LSU Fraud Final Exam MC

Which of the following is among the do's and don'ts" suggested in the text for expert witnesses during a deposition or trial? A. Answer questions honestly and convincingly. B. Memorize answers to questions you expect to be asked in order to minimize the chances for mistakes. C. Bluffing is often a good strategy if you are not sure of an answer since an expert should be well-versed in most topics posed to him/her. D. Respond to statements, observations, and questions.

A. Answer questions honestly and convincingly.

Which of the following is a major difference between larceny and skimming? A. Larceny is committed after the cash is entered into the accounting system, while skimming is committed before the cash is entered into the system. B. Larceny is committed before the cash is entered into the accounting system, while skimming is committed after the cash is entered into the system. C. Larceny involves fraudulent disbursements of cash, while skimming involves fraudulent receipts of cash. D. Larceny involves fraudulent receipts of cash, while skimming involves fraudulent disbursements of cash.

A. Larceny is committed after the cash is entered into the accounting system, while skimming is committed before the cash is entered into the system.

A common motion filed in criminal trials is a request to suppress evidence that was illegally obtained. A. True B. False

A. True

A debtor is the person or entity who is subject to a bankruptcy filing. A. True B. False

A. True

A person acting as an officer in a bankruptcy case is prohibited from purchasing any property of the debtor's estate. A. True B. False

A. True

At the arraignment: A. charges against the defendant are read B. the defendant must plead "nolo contendere" or post bail C. the grand jury hears evidence of wrongdoing D. depositions are performed on all major witnesses.

A. charges against the defendant are read

The Gram-Leach-Bliley Act gives you the right to: A. opt out of having your personal information sold to organizations B. receive a yearly stipend to cover the losses incurred as a victim of identity fraud C. claim your high credit report although an identity fraudster has damaged it severely D. sue the perpetrator for more money than he or she defrauded from you.

A. opt out of having your personal information sold to organizations

Which of the following fraud risks involves viewing information as it passes along network channels? A. sniffing B. spoofing C. false web sites D. web hijacking

A. sniffing

Which of the following fraud risks involves changing IP addresses? A. spoofing B. sniffing C. false web sites D. customer impersonation

A. spoofing

Consumers should provide credit card numbers or bank account information over the telephone only when: A. they initiated the call and are purchasing a legitimate product B. they are asked to give the information C. the entity receiving this information is a legitimate company D. they feel confident that the receiving entity will protect such information.

A. they initiated the call and are purchasing a legitimate product

Which of the following is not listed in the chapter as a common characteristic of Nigerian scam letters? A. the promise of money to lure victims B. urgency to invest quickly C. picture of perpetrator to assure victims D. strong ties to high-ranking foreign officials to lure victims

C. picture of perpetrator to assure victims

Phishing is the method of: A. using e-mail or other Internet applications to deceive people into disclosing valuable personal information B. convincing a person to divulge personal information over the telephone C. hacking into another's computer files to access personal information D. hiring a con artist to steal personal information from a person.

A. using e-mail or other Internet applications to deceive people into disclosing valuable personal information

Which of the following is not a fraud risk unique to e-business transactions? A. innovative technologies where security lags process development B. selling new products C. complex information systems D. removal of personal contact

B. selling new products

A Trojan Horse: A. sends email or pop-up messages to users asking for personal information in inventive ways B. is a program that claims to do something useful, but which also contains hidden behavior C. changes information in an email header or an IP address to hide identities D. all of the choices are true regarding Trojan horses.

B. is a program that claims to do something useful, but which also contains hidden behavior

Which of the following is not considered a misappropriation of assets? A. payroll disbursement schemes B. kickbacks C. expense schemes D. skimming

B. kickbacks

Out of all the types of frauds discussed in this chapter, which type is perpetrated least often? A. skimming B. larceny C. check schemes D. payroll

B. larceny theft of personal property

Which of the following is not a type of tax fraud? A. using a false Social Security Number B. overstating income C. keeping two sets of financial books D. claiming a dependent when you do not have one

B. overstating income

The purpose of civil laws is to "right a wrong" or send someone to jail or have them pay fines, whereas the purpose of criminal laws is to seek monetary remedies or recover stolen funds. A. True B. False

B. False

The discovery stage of a civil case includes: A. the filing of a counterclaim by the defendant B. depositions and subpoenas C. the defendant requesting, and receiving, a jury trial D. all of the choices are true of the discovery stage of a civil case.

B. depositions and subpoenas

Which of the following is not one of the common stages of a criminal case? A. filing a criminal charge B. filing a complaint C. discovery D. trial and appeal

B. filing a complaint

The Fifth Amendment to the Constitution provides defendants with which of the following protections? A. protects against unreasonable searches and seizures B. precludes a person from being tried twice for the same crime C. to receive a speed and public trial D. all of the choices are true of the Fifth Amendment

B. precludes a person from being tried twice for the same crime

Which of the following depicts the correct progression of a case through the federal court system? I. Supreme Court II. Circuit Court of Appeals (one of twelve) III. U.S. District Court A. I, II, III B. II, I, III C. III, II, I D. I, III, II

C. III, II, I

"Wartrapping" is: A. using a key to "lock" a message and another key to "unlock" it B. a signature sent over the internet C. a "free" internet access point set up by hackers and used to steal passwords and other important information D. illegal or unauthorized viewing of information as it passes along a network communication channel.

