nonpublic U.S. company for testifying regarding an alleged violation of state securities laws is a violation of the whistleblower protections provided by the Sarbanes-Oxley Act. A. True B. False

" FALSE

"If a fraud examiner makes a mistake in judgment, he should avoid admitting to the error, as it could compromise the integrity of his case. A. True B. False

" FALSE

"In a public company, the CEO should be charged with having primary responsibility for the oversight of the company's compliance program. A. True B. False

" FALSE

"Lee, a Certified Fraud Examiner, was hired to investigate a company. After he carefully examined the company, he issued a report that stated, in part, ""... in my opinion, this operation is free of material fraud."" Such an opinion is permitted under the ACFE Code of Professional Ethics. A. True B. False

" FALSE

"Management must assign a quantitative measure to its risk appetite so that it can accurately measure the fraud risk management program's effectiveness. A. True B. False

" FALSE

"Most experts agree that it is much easier to detect fraud than it is to prevent it. A. True B. False

" FALSE

"Research shows that a criminal's social status or class is the determinant aspect of white-collar crime. A. True B. False

" FALSE

"The Fraud Triangle hypothesis can be used to explain every instance of fraudulent conduct. A. True B. False

" FALSE

"The OECD Principles of Corporate Governance is required to be implemented by all corporations in the jurisdictions that have officially adopted the Principles. A. True B. False

" FALSE

"The Sarbanes-Oxley Act requires all public U.S. companies to adopt a code of ethics for senior financial officers. A. True B. False

" FALSE

"The board of directors holds the primary responsibility for designing, implementing, monitoring, and improving the fraud risk management program. A. True B. False

" FALSE

"The fraud risk assessment process should be conducted covertly so that assessment team members can get an accurate picture of what actually occurs in the business. A. True B. False

" FALSE

"The risk of the auditor not detecting a material misstatement resulting from employee fraud is greater than the risk of the auditor not detecting a material misstatement resulting from management fraud. A. True B. False

" FALSE

"To ensure the independence of the team members, a fraud risk assessment must be conducted by a consultant or other external party. A. True B. False

" FALSE

"To show appreciation for an employee's hard work, a manager exempts the individual from several undesirable administrative tasks. This is an example of positive reinforcement. A. True B. False

" FALSE

"Under the ACFE Code of Professional Ethics, a fraud examiner is strictly prohibited from accepting an assignment to uncover fraud in a company in which he has a major interest. A. True B. False

" FALSE

"Under the ACFE Code of Professional Ethics, fraud examiners are strictly prohibited from expressing opinions on technical matters. A. True B. False

" FALSE

"Under the ACFE Code of Professional Ethics, fraud examiners are strictly prohibited from revealing confidential client information under any circumstances. A. True B. False

" FALSE

"Under the ACFE Code of Professional Ethics, information provided to a fraud examiner by a client is considered privileged information and is therefore protected from being legally demanded by outside parties. A. True B. False

" FALSE

"Under the Sarbanes-Oxley Act, members of the audit committee can be paid for consulting work done for the company, but only if the transaction is documented and conducted at arm's length. A. True B. False

" FALSE

"When gathering information as part of a fraud risk assessment, surveys and anonymous feedback mechanisms both provide an effective way to conduct candid one-on-one conversations with employees. A. True B. False

" FALSE

"When performing a fraud risk assessment, the fraud examiner should only designate an area as high risk if the assessment has conclusively revealed that fraud is occurring there. A. True B. False

" FALSE

"White-collar defendants are less likely to insist on a trial than other offenders. A. True B. False

" FALSE

"Yellow Book auditing standards apply to performance audits conducted at private companies and nonprofit organizations. A. True B. False

" FALSE

"According to the 2018 Report to the Nations, which of the three major categories of occupational fraud has the highest median loss? A. Identity theft B. Asset misappropriation C. Financial statement fraud D. Corruption

" Financial statement fraud

"Which of the following is FALSE regarding employee anti-fraud education? A. Fraud awareness training should be required for employees both at time of hire and periodically thereafter. B. Fraud awareness training efforts should be restricted to formal education mechanisms. C. Mid-level managers should be tasked with assisting in training their teams about fraud. D. All anti-fraud training should be based on the organization's specific operations and fraud risks.

" Fraud awareness training efforts should be restricted to formal education mechanisms.

