Intro to Forensics
Identify all the examples and indicators of a positive corporate culture that promotes ethics and deters fraud
1) An accounting staff member identified a potential issue in the financial statements that would cause them to be misstated. He raised the concern with his supervisor, and the issuance of the financial statements was delayed. The day the delay in issuing financial results was announced, the company's stock price dropped 16%. The accounting staff member and the supervisor received positive performance reviews at year end. 2) The board has set overall objectives for the fraud risk management at the company, but delegates the responsibility for executing the program to the head of internal audit. The audit committee chair meets quarterly with the head of internal audit to receives progress reports on the program and identify any potential fraud occurrences. 3) A not-for-profit organization has a clear statement of values and ethics. They developed the statement with input from the board, management and lower level staff. It talks about the real challenges that the organization faces. The organization put the statement on its website and the senior management continues to cite the statement when describing the reasons for some of their decisions. 4)A company conducts annual training on ethics, fraud and regulatory compliance matters. Each year, they update the training to focus on areas of highest risk. Completion of training is considered in year end performance reviews. 5) The company conducts an annual employee survey that measures employee satisfaction and other metrics. The survey asks specific questions about whether employees and their supervisors are aware of the code of conduct and feel comfortable reporting suspected wrongdoing. 6) Board members are well-informed about the economic environment and the business conditions. They ask good, detailed questions about the organization's operations, financial reports and future prospects. They seek differing sources of information, including various members of management and outsiders. 7) The CEO of the company has an annual "Chairman's Values Award" which honors an employee that best exemplifies the company's ethical standards. 8) Sridhar works for ABC Corp. He is concerned that his supervisor's instruction to reduce inventory reserves is not appropriate, because the inventories in the warehouse for his his business unit are increasingly obsolete and unsaleable. He checked the code of conduct, and it included specific guidance on how to raise his concerns and reconcile differences of opinion. He was reassured by statements that there will be no retaliation if he uses this procedures.
Which of the following schemes are examples of "pay-and-return" schemes?
1) An accounts payable employee creates two payments for the same legitimate invoice. Then, they call the vendor to request that one of the checks be returned. When the check is returned, the employee intercepts the check and converts it to her benefit. 2) An accounts payable employee intentionally pays the wrong vendor for a legitimate invoice. After the check is mailed, the employee contacts the vendor to report the "mistake" and asks that the check be returned. When the check is returned, the employee intercepts the check and converts it to her benefit. 3) An accounts payable employee overpays a legitimate vendor, then contacts the vendor to request a refund of the overpayment. When the funds are returned, the employee intercepts the payment and converts it to his benefit.
Identify ALL the asset misappropriation schemes from the list below
1) Bob is the store manager for Badtonio's Pizza. Bob enters all the sales that are paid by credit card and check into the cash register. Sometimes he enters cash transactions into the cash register, but other cash sales are put into an envelope. At the end of the day, Bob destroys the customer order tickets for these cash sales. Bob keeps the cash, but never records the sales. 2) A manager sets up his own company, "JKL and Co." The manager prepares invoices from JKL and Co which purport to reflect purchases of $2,500 in paper clips, markers, and printer ink, although JKL and Co sent no such goods. The manager approves the invoices for payment and a disbursement is sent to JKL and Co. The manager later transfers the money to his own account. 3)An employee in the stockroom reports that several items are damaged and have been discarded. The employee sells the items on eBay and keeps the money. 4) Bathi works in the payables department. Jane works in corporate accounting and has responsibility for bank reconciliations. Bathi cuts a check made payable to Jane. Jane alters the bank reconciliation to hide the transaction and later, records an entry to reflect the check as a severance payment to a terminated employee. Jane deposits the check and splits the money with Bathi. 5) An employee overstates her overtime hours to earn money than she is entitled to. 6) An employee uses his corporate card to fill up the gas tank on his RV before his vacation. He reports the expenditure as business-related and is reimbursed for all his corporate card expenditures.
Which of the following are complexities associated with managing global fraud risk management programs?
1) Cultural differences about reporting potential wrongdoing. 2) Differing opportunities for fraud outside the scrutiny of corporate headquarters and in differing business environments. 3) Communication challenges associated with different language and diluted communications.
Which of the following are appropriate factors for consideration when selecting an appropriate damages model? (Select ALL that apply.)
1) Practices and approaches that are accepted by professional peers and academic study. 2) Background of the case 3) Practices and approaches that are accepted by professional peers and academic study. 4) Whether the model is consistent with the underlying case of the damages, the effect on the plaintiff or claimant, and the type of injury suffered
Select ALL of the statements below that describe red flags associated with bribes through third parties.
1) There is no consulting agreement, or the agreement only vaguely describes the services to be performed. 2) The payments for the intermediary or third-party must be made to offshore accounts. 3) The payments to the third-party agents or consultants are excessive when compared with market rates. 4) A government official specifically requested or insisted on using this consultant. 5) The distributor or intermediary receives free goods or unreasonably large discounts.
In a normal Chapter 11 bankruptcy, what is the normal order of events? (For this question, assume that there are no priority claimants and no dispute over the plan of reorganization). Put the events in their normal chronological order.