C. a "free" internet access point set up by hackers and used to steal passwords and other important information

If you become a victim of identity theft, you should first: A. wait to see where the perpetrator is spending your money; then, using this information, plan an investigation with the local FBI organization B. contact friends and neighbors to inquire if they have any useful information about the perpetrator C. contact the Federal Trade commission for assistance and advice D. do none of the suggestions provided.

C. contact the Federal Trade commission for assistance and advice

What is the best defense against consumer fraud? A. signing up with the national do not call registry B. purchasing credit card insurance C. educating yourself about credit card risks D. calling the Federal Trade Commission (FTC)

C. educating yourself about credit card risks

Which of the following is not an internal control activity or procedure? A. physical safeguards B. segregation of duties C. internal auditors D. documents and records

C. internal auditors

The stage of the money laundering process that includes making wire transfers between various accounts or changing the money's currency is called the: A. integration stage B. placement stage C. layering stage D. insertion stage.

C. layering stage

Which of the following institutions would not be very helpful to call in the event of identity theft? A. IRS B. Social Security Administration C. local chamber of commerce D. a credit reporting agency

C. local chamber of commerce

Which of the following is true of both civil and criminal law? A. a plaintiff must prove the "preponderance of the evidence" to be successful B. juries may have between 6-12 jurors C. plaintiffs and defendants may call expert witnesses D. all of the choices are true of both civil and criminal law

C. plaintiffs and defendants may call expert witnesses

Which of the following is the least likely symptom of a bust-out? A. company's only listed address is a post office box B. dramatic increase in size of credit orders C. public notice of change in management D. sudden decrease in inventory

C. public notice of change in management

When deposing an expert witness, the opposing attorneys try to achieve all of the following goals except: A. understanding the expert's opinion B. understanding the expert's credentials C. seeking admission of guilt D. obtaining an assessment of how difficult the expert will be in the case.

C. seeking admission of guilt

Which of the following is not an indicator of a possible bust-out? A. an address that is a post office box B. new ownership of a company C. slow buildup of inventory D. dramatic increase in the size of credit orders

C. slow buildup of inventory

The value of data lies in its ability to be easily: A. converted to money B. replicated C. transferred D. all of the answer choices given

D. all of the answer choices given

Which of the following is an indicator of possible hiding of assets in a divorce? A. assets transferred to an off-site location B. changing the title to assets C. payments made to fictitious individuals D. all of the answers shown are indicators of possible hiding of assets

D. all of the answers shown are indicators of possible hiding of assets

The retention of a fraud investigator in a bankruptcy proceeding must be approved by the bankruptcy judge unless: A. the debtor's estate pays the investigator B. the trustee pays the investigator C. the creditors' committee pays the investigator D. an individual creditor or shareholder pays the investigator.

D. an individual creditor or shareholder pays the investigator.

Which of the following types of controls is least often used to protect IT processing equipment? A. physical controls B. authorization controls C. independent checks or reference D. documents and records

D. documents and records

The person appointed by a bankruptcy judge in a Chapter 11 proceeding who investigates allegations of fraud or misconduct by the debtor or its principals is a(n): A. creditor B. adjuster C. auditor D. examiner

D. examiner

E-business presents unique pressures and opportunities for fraud including: A. proven business models that generate cash flows B. extensive personal contact which increases customer satisfaction with the purchase C. heightened privacy due to the ability to conduct business from home or office D. lack of "brick-and-mortar" and other physical facilities.

D. lack of "brick-and-mortar" and other physical facilities.

During cross-examination, expert witnesses should: A. address areas outside of their areas of expertise B. appreciate opposing council when they act very friendly C. respond evasively and ambiguously to tough questions D. maintain the same positions taken during direct testimony.

D. maintain the same positions taken during direct testimony.

Which of the following human features is generally not used in biometrics? A. fingerprints B. voice tones C. retina patterns D. weight

D. weight

Management fraud is usually committed on behalf of the organization rather than against it. Which of the following would not be a motivation of fraud on behalf of an organization? a. CFO needs a new car b. a highly competitive industry c. Pressure to meet expected earnings d. restructure debt covenants that cant be met

a. CFO needs a new car

which of the following ratios would not generally be used to look for inventory and cost of goods sold-related frauds? a. accounts payable turnover b. gross profit margin c. inventory turnover d. number of days sales in inventory

a. accounts payable turnover

Reported revenue and sales account balances that appear too high are examples of: a. analytical symptoms b. documentary symptoms c. lifestyle symptoms d. verbal symptoms

a. analytical symptoms

Comparing recorded amounts in the financial statements with the real-world assets they are supposed to represent would be most effective in detecting: a. cash and inventory fraud b. accounts payable fraud c. revenue- related fraud d. accounts receivable fraud

a. cash and inventory fraud

overstating cash is usually difficult because: a. cash balances can be easily confirmed with banks and other financial institutions b. cash is hard to steal c. cash is normally not a fraudulent accounts d. cash is usually a small asset

a. cash balances can be easily confirmed with banks and other financial institutions