"The risk that an organization might be victimized by an individual who is able to combine the three elements of the Fraud Triangle is called _______________. A. Insider risk B. Audit risk C. Environmental risk D. Fraud risk

" Fraud risk

"Detective anti-fraud controls include all of the following EXCEPT: A. Hiring policies and procedures B. Hotline C. Physical inspections D. Proactive data analysis techniques

" Hiring policies and procedures

"The Private Securities Litigation Reform Act requires public company audits to include procedures designed to provide reasonable assurance of detecting __________ that would have a direct and material effect on the financial statements. A. Fraud B. Illegal acts C. Corruption D. None of the above

" Illegal acts

"During a fraud examination, John, a CFE, becomes aware of a situation that might appear to others as though he has a conflict of interest, even though there is no actual conflict. To address the situation, John's best course of action is to: A. Continue working on the assignment without disclosing the potential conflict but take care to avoid any areas where an actual conflict might arise B. Immediately disclose the situation to company management C. Immediately withdraw from the engagement without disclosing the potential conflict to management D. None of the above

" Immediately disclose the situation to company management

" "Which of the following is TRUE regarding an organization's ethics policy? A. Access to the policy should be restricted to external parties only. B. In developing the policy, management should consider how various members of the organization define success. C. Access to the policy should be restricted to company employees only. D. In developing the policy, management should not consider the existing ethical tone set by leadership.

" In developing the policy, management should consider how various members of the organization define success.

"Which of the following is an effective way to help prevent fraud through the organization's performance measurement and management programs? A. Including ethics-based metrics as a component of performance evaluations B. Tying employee compensation to aggressive organizational performance goals C. Placing the responsibility for identifying training needs and performance deficiencies in the employee's hands D. Establishing loosely defined job descriptions that enable employees flexibility in their roles

" Including ethics-based metrics as a component of performance evaluations

"Of the following, which is the most effective method of preventing fraud? A. Screening employees B. Conducting covert audits C. Increasing the perception of detection D. Having an open-door policy

" Increasing the perception of detection

"COSO identified five interrelated components of _________________. A. Professional development B. Internal control C. Fraud D. Ethical theories

" Internal control

"Which of the following is FALSE regarding the U.S. Corporate Sentencing Guidelines? A. Judges in both state and federal courts are required to follow the Guidelines. B. The Guidelines allow for a reduction in fines for organizations found guilty of criminal conduct if they have effective compliance programs in place. C. The Guidelines require that, whenever possible, the organization must pay full restitution to the victims of the crime. D. The Guidelines were established to provide incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct.

" Judges in both state and federal courts are required to follow the Guidelines.

"Which of the following is regarded as the essential factor that makes a leader's authority effective? A. Ability to instill fear in subordinates B. Strong morals C. Experience in similar roles D. Legitimacy

" Legitimacy

"The reason the ACFE Code of Professional Ethics restricts the types of opinions fraud examiners may express is to protect the fraud examiner from claims of: A. Compounding a felony B. False imprisonment C. Libel D. None of the above

" Libel

"The research of Dr. Steve Albrecht found which of the following personal characteristics to be the top-ranked motivating factor to commit fraud? A. Dislike of company B. Living beyond means C. Dislike of boss D. Criminal personality

" Living beyond means

"According to the 2018 Report to the Nations, what was the most common behavioral red flag displayed by perpetrators prior to the discovery of their frauds? A. Living beyond their means B. Complaining about lack of authority C. Addiction problems D. Divorce or family problems

" Living beyond their means

"Which of the following parties is responsible for directing employees to carry out business activities and managing their performance of those tasks? A. Shareholders B. External auditors C. The board of directors D. Management

" Management

"Under the ACFE Code of Professional Ethics, evidence and conclusions are considered ___________ if knowledge of them would affect clients' decisions based on a fraud examiner's report. A. Circumstantial B. Material C. Reliable D. Confidential

" Material

"In response to a risk identified during a fraud risk assessment, management decides to implement appropriate countermeasures, such as prevention and detection controls. This response is known as: A. Mitigating the risk B. Avoiding the risk C. Assuming the risk D. Transferring the risk

" Mitigating the risk

"Leo, a Certified Fraud Examiner, conducted a fraud examination at Blue Corp. Anna was a prime suspect in the disappearance of money, but Leo could not prove it. Later, Leo discovered Anna had been recently hired by Red Corp., another client of his. Under the ACFE Code of Professional Ethics, Leo must: A. Inform Red Corp. B. Not inform Red Corp. C. Inform Red Corp. if the evidence is clear and convincing D. None of the above

" Not inform Red Corp.