1.Filing of bankruptcy petition 2. Automatic stay 3. Filing proofs of claim 4. Development of plan of reorganization 5. Confirmation of the Plan of Reorganization 6. Non-priority creditors are paid some or all of the outstanding debts in accordance with the Plan of Reorganization
Lydia is a partner in a small CPA firm. She has several litigation and expert witness engagements and two of the cases have deadlines on the same week. Lydia hired a new staff person to help. The staff member was a recent college graduate and had little experience this type of engagement. Her staff member assembled an Excel model for economic damages and drafted the expert report. Because she had little time, Lydia copy and pasted the report into her letterhead format, signed and submitted the report, without performing any additional procedures. What section of the code did Lydia most likely violate? (Use the code section numbering currently is use.)
300
Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. The case went to trial 2 years after the date of the SuperDuperMarket's cancellation of the contract. SuperDuperMarket was found to have acted wrongfully. Normally, what would be the damage period?
50 weeks. The remaining period of the contract after the breach.
Which of the following are human resources-related fraud control activities?
A company conducts background investigations for all new recruits at the manager level and above, A technology retailer company conducts fraud risk management training for its internal audit staff and all store managers, A consulting company conducts an annual employee survey that includes questions about employee satisfaction, understanding of corporate objectives, whether the employees have observed misconduct in the most recent year and whether they feel comfortable in reporting misconduct, An insurance company routinely conducts exit interviews with departing employees to determine the reasons for their resignation. During that interview, they ask about whether the departing employee has any concerns about integrity of their supervisors or misconduct at the organization.
Which of the following is NOT a potential red flag of timing or cutoff issues in revenue recognition?
A company has strict procedures for the period closing process, including last dates and times for shipments to be recorded in the quarter. Financial reporting team members obtain dating evidence for transactions near the close.
Which of the following is NOT a characteristic of potentially fraudulent round-tripping transactions?
A complex, convoluted or unusual structure or explanation for the transaction. Lack of candor, mischaracterization or failure to disclose the true relationships, rights and obligations among the parties to the transactions. Similar amounts of money changing hands or fully-offsetting transactions, such as swaps or rights exchanges. Attempts to disassociate the subject trasnactions from each other when they are actually dependent or conditions to the transaction. All of these could potentially indicate fraudulent round-tripping transactions.
Which statement is true?
A positive corporate culture has a positive affect on all three sides of the fraud triangle (pressure and incentives, rationalization, and oppotunity)
Skimming is defined as:
A scheme in which cash receipts are stolen from an enterprise before they are recorded on the books and records.
Which of the following controls are primarily preventive in nature?
A small not-for-profit company outsources is cash disbursement function. Any disbursement requests are faxed to the outsourced provider, they are loaded to a password protected on-line portal. The CEO reviews and approves disbursements on the on-line portal. The outsourced provider cuts the checks and mails them, A company's information technology department is off-site and physically secured from intrusion, A company's business process requires signature of a manager outside the accounting function before allowing a cash disbursement, A telecommunications company uses valuable copper wiring for repairs of its transmission lines. The inventory of wiring is kept in locked storage facility when not needed by the repair team members, A credit card processing company uses a technology that risk-scores transactions and prevents them from occurring if they are deemed too high risk.
Which of the following organizations (or credentials) is NOT recognized for providing training and credentials in business valuation?
AICPA - Certified Global Managment Accountant (CGMA)
According to the AICPA, which of the following are threats to compliance with the Code of Professional Conduct? (Check ALL that apply. Each correct answer receives credit. Each incorrect answer deducts credit.)
Adverse interest threat Self-interest threat Advocacy threat Self-review threat
Which of the following is NOT likely to be a potentially voidable transfer in bankruptcy?
An employment bonus to the CEO made 6 months before the bankruptcy, at a time when the company was solvent.
Which of the following is NOT an inventory-related asset misappropriation scheme?
An inventory manager misstates the excess and obsolete inventory reserve to improve the reported net income for the quarter.
Turbine Group has sued its supplier, Air Equipment Inc. for breach of contract to supply air handling equipment in support of Turbine Group's requirements. As a result of not having the equipment it needed, Turbine Group lost a number of customer contracts. Which of the following services would NOT normally be provided by forensic accountants in this kind of dispute?
Analysis of the contract provisions involving supply interruptions and determination of potential legal remedies.
Which of the following is NOT a technique for the detection of revenue-related frauds?
Analyze transactions with the managers in charge of the sales function to identify inappropriate travel and expense reimbursement.
Which of the following is NOT a potentially improper type of revenue recognition?
Asking the shipping department to ensure that all outstanding orders are shipped before quarter end.
Which of the following is NOT a true statement about bankruptcy?
Bankruptcy is a legal process. Most bankruptcies are governed by state laws, which vary from state to state
Which of the following statements is not true?
Because fraud allegations are non-routine and vary significantly based on the facts and circumstances, it is best to wait until events to occur before planning investigation processes.
Business valuation in litigation and lost profits calculations have some commonalities. Which is NOT true?
Both lost profits and business valuation analyses typically require adjustments for marketability, size and control.
Which of the following is true regarding the calculation of lost earnings damages?
Calculations of lost earnings may include incentive compensation, such as commissions or bonuses, because such damages are contingent on performance criteria.
Which of the following is NOT a potential basis for exclusion of an expert report based on a reliability challenge?
Carl is testifying as a financial expert. He analyzed all the transactions that were provided by counsel, but the information that the attorneys provided was incomplete, Jane performed a statistical analysis of securities prices, but omitted 5 trading days from the data set, Lisa prepared an opinion of value based on a using a shortcut rule of thumb often used by industry participants, without other bases for her opinion.
Chez is a CPA and a member of the AICPA. He just put up a website to promote his firm. He has had two prior engagements to provide expert witness services. In both cases, the jury verdicts were completely consistent with his expert testimony and his clients were successful in their litigation matters. His website describes the services that he provides, and states "Chez has a 100% success rate in winning for his clients. Chez' wins cases for clients. Call us to find out how we will help you win your case." Which is true?
Chez's claims are potentially improper because they are potentially misleading and suggest a lack of objectivity.
Bribes are often mischaracterized as other types of transactions in the books and records of a business. Which of the following is NOT an example of transaction used to mischaracterize bribery?
Commissions Consulting fees Sales and marketing expense Scientific incentive or studies Travel and entertainment expense Rebates or discounts After sales service fees Miscellaneous expense Petty cash withdrawals Free goods (e.g. for demonstration) Intercompany trnasactions Supplier or vendor payments Write-offs All of the above have been used, at some time, as a means to mischaracterize bribes.
Which of the following statements is true?
Communication of the fraud risk management program needs to be sufficient so that all personnel and vendors understand their responsibilities.
Raj owns a chain of small store-front gyms that provide small group fitness training. Most of the customers pay by monthly membership. Stephanie is the store manager for own of Raj's gyms, located in Amherst. Stephanie allows some of the customers to pay by Square card reader. The has set up the Square account to transfer the cash receipts into her own bank account, and not into the business bank account. Raj has noticed that store receipts are down, but Stephanie explained (falsely) that several customers had dropped their membership. Which controls are MOST likely to detect the scheme?
Comparison of cash receipts to people actually showing up at the gym.
Which of the following is NOT a required expert witness disclosure for witnesses testifying in US Federal courts?
Copies of expert reports associated with other cases in which the expert has testified.
The seminal court case that provides guidance on the admissability of expert testimony in U.S. federal courts is:
Daubert v. Merrell Dow Pharmaceuticals
Which of the following is always a characteristic of fraud?
Deception
Which of the following is NOT a role or responsibility of the board?
Directing the execution of the external audit.
In a recent legal case, the Court ordered Defendant Corporation to pay damages to Plaintiff Corporation. The amount of the damages was calculated based on the gains that Defendant Corporation had earned as a result of its wrongful conduct. What kind of damage award was this?
Disgorgement or restitution damages
Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. (This paragraph is the same as the prior question.) Which of the following is likely to be the best evidence associated with costs in a damage calculation?
Documents supporting the actual costs incurred and any budgets or forecasts of costs that Frozen Food had prepared before the breach occurred.
Which of the following is a true statement about an external auditor's assessment of fraud risk?
During audit planning, external auditors are required to brainstorm about potential risks of financial statement fraud, including how management could perpetrate and conceal fraudulent financial reporting and how assets of the entity could be misappropriated.
Eleanor is analyzing the business value of Mixed Up Mechanics LLC. She is currently focusing on the income approach. Eleanor has performed the following procedures: She developed a model of expected future cash flows to equity shareholders using reasonable and well-supported assumptions Mixed Up Mechanics had some unusual expenses, mostly related to payments to family members of the owner. Eleanor made normalizing adjustments to eliminate these expenses and ensure that projected cash flows were consistent with other companies Eleanor tested the reasonableness of the expected growth rate based on existing business plans, company-specific factors and the growth of the industry as a whole. She discounted the expected cash flows using the Weighted Average Cost of Capital (WACC) Which of the following is a TRUE statement about Eleanor's work?
Eleanor should NOT have used the WACC to discount the projected cash flows, since she had projected the cash flows to equity holders.
You have been asked to read and analyze the expert report of Elisabeth Forensic. Her report discloses that she is a CVA, an ASA and an ABV. Which of the following is true?
Elisabeth has specialized credentials in business valuation and likely also has a CPA.
A small construction company has 15 employees. There is only one person that works in the office, other than the owner. The office manager handles all aspects of cash disbursement, cash receipts and bookkeeping. The owner understands that he cannot adequately segregate the duties in the office. Which two mitigating controls would be most effective in reducing the risk of cash-related frauds?
Every month, as part of their management meeting, the owner and construction foreman review a list of all disbursements and all customer accounts to identify any unusual transactions, Have a copy of the bank statement sent directly to his house, and review the bank reconciliation prepared by the office manager.
Josh has been asked to express an opinion of value for Elemental Jewelry Incorporated, a private company. The valuation date for Josh's analysis will be December 31, 2018. Josh is aware that there was a fire at the main production facility in March 2019. Josh is planning to exclude the impact of the fire in the valuation opinion, since it had not occurred as of the valuation date. What is the term to describe this analytical perspective?
Ex ante analysis
A 2020 PwC study of Daubert challenges to financial experts found that for the most recent year (2019) more than one-half of Daubert challenges of financial experts were successful, in that they resulted in the exclusion of all or some part of the expert's planned testimony.
False
Which of the following is NOT a red flag of a possible bust-out scheme?
Fictitious submission of inflated invoices by bankruptcy professionals.
Erika works at WriteNow Publishing. She set up a corporate entity in Wyoming, a state which doesn't require public disclosure of ownership. The name of Erika's company is Super Editing. Erika filled out the required paperwork to set up a new vendor in the WriteNow Publishing approved vendor master file and forged the signature of the required approver. As a result, Super Editing was set up as an approved vendor. Erika is authorized to sign for editorial services up to $5,000. Each month, she creates an invoice for an amount between $4,200 and $4,7500 for "Editorial services", approves the invoice and submits it for payment. Because the vendor is already approved, a disbursement is generated without further review or approvals. Erika deposits the payment to Super Editing into a bank account that she has set up for her company. From there, she can spend or transfer the money wherever she wants. What kind of fraud scheme is this?