"The _______________ provide(s) guidance for policy makers in evaluating and improving the legal, regulatory, and institutional framework for corporate governance. A. OECD Principles of Corporate Governance B. INTOSAI Code of Ethics C. IIA Standards for the Professional Practice of Internal Auditing D. IOSCO Principles for Auditor Oversight

" OECD Principles of Corporate Governance

"An accounting clerk stealing incoming customer payments is an example of: A. Occupational crime B. Both organizational crime and occupational crime C. Organizational crime D. Neither organizational crime nor occupational crime

" Occupational crime

"PCAOB AS 2201 provides guidance for auditors on: A. Performing an audit of an entity's internal controls over financial reporting B. Evaluating management's discussion and analysis C. Determining whether an entity's financial statements are affected by fraud D. None of the above

" Performing an audit of an entity's internal controls over financial reporting

"According to the joint COSO and ACFE publication Fraud Risk Management Guide, who has responsibility for managing fraud risk? A. Internal audit B. Executive management C. The board of directors D. Personnel at all levels of the organization

" Personnel at all levels of the organization

"Management of Blue Top Inc. is implementing a formal background check policy for its employees. Which of the following is NOT a best practice that it should implement as part of this initiative? A. Ask a candidate's previous employers whether the individual is eligible for rehire. B. Check the background of any employee who will have constant access to cash, checks, and credit card numbers. C. Place a low priority on checking professional references, since most people won't provide a bad reference. D. Run a background check on existing employees who are being promoted or moved to positions that include access to easily stolen assets.

" Place a low priority on checking professional references, since most people won't provide a bad reference.

"According to B. F. Skinner, which of the following is the most effective way to modify a person's behavior? A. Ignoring it B. Punishment C. Positive reinforcement D. None of the above

" Positive reinforcement

"_____________ controls are designed to stop something bad from happening before it occurs, while _____________ controls are designed to identify something bad that has already occurred. A. Detective; investigative B. Investigative; detective C. Investigative; deterrent D. Preventive; detective

" Preventive; detective

"According to criminologist Charles McCaghy, _____________ is the single most compelling factor behind deviance by organizations. A. Government regulation B. Employee demands C. Profit pressure D. None of the above

" Profit pressure

"Which of the following behavioral responses involves withdrawing a positive stimulus or applying a negative stimulus in response to an undesired behavior? A. Punishment B. Negative reinforcement C. Positive reinforcement D. None of the above

" Punishment

"Which of the following is among the audit committee's responsibilities for fraud risk management? A. Monitoring and proactively improving the fraud risk management program B. Performing and regularly updating the fraud risk assessment C. Receiving regular reports on the status of reported or alleged fraud D. All of the above

" Receiving regular reports on the status of reported or alleged fraud

"Theft of competitor trade secrets, anti-competitive practices, environmental violations, and trade and customs regulations in areas of import and export are all fraud risks pertaining to: A. Regulatory and legal misconduct B. Fraudulent financial reporting C. Reputation risk D. Asset misappropriation

" Regulatory and legal misconduct

"Which of the following is NOT one of the responsibilities that the internal auditor should carry out in conducting audit engagements? A. Have sufficient knowledge of fraud to identify red flags indicating fraud might have been committed. B. Report all findings of fraud to the Securities and Exchange Commission within ten working days. C. Be alert to opportunities that could allow fraud, such as control deficiencies. D. Consider fraud risks in the assessment of internal control design and determination of audit steps to perform.

" Report all findings of fraud to the Securities and Exchange Commission within ten working days.

"Which of the following is NOT one of the factors that Diane Vaughan cites as contributing to organizations being inherently prone to committing crime? A. Organizations tend to recruit and attract similar individuals. B. Long-term loyalty is encouraged through company retirement and benefits. C. Loyalty is encouraged through social interaction, such as company parties and social functions. D. Rewards are given to employees who challenge the status quo.

" Rewards are given to employees who challenge the status quo.

"Which of the following is one of the interrelated components of a company's internal control system, as laid out by COSO? A. Risk assessment B. Ethical culture C. Assurance function D. Independent oversight

" Risk assessment

"Which of the following is NOT one of the components of COSO's Enterprise Risk Management—Integrating with Strategy and Performance? A. Governance and culture B. Performance C. Risk tolerance D. Review and revision

" Risk tolerance

"Roger has just completed a fraud examination report containing confidential information for ABC Inc., a client. He received a call from the local police requesting a copy of the report. Which of the following statements is FALSE? A. Roger can turn over the report if it is demanded by a court order. B. Roger can turn over the report without any repercussions because he owns the information contained in the document. C. Roger can turn over the report if the information is requested in a search warrant. D. Roger can turn over the report if his client consents.