Fictitious vendor scheme
Franz is analyzing the value of shareholder's interest in Lizst Pianos, Inc. Lizst Pianos is a private company and the shareholder owns a 10% interest. The shareholder holds restricted shares that cannot be freely traded. Franz has gathered valuation guidance using the market approach to value. The information he has gathered includes pricing guidance from the market values of similar public companies and valued paid to acquire whole companies based on recent similar merger and acquisition transactions. Which of the following is TRUE?
Franz should make adjustments to derive a value for a minority interest with limited marketability.
QRST Corporation has 1,500 employees worldwide. In a recent internal audit finding, QRST Corporation identified that 10 of their employees have the same address and direct deposit information. The internal auditor should suspect which type of scheme?
Ghost payroll schemes
which of the following is a true statement?
If the investigation is not competently executed by objective people, it may not be reliable.
Which statement is not true about whistleblower allegations?
If they come from disgruntled employees, they should be given less weight.
In 2000, WorldCom began improperly classifying operating costs as long-term capital investments. What kind of fraud scheme was this?
Improper capitalization of expenses
Ella is a partner in RegionalStar LLP, a mid-tier accounting firm. Ella is an actuary and CPA, and usually provides insurance-related consulting services. She has agreed to serve as an expert witness in a litigation matter involving pension-related actuarial calculations and the reporting of pension liabilities for tax purposes. Ella has had a team of 4 people working on the underlying assignment. None of them have worked on a litigation assignment before. The staff members have built the actuarial models in the same way as usual, and make the same kinds of assumptions that are normally made for this kind of analysis. The senior manager on the team has done all the detailed technical review. Ella has confidence in her team and their skill. Ella has been briefed on the model, has performed a top-side review and has handled all the client interaction. Ella is preparing for her deposition. Which of the following is a TRUE statement?
In order to be adequately prepared for her deposition, Ella should personally review all the relevant underlying evidence, including any evidence that is in conflict with her analysis, understand the bases for all assumptions, and be familiar with all the detailed calculations before her deposition.
Which of the following is NOT a true statement about the market approach?
In order to ensure the reliability of the business valuation, valuation analysts rarely adjust the pricing guidance derived from public markets.
The American Institute of Certified Public Accountants describes two types of forensic accounting services. They are (check two):
Investigative services, Litigation services
Which of the following is a true statement?
It is a leading practice to assign the responsibility for fraud risk management to a a single senior executive to establish and organizational commitment and to ensure accountability for the program.
Which of the following elements is NOT part of COSO's comprehensive fraud risk management strategy?
Monitor the fraud risk management process, report results and improve the process. Establish a fraud reporting process and coordinated approach to investigative and corrective action. Establish a frad risk management policy as part of organizational governance. Select, develop and deploy preventive and detective fraud control activities. Perform a comprehensive fraud risk assessment. All of the above are elements of COSO's comprehensive fraud risk management strategy.
Abby is a forensic accounting practitioner. An attorney has contacted her to serve as an testifying expert in a matter involving Manhattan Landlord Co. The attorney plans to send Abby a package of confidential documents for her initial review. What should Abby do first?
Perform a conflict check to ensure that neither she nor her firm has a conflict of interest that would prevent her retention.
Which of the following is NOT a recommended strategy for strengthening the board's knowledge of business and financial statement risks?
Performing ratio analysis on detailed accounts and tracing transactions to underlying support.
Which of the following are NOT forensic accounting services?
Preparation of a tax return which includes a tax deduction for litigation costs.
Elena has been retained by the attorney for the Creditors Committee to assist in a forensic search for concealed assets in a corporate bankruptcy matter. Which of the following is NOT an appropriate strategy to search for assets?
Searching Forms W-2 for undisclosed assets
Jane and Judy are divorcing. Jane is the sole owner of a profitable business. The business was the primary source of income for the family during the marriage. Judy has been a homemaker for years while Jane has built her business. In this jurisdiction, Judy is entitled to receive some portion of the value of Jane's business in the divorce. Which of the following is NOT true?
Since family law is unique, the expert need not consider the normal standards of business valuation in studying the value of Judy's business in the context of divorce.
Which of the following is not a true statement?
Testimony as an expert witness and communicating findings is outside the work of forensic accountants.
Peter is a CPA. Peter has been retained to provide expert testimony on behalf of the defendant in a business litigation matter in U.S. Federal Court. The plaintiff's counsel filed an objection with the court, asserting that Peter is not qualified to provide expert testimony in this matter. What kind of information could Peter and defendant's counsel provide to the Court that might overcome this objection?
Testimony regarding his knowledge, skill, experience training or education in technical matters relating to this case.
Which of the following is NOT a red flag of related party transaction that may be a sham?
The CEO of a privately-held company sold a plot of land to the company. It will be used for the company's new distribution center. The purchase price was based on an independent appraisal. The transaction was approved by independent board members.
The AICPA's Code of Professional Conduct states that various relationships or circumstances may create threats to the members compliance with applicable rules. One of these potential threas is called the "advocacy threat". Which of the following is true about the advocacy threat?
The advocacy threat relates to situations in which the member promotes the client's interest to such an extent that objectivity and independence is compromised.
Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. (This paragraph is the same as the prior question.) The case went to trial 2 years after the date of the SuperDuperMarket's cancellation of the contract. SuperDuperMarket was found to have acted wrongfully. What would be an appropriate measure of lost revenues?
The amount of revenues anticipated under the contract terms, less the revenues actually earned.
Jonathan is investigating whether the 500 company employees have obtained expense reimbursements that they were not entitled to. He pulled 3 months of his expense reimbursement activity, and plans to vouch all of the transactions over $500 to the supporting documentation. This approach yielded 2000 transactions to investigate. What is one of the risks of this strategy?
The approach may be overly broad, resulting in wasted effort and a large number of false positives.
Which of the following is a TRUE statement based on the ACFE's 2020 Report to the Nations?
The most common method of initial detection of occupational fraud is by a tip or by accident.
Which of the following is a FALSE statement regarding the Statement of Standards of Forensic Services No. 1 (SSFS No. 1)?
The objective of an investigation assignment is the expression of an opinion as to the existence of fraud.
What is an investigation sponsor?
The person or governing body that has decision-making authority over the investigation.
What is the definition of fair market value?
The price in cash at which an asset will change hands between a hypothetical buyer or seller, acting at arms' length, not under compulsion, in an open and unrestricted market and with reasonable knowledge of relevant facts.
Based on the KPMG study entitled, "Global Profiles of the Fraudster" (2016), which of the following is NOT true?
The study reveals that there is a clear profile of the fraudster. Based on that profile, we can predict who will commit fraud with reasonable certainty.
Jorge is a CPA and works for a member firm of the AICPA. He is also a CFE. He has been retained as a forensic accounting expert in a litigation matter. It is expected that he will be called to testify about his opinion at trial.
There are legal standards as to whether an expert is qualified to testify at trial. If Jorge is not found to be qualified to express a particular opinion, he will not be able to testify.
Mary Beth is the CFO of a company that sells advertising on the web. She is well-qualified for the job, with a CPA, an MBA and many years of experience in accounting and finance for internet companies. The company places ads for various companies and receives payment based on the number of times the ad is clicked. The amount of click-based revenue continues to grow as a proportion of the company's overall income, and there are a number of difficult accounting judgments associated with revenue recognition. Roughly half of Mary Beth's compensation is paid as a part of the year-end bonus on earnings results. Mary Beth has a good relationship with the audit team and the board. They ask about revenue recognition every quarter. Mary Beth is always on top of things and has all the information that anyone asks for. Based on the information Mary Beth has presented, the revenue looks solid. Which of the following is NOT true?
There is little risk of revenue-related fraud, since Mary Beth is well-qualified, has command of the relevant information, there is an external audit and the board is asking questions each quarter.
Which of the following is NOT true about expert depositions?
There is no professional liability exposure for CPAs providing litigation services.
When an opposing attorney takes a forensic accounting expert's deposition, what is his or her goal?
To identify weaknesses in the expert's report without alerting the expert, so that the weaknesses can be revealed at trial. Then, the expert's testimony may be discredited and be given little or no weight by the judge and jury, To size up the witness and to learn as much as possible about the opinions and the bases for the opinions that will be offered at trial, To identify and highlight the weaknesses in the expert's report and in the opponent's case, in order to encourage settlement or, at a minimum, to force the expert to correct the analysis before trial.
Which of the following is true with respect to damage calculations?
When calculating the damages for breaches of commercial contracts, expert must use reliable methods and assumptions. If they do not, their testimony may be excluded or may be subject to rigorous cross-examination.
Which of the following is NOT true with respect to cost of capital used in business valuation?
When discounting a stream of benefits to equity holders, the analyst typically uses the weighted average cost of capital (WACC).
Which of the following is NOT an appropriate factor to consider as to whether an expert's testimony or an expert's report will be admissable in Court?
Whether the analytical approach used achieves the result or opinion that the client desires.
Juan opened a new burrito store. It had been open only two months when a truck from the Big Food Supply Company (BFS) drove through the storefront. Luckily, no one was injured, but the store had to be closed for 6 months while repairs were made. Juan sued BFS, who was found to be responsible. Juan never prepared business plans or forecasts, and he had only two start up months transaction history. It is clear that the first two months were not representative of what the burrito store would have earned in future months, since there were a lot of start up costs and sales patterns had not yet normalized. Which approach would be most appropriate to determine his lost profits?
Yardstick or benchmark approaches comparing Juan's store to other businesses just like his.
Eileen is a CPA who has been retained by McNulty, McSweeney and McDonald LLP law firm to provide forensic accounting services in a litigation matter. She had a variety of tasks in the engagement, including gathering and analyzing financial records of the defendant and reviewing the financial documents produces by the other side. Another CPA was hired to testify on accounting and auditing matters and an investments specialist was hired to testify on investment strategy matters. Eileen provided comments and suggestions to the CPA and investment specialist, assisted in the quality review of their reports, and helped them prepare for their depositions. Eileen also assisted in analyzing and critiquing the opposing expert's work. Eileen's involvement was never disclosed to the opponents and none of her work product was produced in response to a legally valid subpoena that requested for production of the workpapers of the testifying experts. Did Eileen's work comply with AICPA professional standards and normal litigation requirements in US Federal Court?
Yes, because Eileen was a consulting expert and was not a testifying expert.