" Roger can turn over the report without any repercussions because he owns the information contained in the document.

"According to The Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing, the internal audit activity must evaluate risk exposures relating to the organization's governance, operations, and information systems regarding all of the following EXCEPT: A. Sale of tangible and intangible assets B. Reliability and integrity of financial and operational information C. Effectiveness and efficiency of operations D. Compliance with laws, regulations, and contracts

" Sale of tangible and intangible assets

"Which of the following is an example of a violation of the ACFE Code of Professional Ethics' requirement for diligent, professional behavior? A. Obtaining more evidence than the minimum amount needed to prove a case B. Skipping vital investigation steps to improve the efficiency of a fraud examination C. Delegating a task to a lower-level employee and overseeing that individual's performance D. All of the above

" Skipping vital investigation steps to improve the efficiency of a fraud examination

"Which of the following techniques for gathering information during a fraud risk assessment involves obtaining individuals' responses through a formal electronic or paper questionnaire? A. Interviews B. Anonymous feedback mechanisms C. Surveys D. Focus groups

" Surveys

" "Fraud examiners generally are not entitled to claim ignorance of the law as a defense for illegal activity. A. True B. False

" TRUE

"A behaviorist view of the workplace advocates the use of incentive programs and task-related bonuses as a way to deter employees from ethical and legal violations. A. True B. False

" TRUE

"A detailed anti-fraud policy can give management legal grounds to investigate and punish violators. A. True B. False

" TRUE

"A fraud risk management program must include mechanisms specifically designed to monitor, identify, and address breaches in compliance. A. True B. False

" TRUE

"A positive reinforcement presents a positive stimulus in exchange for the desired response. A. True B. False

" TRUE

"AU Section 240 delineates two types of frauds that are relevant for audit purposes: those that involve intentional fraudulent financial reporting and those that involve the misappropriation of company assets. A. True B. False

" TRUE

"AU Section 240 requires auditors to brainstorm how management could perpetrate and conceal fraudulent financial reporting. A. True B. False

" TRUE

"According to B. F. Skinner's behaviorist theories, destructive workplace behavior, such as fraud, can be deterred by rewarding honesty and openness. A. True B. False

" TRUE

"According to COSO, internal control is a process "designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance." A. True B. False

" TRUE

"According to COSO, the effectiveness of an overall system of internal controls can be determined by assessing whether several specific components are in place, functioning effectively, and operating together in an integrated manner. A. True B. False

" TRUE

"According to Diane Vaughan, encouraging employee loyalty through social interactions, such as company parties and social functions, can contribute to the organization being more inherently inclined to commit crime. A. True B. False

" TRUE

"According to Diane Vaughan, linking employees' needs and goals to the company's success can encourage unlawful conduct by individuals on the organization's behalf. A. True B. False

" TRUE

"According to Managing the Business Risk of Fraud, an organization's anti-fraud policy should include consequences for individuals who condone fraudulent activity. A. True B. False

" TRUE

"According to PCAOB AS 2201, the external auditor should integrate the audit of the company's internal controls over financial reporting (ICOFR) with the audit of the company's financial statements. A. True B. False

" TRUE

"According to The Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing, the internal audit team must evaluate the potential for the occurrence of fraud, as well as the organization's fraud risk management initiatives. A. True B. False

" TRUE

"According to a study conducted by Dr. Steve Albrecht, occupational crime perpetrators who were interested primarily in ""beating the system"" committed larger frauds than those who believed their pay was not adequate. A. True B. False

" TRUE

"According to the 2018 Report to the Nations, more occupational frauds are committed by men than by women. A. True B. False

" TRUE

"According to the 2018 Report to the Nations, the use of proactive data monitoring and analysis can help reduce the financial impact of fraud on an organization. A. True B. False

" TRUE

"According to the authors of Crimes of the Middle Classes, advertising influences economic crimes by promising that no one has to settle for second best. A. True B. False

" TRUE

"According to the differential reinforcement theory, behavior is weakened by negative stimuli (punishment) and loss of reward (negative punishment). A. True B. False

" TRUE

"According to the social control theory, the more important that social relationships are to a person, the less likely it is that the person will commit crimes. A. True B. False

" TRUE

"An entity's corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization and lays down the rules and procedures for organizational decision-making. A. True B. False