Which kinds of techniques are used in both forensic settings and in external audit settings?
all of the above - interviews of knowledgeable people, ratio analysis, vouching or tracing selected transactions
Which of the following is not a common source of fraud investigation evidence?
all of these might be investigation evidence - electronic communications, including email, general ledger and transaction data, observation, interviews of knowledgeable people, data analytics, google and public record searches, documents and contracts
What is an investigation predicate?
an allegation or reason to investigate
Which are major provisions of the U.S. Foreign Corrupt Practices Act?
anti-bribery provisions accounting provisions
Which of the following AICPA standards or rules do NOT apply to CPA members who are performing litigation services engagements?
attestation standards
Which phrases describe a legal privilege that might potentially pertain to the work of attorneys and investigators in a fraud investigation or legal dispute?
attorney-client privilege, attorney work product doctrine
Identify all the potential forensic accounting techniques, as identified in the AICPA's Practice Aid entitled "Forensic Accounting - Fraud Investigation"
confidential sources, public document review and background investigation, analysis of financial transactions, analysis of physical and electronic evidence, undercover operations, interviews of knowledgeable people, physical surveillance and observation
Which of the following is NOT one of the three commonly recognized stages of the money laundering process?
criminal proceeds
Which of the following is not a major category of occupational fraud according to the Association for Certified Fraud Examiners (ACFE)?
cybersecurity
There is a special type of financing that is provided to companies that are in the process of Chapter 11 reorganization. It is called ________ financing.
debtor in possession
You are investigating an allegation that vendors may be submitting invoices twice in the hope that they will be paid multiple times. Which of the following data analyses would be the easiest way to identify such invoices?
duplicate search
Which of the following is NOT a business valuation approach?
equity approach
AICPA professional standards prohibit fee retainers on litigation services engagements.
false
All Certified Fraud Examiners are CPAs.
false
COSO's Principle 8 requires the establishment of a comprehensive fraud risk management program.
false
Chaofan is a sole practitioner CPA. He has been a tax compliance specialist for 30 years. One of his tax clients has asked him to serve as an expert in a matter involving patent infringement. The client needs an expert to testify as to the reasonable royalty to be paid for licensing telecommunications technology. Chaofan knows the client very well and has been considering the tax consequences of intellectual property for the client as part of his tax engagement. Chaofan has attended a CPE seminar on intellectual property taxation, but has never been involved in the licensing of technology or had any training in the subject. Chaofan believes that he can take the engagement, because he is willing to study the subject diligently and because his CPA is a well-recognized credential. Is this true?
false
Cookie-jar reserves describes the normal ways that generally accepted accounting principles permit a company to manage earnings within certain boundaries of integrity, by applying judgment in the application of accounting principles and estimates.
false
Damage calculations never use business valuation approaches, since courts will not award goodwill and intangible values in the context of litigation.
false
Fair value is a well-recognized standard of value with a clear definition that is consistent from court to court.
false
If a fraud risk assessment is competent and thorough, it rarely needs to be updated.
false
If errors and irregularities exceed 5% of revenue, they are material. If not, they are not material.
false
In order to maximize fraud deterrent effects, all the elements of the fraud control structure should be made known to employees, vendors and stakeholders.
false
Josef's company paid gifts to a government official in order to win a contract, but the contract was ultimately awarded to another company. Josef believes that his company cannot be prosecuted, because it did not benefit from the payments. Is this true or false?
false
Luella is a member of the AICPA and a member of NACVA. Because there is an integration agreement between the two organizations, Luella needs to comply only the AICPA code of conduct when she provides accounting services. Similarly, she needs to comply only with the NACVA standards when she provides valuation services.
false
Many attorneys insist on contingent fee arrangements for testifying expert services, since winning the case is the ultimate goal.
false
Medicines-R-Us Co. develops and sells pharmaceutical products. It wanted its products to be included in the formulary (list of approved products) in an Asian country with a government-run health care system. In order to build support for its products, it hosted a medical conference to which the doctors and government officials in the industry. The corporation hired an event planner, who was able to increase attendance at the event by 50%. Soon after the event, Medicines-R-Us Co.'s products were added to the formulary. Medicines-R-US Co.'s chief compliance officer later learned that the event planner included gift cards to all attendees in the welcome packet. Medicine-R-Us Co.'s Vice President of Sales is delighted with the event planner's success and argues that Medicines-R-Us Co. has no potential exposure to FCPA liability, because the payments at attendees were not made in cash, because Medicines-R-Us Co. didn't directly offer the gift cards, and because Medicines-R-Us Co. didn't instruct the event planner to provide gifts to the attendees. Is the argument that Medicines-R-Us Co. has no exposure to FCPA liability true or false?
false
Most litigation support engagement fall under AICPA Agreed-Upon Procedures standards, because the CPA and the clients must agree upon a tailored scope of work.
false
Once an accountant has become an experienced forensic practitioner, they are qualified to provide legal advice regarding whether legal privileges will apply to specific investigation outputs.
false
People who perpetrate frauds are usually identified by formal background checks, when they are performed.
false
Proximate causation means that the losses were reasonably certain.
false
Punitive damages are directly tied to the plaintiff's economic losses.
false
The risks of management override of internal controls can be eliminated through a robust fraud risk management program, including active and vigorous oversight by the board.
false
When evaluating the significance of a risk exposure, the forensic accountant's only focus should be the potential dollar value of exposures in comparison to 5% of assets or other quantitative measure of materiality.