" TRUE

"An organization can be held liable for an employee's act if management knew there was a high probability the act had occurred and consciously avoided confirming that fact. A. True B. False

" TRUE

"At the close of an integrated audit performed under PCAOB AS 2201, the auditor may choose to issue a single report containing both an opinion on the company's financial statements and an opinion on the effectiveness of internal controls over financial reporting (ICOFR) or to issue a separate report for each opinion. A. True B. False

" TRUE

"Both the NYSE and NASDAQ have rules requiring listed companies to adopt and disclose a code of conduct for all employees and to report any waivers of the code for directors or officers. A. True B. False

" TRUE

"Communications regarding the organization's anti-fraud policy should be presented in a positive, non-accusatory manner. A. True B. False

" TRUE

"Companies with securities listed on the NYSE must have an internal audit function. A. True B. False

" TRUE

"Cressey found that embezzlers' offenses are motivated by situations that either threaten their current status or threaten to prevent them from achieving a higher status. A. True B. False

" TRUE

"Criminal activities involving corporations stem primarily from the organization's subcultures and values, rather than from the attitudes and characteristics of the individuals carrying out the crimes. A. True B. False

" TRUE

"Criminological research has generally concluded that punishing an individual for undesirable behavior will temporarily suppress the behavior as long as the punishment is applied directly and continuously, but the behavior will likely return once the punishment is discontinued. A. True B. False

" TRUE

"Designating an area as having a high fraud risk and putting the related activity under increased scrutiny can deter potential fraudsters by increasing their perception of detection. A. True B. False

" TRUE

"Dr. Steve Albrecht's research indicates that the personal characteristics most common among fraud perpetrators are a tendency to live beyond their means, an overwhelming desire for personal gain, and high personal debt. A. True B. False

" TRUE

"During a fraud risk assessment, the assessment team should consider the way employees make decisions, behave, or treat others and assess how those actions affect the company's vulnerability to fraud. A. True B. False

" TRUE

"Effective corporate governance is the foundation of fraud risk management. A. True B. False

" TRUE

"Establishing and communicating the proper flow of information to everyone in the organization is an essential component of a fraud prevention program. A. True B. False

" TRUE

"For a corporate compliance program to be effective, the company must proactively monitor, audit, and evaluate the program's components. A. True B. False

" TRUE

"For analytical review procedures performed during a financial statement audit to be most effective in uncovering fraud, the scheme must materially impact the financial statements. A. True B. False

" TRUE

"For its compliance program to be effective, an organization must communicate the program to all its employees through training programs. A. True B. False

" TRUE

"Fraud examiners should consider the nature of the assignment and the preliminary information available in forming the engagement hypothesis. A. True B. False

" TRUE

"Government Auditing Standards for performance audits state that as part of assessing the risk of fraud, audit team members should discuss fraud risks among the team. A. True B. False

" TRUE

"Having an auditor ask employees questions, such as ""Has anyone ever asked you to do anything that you felt was illegal or unethical?"" can be an effective method of uncovering fraud within an organization. A. True B. False

" TRUE

"In defining the objectives of the fraud risk management program, management can choose to express risk appetite either quantitatively or qualitatively. A. True B. False

" TRUE

"In reporting the results of a fraud examination, a fraud examiner is required to disclose any information that, if not disclosed, would change a user's perceptions and conclusions. A. True B. False

" TRUE

"In white-collar crime cases, the higher an offender's status, the more likely that person is to be imprisoned. A. True B. False

" TRUE

"Justine, a CFE, was contacted regarding an engagement to investigate a complex insurance fraud case involving an organized crime ring. Justine had previously taken a self-study CPE course on insurance fraud schemes, but she had no other training or experience in such cases. However, she accepted the engagement and chose to conduct the work herself. Justine's conduct would likely be a violation of the ACFE Code of Professional Ethics. A. True B. False

" TRUE

"Managers should be instructed to observe employees' lifestyles for warning signs of fraud, and employees should know that supervisors are watching for unexplained or suspicious anomalies of this nature. A. True B. False

" TRUE

"Ownership of an equity share in a publicly traded company provides an investor with a right to certain information about the corporation and a right to influence the corporation through participation in general shareholder meetings and by voting. A. True B. False

" TRUE

"Proactive audit procedures, such as fraud assessment questioning and surprise audits, can help demonstrate management's intention to aggressively seek out fraud. A. True B. False

" TRUE

"Requiring employees in certain functions (e.g., accounting clerks) to periodically rotate job duties can be an effective anti-fraud measure. A. True B. False