false
________________ means "suitable for use in a court of law."
forensic
Which of the following are data visualization techniques?
heat maps
When an employee misappropriates case by diverting a payment from one customer for their own use, and then hides the defalcation by diverting cash receipts from another customer to offset the receivable from the first customer, the scheme is called _________________.
lapping
Trusts, offshore banks and bank transfer activity are typically elements of what kind of money laundering stage?
layering
Accounting Firm LLC is the auditor for Public Company Inc. Public Company, an SEC registrant, is in the middle of litigation with one of its suppliers. Can a partner of Accounting Firm LLC serve as an expert witness in this litigation matter?
no
Crandall Well Drilling Supplies Co. has a standard contract for sales of goods. Steve, a sales executive with the company, negotiated a large order with a key customer. To place the large order, the customer demanded special terms and conditions, including special rights of return. The special terms and conditions were memorialized in a side letter to the standard contract. The side letter and the standard contract were forwarded to the accounting department who evaluated all the terms and conditions in determining the proper revenue to be recognized. When Pam, the auditor, saw the side agreement, she concluded that it was improper because it was a side agreement with unusual terms and conditions. Is Pam correct?
no
LMNOP Accounting Firm conducted an audit of Little Company Inc. Little Company was sued by Stan Shareholder, and LMNOP's audit partner was called to testify as a fact witness about some statements that the CEO made during a board meeting at which the audit partner was present. LMNOP's audit partner will not testify as an expert. Will this testimony impair LMNOP's independence for next year's audit?
no
Jack is valuing a business called Teetering Inc. It is struggling financially. Teetering Inc. has a lot of specialized equipment. If the company is able to stay afloat, the equipment will help the company be profitable over the long term. But, if the company is forced to liquidate it could take a long time to find a buyer for the specialized equipment. Jack's opinion of value of the company will differ based on whether it is considered to be a going concern, whether it is liquidated in orderly manner, or if it is liquidated in a fire sale. The assumption regarding the most likely set of transaction circumstances related to Teetering, Inc. is called the ______of value.
premise
Which of the following is NOT a characteristic of skepticism?
requiring proof of all assertions
Big Smile Company's internal auditor has begun to investigate unusual sales transactions. She has identified 3 problem transactions, all of which were entered after midnight when the office is closed. She searches the remaining population for any other transactions entered after midnight. What kind of data analytic test is this?
rules-based test
which of the following attributes should be evaluated in a fraud risk assessment?
significance of exposure, likelihood of occurrence
A forensic accountant can serve in a variety of roles in a bankruptcy setting, including consultant, administrator of the estate, examiner, financial analyst or investigator. All of these roles share a common requirement to fulfill the requirements of the law to the bankruptcy estate while preventing fraud or material errors.
true
A fraud risk assessment should be documented. One method for documentation is a matrix that lists identified fraud risks, and documents the evaluation of the likelihood of occurrence, the significance of the exposure, the personnel or departments involved, existing fraud control activities, their effectiveness, the residual fraud risks, and the responses to those residual risks.
true
Bust-out and bleed-out schemes are both abusive schemes that involve intentional actions to transfer value out of a business for the benefit of managers, owners and insiders, while leaving fewer assets available for payment to creditors.
true
Channel stuffing describes the abusive practice of offering deep discounts, extended payment terms or other concessions to customers to induce the sale of products to distributors and retailers, often without properly accounting for the risk or amount of returns or assessing the likelihood of sell-through to the ultimate customers.
true
Disqualification of an expert due to a lack of appropriate credentials for the subject matter of the testimony or because of a poor analysis of the facts can impair a witness not only for the matter at hand but also for years to come.
true
During an investigation, investigators may document the chain of custody of evidence, which reflects the order in which a piece of evidence was acquired and handled and the unbroken train of accountabilty for that evidence.
true
Expert opinions are exempt from generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS), although the application of GAAP and GAAS may be relevant if they are the subject matter of the dispute.
true
External auditors who are engaged to examine the effectivness of an organization's internal control over financial reporting can assess the organization's implementation of COSO's internal control principle number 8 by using the Fraud Risk Management Guide.
true
Family law engagements can include both fraud investigation elements, such as searching for undisclosed or diverted assets, and business valuation elements.
true
Forensic accountants working in family law may be asked to trace the origin of assets to determine whether the property should be classified as marital or community property or the separate property of one spouse.
true
Forensic accounting is the application of special skills in accounting, auditing, finance, quantitative methods, certain areas of the law, research and investigative skills to collect, analyze, interpret and communicate findings.
true
Frozen Fish Company had a profitable contract to provide 50 cases of frozen specialty fish products to SuperDuperMarket each week for a year. After the first two weeks of the contract, SuperDuperMarket cancelled and refused to take shipments. At the time that SuperDuperMarket had cancelled, Frozen Fish Company had already purchased all the goods it needed to fulfill the contract and had the goods stored in their freezer. No other buyer wanted these specialty fish products. After many attempts, Frozen Fish Company ultimately sold them at a steep discount to another customer. (This paragraph is the same as the prior question.) Frozen Fish Company's efforts to sell the specialty products to another buyer is an example of mitigating damages.
true
Generally, under the U.S. federal bankruptcy laws, liabilities are quantified by class. All of the priority claims must be paid in full before any payments will be made to general unsecured claims.