" TRUE

"Research has shown that many executives justify illegal behavior as simply common practice in the business world. A. True B. False

" TRUE

"Risk management involves weighing an organization's strategic, operational, reporting, and compliance objectives against how much risk management is willing to accept. A. True B. False

" TRUE

"Social control theory suggests that the less attached an individual is to social institutions and groups, the greater that individual's chances of violating the law are. A. True B. False

" TRUE

"Sociologist Edward Gross has asserted that organizations' reliance on profit makes them inherently prone to committing fraud. A. True B. False

" TRUE

"Surprise audits can be effective in both preventing and detecting fraudulent conduct. A. True B. False

" TRUE

"Systems based on the compliance theory of crime control attempt to achieve conformity to the law without having to detect, process, or penalize violators. A. True B. False

" TRUE

"The Sarbanes-Oxley Act provides both civil and criminal penalties for retaliating against corporate whistleblowers. A. True B. False

" TRUE

"The Treadway Commission was established with the purpose of defining the responsibility of the auditor in preventing and detecting fraud. A. True B. False

" TRUE

"The U.S. Corporate Sentencing Guidelines require that a compliance and ethics program be reasonably designed, implemented, and enforced so that it is generally effective in preventing and detecting criminal conduct. A. True B. False

" TRUE

"The boards of directors of companies that are listed on the NYSE or NASDAQ must be composed of a majority of independent directors. A. True B. False

" TRUE

"The fraud risk assessment should be formally incorporated into the annual audit planning process. A. True B. False

" TRUE

"The fraud risk assessment team should consider both qualitative and quantitative factors when assessing the organization's fraud risks. A. True B. False

" TRUE

"The fraud risk management program should include the formal procedures management takes in response to a fraud, such as punishing the perpetrator, remediating the control weaknesses that allowed the fraud to occur, and rebuilding stakeholders' confidence in the organization. A. True B. False

" TRUE

"The managements from several IT consulting firms conspire to take turns submitting the lowest bids for all contracts in their area; this is considered an organizational crime. A. True B. False

" TRUE

"The risk of an auditor not detecting a material misstatement resulting from fraud is higher than the risk of an auditor not detecting a material misstatement resulting from error. A. True B. False

" TRUE

"The size of the fraud risk assessment team will depend on the size of the organization and the methods used to conduct the assessment. A. True B. False

" TRUE

"The success of the fraud risk assessment process depends on how effectively the results are reported and what the organization then does with those results. A. True B. False

" TRUE

"The way that management handles incidents of fraud within the organization plays an important role in its fraud prevention program. A. True B. False

" TRUE

"Two selling points of a fraud prevention program are fraud's potentially negative impact on a company's profits and its potential effect on the organization's public image. A. True B. False

" TRUE

"Under U.S. law, a corporation can be held responsible for the criminal acts of its employees if those acts are done in the course and scope of their employment and for the ostensible purpose of benefiting the corporation. A. True B. False

" TRUE

"Under the ACFE Code of Professional Ethics, fraud examiners are absolutely prohibited from expressing opinions regarding the guilt or innocence of any party. A. True B. False

" TRUE

"Under the U.S. Corporate Sentencing Guidelines, a failure to prevent or detect a particular instance of fraud does NOT necessarily mean that the organization's compliance program is ineffective. A. True B. False

" TRUE

"Under the U.S. Corporate Sentencing Guidelines, judges are required to examine the adequacy of a company's compliance and ethics program when sentencing the organization for criminal conduct. A. True B. False

" TRUE

"Under the fraud control activities principle described in the COSO/ACFE Fraud Risk Management Guide, organizations should select, develop, and deploy preventive and detective fraud control activities. A. True B. False

" TRUE

"When deciding on techniques to use as part of a fraud risk assessment, the assessment team should consider what methods are already commonly and effectively used throughout the organization. A. True B. False

" TRUE

"White-collar criminals are more likely to be fined than to face prison terms as punishment. A. True B. False

" TRUE

"Which of the following is INCORRECT regarding the code of ethics requirements under the Sarbanes-Oxley Act? A. The SEC believes that determining the particular sanctions for violations of the code of ethics is best left to the discretion of the company. B. Public U.S. companies must make publicly available the portions of their code of ethics that address the ethical considerations that apply to senior financial officers. C. The SEC has laid out specific language that must be included in all public U.S. companies' codes of ethics for senior financial officers. D. Public U.S. companies must disclose in their annual report whether they have adopted a code of ethics for senior financial officers, and if they have not, they must explain their reasoning.

" The SEC has laid out specific language that must be included in all public U.S. companies' codes of ethics for senior financial officers.

"According to the requirements of the Sarbanes-Oxley Act, which of the following parties is responsible for establishing procedures to handle complaints regarding irregularities in a publicly traded company's accounting methods, internal controls, or auditing matters? A. The audit committee B. The internal audit function C. Executive management D. The external audit firm

" The audit committee

"Of the following parties, who is responsible for the oversight of the organization's financial, accounting, and audit matters? A. The external auditors B. The internal auditors C. The audit committee D. The CFO

" The audit committee

"Of the following parties, who is responsible for developing a strategy to assess and manage fraud risks that aligns with the organization's risk appetite and strategic plans? A. The board of directors B. The shareholders C. The internal audit department D. The legal department

" The board of directors

"Which of the following parties is responsible for overseeing business operations by assessing the strategy and underlying purpose of management's decisions and actions? A. External auditors B. Industry regulators C. The board of directors D. Shareholders

" The board of directors

"Which of the following is FALSE regarding the communication of the fraud risk assessment process? A. The communication should be limited to management and the board. B. The communication should be personalized to make it more effective in encouraging employees to participate in the process. C. The communication should be visibly disseminated throughout the business. D. The communication should be in the form of a message from the assessment sponsor.

" The communication should be limited to management and the board.

"Which of the following is a fraud examiner permitted to express an opinion regarding? A. The guilt of a particular individual B. The innocence of a particular individual C. The effectiveness of an organization's internal controls D. None of the above

" The effectiveness of an organization's internal controls

"Which of the following is TRUE regarding fraud risks? A. The objective of anti-fraud controls is to completely eliminate residual fraud risks. B. The objective of anti-fraud controls is to make the inherent fraud risk significantly smaller than the residual fraud risk. C. Risks that are present before the effect of internal controls are described as residual risks. D. The objective of anti-fraud controls is to make the residual fraud risk significantly smaller than the inherent fraud risk.

" The objective of anti-fraud controls is to make the residual fraud risk significantly smaller than the inherent fraud risk.

"The Sarbanes-Oxley Act requires that each member of a company's audit committee be independent with respect to the company. Which of the following is NOT a violation of the independence requirements for audit committee members? A. Ownership of 18% of the company's voting stock B. Serving as the CEO of a subsidiary of the company C. The receipt of legal consulting fees from the company D. The receipt of pension benefits from previous employment with the company

" The receipt of pension benefits from previous employment with the company

"What is the objective of a fraud risk assessment? A. To help an organization identify what makes it most vulnerable to fraud B. To assess the design and effectiveness of an organization's internal controls over financial reporting C. To establish the guilt or innocence of an employee suspected of committing fraud D. To provide an estimate of an organization's fraud losses

" To help an organization identify what makes it most vulnerable to fraud

"Which of the following is one of the purposes of the U.S. Corporate Sentencing Guidelines? A. To provide guidance for juries when determining whether to convict an organization of a crime for wrongdoing perpetrated by its employees B. To provide incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct C. To instruct states on how to sentence corporate offenders for federal crimes D. None of the above

" To provide incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct

"Dr. Steve Albrecht conducted research that focused on fraud-related red flags in two principal categories: perpetrator characteristics and organizational environment. Which of the following was the organizational-environment factor that was most present in the frauds studied? A. Lack of clear lines of authority B. Inadequate attention to details C. Too much trust in key employees D. None of the above

" Too much trust in key employees

"In response to a risk identified during a fraud risk assessment, management decides to purchase a bond to help protect the company against the associated risk of loss. This response is known as: A. Transferring the risk B. Avoiding the risk C. Mitigating the risk D. Assuming the risk

" Transferring the risk

"According to Reiss and Biderman, _____________________ violations are those violations of law . . . that involve the use of a violator's position of economic power, influence, or trust in the legitimate economic or political institutional order for the purpose of illegal gain, or to commit an illegal act for personal or organizational gain. A. Organized crime B. White-collar crime C. Violent crime D. Environmental crime

" White-collar crime

"Factors that affect employees' ethical decisions include: A. The law and other government regulations B. Industry and organizational ethical codes C. Tension between personal standards and organizational needs D. All of the above

" all of the above

"To reinforce an anti-fraud culture, management should: A. Show employees that unethical behavior will not be tolerated B. Visibly adhere to the same set of ethics policies that are required of all employees C. Create an environment in which employees feel safe challenging management's decisions D. All of the above