true
In determining the lost earnings of children, the expert generally cannot rely on established earnings history. For these cases, the expert may be able to calculate projected earnings using national average earnings rates by age, gender and education level based on government surveys and otherwell-recognized studies.
true
In the context of litigation, damages are generally NOT recoverable for losses beyond an amount that the evidence permits to be established with reasonable certainty.
true
It's generally better to consider the risk of management override as a separate risk during brainstorming.
true
Keyword searching scans free text fields and unstructured data to identify suspicious or high-risk language within data.
true
Lost profits generally means the difference in profits between (a) what the plaintiff would have earned but for the defendant's actions and (b) the actual profits made by the plaintiff.
true
Management has the primary responsibility for preparing financial statements and safeguarding assets.
true
Money laundering is the act of concealing or disguising funds obtained through illegal activity so that they appear to have been generated through legal, legitimate sources.
true
One fundamental difference between an accounting error and a fraudulent misstatement is intent.
true
One key defense against the risk of management override of internal controls is a vigorous whistleblower program.
true
One of the reasons that revenue recognition frauds tend to grow over time is that timing irregularities effectively "borrow" future sales. The next quarter, these sales need to be made up, exacerbating the pressures to find revenues in future quarters.
true
One of the responsibilities of the board of directors (or the audit committee of the board) is oversight of management, including mitigating the risk of management override of controls.
true
Periodic reassessment of fraud control activities should include: Ensuring that existing controls are working as designed; Refreshing and updating the fraud risk assessment and design of the controls; and Seeking efficiencies and filling gaps.
true
Prejudgment interest is used to compensate the plaintiff for the interest not earned on lost profits from the date of the incident or event giving rise to damages to the date of trial
true
Prior to accepting a litigation-related engagement, the forensic accountant should consider whether they or their firm is professionally competent, objective and free of conflicts of interest with respect to the litigation matter.
true
The "before and after" method and the "but for" method describe the same general approach to damages. The underlying theory is that damages should be determined by comparing: the profits or net worth before the event or action that caused a loss to the profits or net worth after the event or action that cause a loss.
true
The AICPA has issued various practice aids for forensic and litigation services professionals. They are non-authoritative and are designed to assist the practitioner when performing forensic accounting and fraud examination services.
true
The biggest frauds tend to be those in which management overrides controls or when multiple people collude to circumvent controls.
true
The method of determining pre-judgment interest and the applicable interest rate will depend on many factors, including the court, the jurisdiction and the facts and circumstances of the case
true
Transparency International' s Corruption Perception Index can be used to identify or score higher risk transactions and business environments.
true
True or False? A petition filed under the Bankruptcy Code results in an automatic stay of the creditors' actions and prohibits any party, with some exceptions, from interfering with the debtor or its property until the court has modified or removed the stay.
true
Under the "books and records provisions" (or accounting provisions), companies are required to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of companies subject to the FCPA.
true
Weak internal controls or gaps in internal controls are a common root cause for failure to prevent or detect fraudulent activity.
true
When a business takes in cash receipts, it is important to have strong controls to create a record of cash receipts at the earliest possible point and to deposit the cash into the back as soon as possible.
true
A company has a whistleblower system that is entirely in English. Since their headquarters is in Boston, there is no need to develop systems for reports in languages other than English. Right or wrong?
wrong
Charlie works in the forensic accounting group at XYZ LLP, an accounting firm. Charlie is a CPA and a member of the AICPA. Charlie's spouse Pat works for Aerospace Contractor Inc. Pat has a job analyzing optics technology in the research and development department of Aerospace Contractor Inc. Big Law LLP wants to retain XYZ LLP to conduct a forensic investigation of an embezzlement in the accounts payable department of Aerospace Contractor Inc. Charlie heard about the potential engagement and notified the partner about Pat's employment at the company. The partner has considered the relationship and concluded that the ethical threats associated with the relationship are not significant because Pat's role is not associated with the subject matter of the investigation and because Charlie will not participate in the engagement in any way and will have no access to confidential engagement information. The partner concluded that any threat has been mitigated to an acceptable level. She documented her conclusion in the files. Did XYZ LLP comply with the AICPA code of professional conduct?
yes
Robert is a CPA and a member of the AICPA. He has been asked to serve as an arbitrator in a business dispute. This type of service is a forensic accounting service. Three years ago, Robert's firm worked on a consulting project for the Claimant in the dispute. Robert is also a neighbor of one of the lawyers working for the Respondent in the dispute. Before accepting the engagement, Robert obtained the consent of the Claimant to disclose the fact of his prior engagement as a consultant. Then, he disclosed both situations (the prior consulting project and the fact that he was neighbors with one of the lawyers) to both of the parties, together with the relevant facts and circumstances. Both parties consented to Robert's retention. Robert documented the parties' consent in the signed engagement letter. Under the AICPA rules, is Robert permitted to serve as an arbitrator in this matter?
yes
Robert is the CFO of a privately-owned company. The company had acquired three other businesses in the last few years. The balance sheet includes goodwill and intangibles associated with the acquisition of three other businesses. Robert has conducted recent impairment testing and believes that the goodwill and intangibles are fairly stated because the underlying businesses are profitable. The assets on the corporate balance sheet far exceed the liabilities. However, because of the debt that the corporation has undertaken, and because of the timing of certain corporate expenses, the corporate division has been spending much more cash than is coming in. As a result, the company does not have enough money to pay all the employees this month. Is the company insolvent?
yes