" all of the above

"Under NYSE rules, a listed company's board of directors must have which of the following committees? A. Compensation committee B. Nominating/corporate governance committee C. Audit committee D. All of the above

" all of the above

"Which of the following controls can help minimize the pressures that might lead an employee to commit fraud? A. Employee support programs B. Open-door management policies C. Fair personnel policies and procedures D. All of the above

" all of the above

"Which of the following factors complicates the ability of determining clear ethical rights and wrongs? A. Tension often exists between personal standards and organizational needs B. Moral standards and accepted social behavior change over time C. Different groups within the same society might have conflicting ideas of right and wrong D. All of the above

" all of the above

"Which of the following is TRUE regarding a corporation's board of directors? A. The directors represent the middlemen between the shareholders and management B. The directors are generally elected by the company's shareholders C. The directors oversee business operations by assessing the strategy and underlying purpose of management's decisions and actions D. All of the above

" all of the above

"Which of the following is an effective method of increasing the perception of detection? A. Conducting surprise audits B. Requiring strong management oversight C. Forcing employees to take vacation time D. All of the above

" all of the above

"Which of the following mechanisms can be used to help increase the perception of detection in an organization? A. Rewards for whistleblowers B. Hotlines C. Employee anti-fraud education D. All of the above

" all of the above

" "Which of the following statements is TRUE regarding the disclosure of confidential client information? A. A fraud examiner can reveal confidential client information when responding to a legal court order. B. Confidential information provided to a fraud examiner by a client is considered privileged and therefore legally exempt from disclosure in all circumstances. C. Fraud examiners are always bound by confidentiality, even when refusing to disclose information violates the law. D. A fraud examiner is only allowed to respond to a legal court order when his client grants him authorization to do so.

" fraud examiner can reveal confidential client information when responding to a legal court order.

"The ACFE Code of Professional Ethics contains sections covering which of the following? A. Confidential information B. Professional improvement C. Basis for opinions D. All of the above

" "All of the above

"The ACFE Code of Professional Ethics explicitly prohibits which of the following? A. Illegal conduct B. Undisclosed conflicts of interest C. Unethical conduct D. All of the above

" "All of the above

"Which of the following should be emphasized in an employee reporting program? I. Fraud, waste, and abuse occur in only a few companies. II. The company actively encourages employees with information to come forward. III. The employee's name must be disclosed. IV. The report need not be made to one's immediate supervisor. A. I, II, III, and IV B. II and III C. I, II, and IV D. II and IV

" "II and IV

"Which of the following most exemplifies the rationalization leg of the Fraud Triangle? A. "I'm confident I won't get caught." B. "I need the money to repay my drug dealer so that no one will find out about my habit." C. "Management is dishonest, so why shouldn't I be?" D. "I'm in so much debt; I don't have any other way to pay my bills."

" "Management is dishonest, so why shouldn't I be?"

"Bryan, a CFE, locks the door to the interview room and refuses to allow the suspect to leave despite repeated requests. Later, the suspect sues (successfully), claiming that he was falsely imprisoned. Which of the following statements is true? A. This conduct would be a violation of the ACFE Code of Professional Ethics ONLY IF the suspect was innocent of fraud. B. This conduct would NOT be a violation of the ACFE Code of Professional Ethics under any circumstances. C. This conduct would be a violation of the ACFE Code of Professional Ethics. D. This conduct would be a violation of the ACFE Code of Professional Ethics ONLY IF Bryan knew the conduct was illegal.

" "This conduct would be a violation of the ACFE Code of Professional Ethics.

"According to the social control theory, an individual considering criminal behavior will likely ask himself which of the following questions? A. ""In what way can I rationalize this behavior?"" B. ""What would my family think if they find out?"" C. ""How likely is it that the crime will be detected?"" D. ""What is the legal punishment if I get caught?""

" "What would my family think if they find out?"

"Effective corporate governance practices are most important for which of the following organizations? A. An advertising firm with 75 employees and four partners, all of whom actively participate in the business B. A financial services company whose stock shares are traded on a public securities exchange C. A sole-practitioner dentist's office D. A small souvenir shop in a tourist town that employs four retail clerks, in addition to the store's owners

" A financial services company whose stock shares are traded on a public securities exchange

" According to COSO, the control environment of an organization: A. Is established by directors and senior management B. Sets the moral and ethical tone of the organization C. Provides the foundation for the overall internal control system D. All of the above

" All of the above