Identify which ratio is correctly linked to the information it could reveal about the company's potential for revenue fraud. a. gross profit margin- this ratio will increase if management overstates inventory b. sales return percentage- a sudden decrease in this ratio can mean that customer discounts are not being recorded in the accounting records c. allowance for uncollectible accounts as a percent of receivables- when a company records fictitious receivables, this ratio increases d. operating profit margin-a dramatic decrease in this ratio could indicate fraud

a. gross profit margin- this ratio will increase if management overstates inventory

each of the following is a symptom relating to understatement of liability frauds except: a. original purchase-related records where copies could exist b. denied access to records, facilities, certain employees, customers, vendors, or others from whom audit evidence might be sought c. last minute adjustments by the entity that significantly affect financial results d. missing documents e. all of the above are documentary symptoms of understatement of liability fraud

a. original purchase-related records where copies could exist

Analytical symptoms of accounts payable fraud most often relate to reported "accounts payable" balances that appear: a. too low b. too high c. too perfect d. unchanged

a. too low

In a liability fraud, liabilities are most often: a. understated b. overstated c. recorded as assets d. recorded as expenses

a. understated

In the context of strategic reasoning, if an auditor only follows the established audit plan and does not consider other factors relating to the auditee, then this is an example of which of the following? a. zero-order reasoning b. higher-order reasoning c. first-order reasoning d. fraudulent reasoning

a. zero-order reasoning

In recent years, many SEC investigations have taken place on the improper issuance of stock options to corporate executives. These practices increase executive compensation at the expense of shareholders. This practice is knowns as: a. backdrifting stock options b. backdating stock options c. stock option reversals. d. stock option extensions

b. backdating stock options

primarily occurring at the end of the year in an attempt to inflate sales, the practice of shipping more items to distributors than they can sell in a reasonable time period is known as: a. lapping b. channel stuffing c. bill-and-hold transactions d. consignment sales

b. channel stuffing

all of the following ratios are useful in detecting large revenue frauds except: a. gross profit margin b. current ratio c. working capital turnover d. accounts receivable turnover

b. current ratio

Last minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of: a. analytical symptoms b. documentary symptoms c. control symptoms d. perceptional symptoms

b. documentary symptoms

Horizontal analysis is a method that: a. examines financial statement numbers from period to period b. examines percent changes in account balances from period to period c. examines transactions from period to period d. none of the above

b. examines percent changes in account balances from period to period

Each of the following assets is correctly linked with how it can be overstated except: a. inventory can be overstated by improperly capitalizing these assets b. marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities c. fixed assets can be overstated by leaving expired assets on the books d. assets can be inflated in mergers, acquisitions, and restructurings by having the wrong entity act as the acquirer

b. marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities

Which of the following is not an inventory-related documentary symptom? a. duplicate purchase orders b. missing inventory during inventory counts c. unsupported inventory sales transactions d. all of the above are inventory-related documentary symptoms

b. missing inventory during inventory counts

inadequate disclosure fraud usually involves: a. statements in the footnotes that are wrong but do not impact the financial statement b. disclosures that should have been made in the footnotes but were not. c. both a and b d. neither a nor b

c. both a and b

The most common way to overstate revenues is to: a. record revenues prematurely b. abuse the cutoff line for recording revenues c. create fictitious revenues d. none of the above

c. create fictitious revenues

Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except: a. recognizing revenues too early- Accounts receivable, revenue b. understate allowance for doubtful accounts- bad debt expense, allowance for doubtful accounts c. dont write off uncollectible receivables- sales returns, sales discounts d. dont record discounts given to customers- cash, sales discounts, accounts receivable

c. dont write off uncollectible receivables- sales returns, sales discounts

Lifestyle symptoms are most effective with: a. revenue-related financial statement fraud b. inventory-related financial statement frauds c. employee frauds d. accounts payable financial statement

c. employee frauds

During an audit, an auditor considers the conditions of the auditee and plans the audit accordingly. This is an example of which of the following? a. zero-order reasoning b. high-order reasoning c. first-order reasoning d. fraudulent reasoning

c. first-order reasoning

Accounts that can be manipulated in revenue fraud include all of the following except: a. accounts receivable b. bad debt expense c. inventory d. sales discounts

c. inventory

Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because: a. it is easier to implement good internal controls in a small organization b. smaller organizations do not have investors c. management fraud is more difficult to commit when there is a more formal organizational structure of management d. people in large organizations are more honest

c. management fraud is more difficult to commit when there is a more formal organizational structure of management

The most common fraud involving car companies and the warranties they offer would most likely be: a. understating accrued liabilities b. recognizing unearned revenue c. not recording or underrecording future obligations d. not recording or underrecording various types of debt

c. not recording or underrecording future obligations

FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is: a. remote b. reasonably possible c. probable d. not determinable

c. probable

The most common accounts manipulated when perpetrating financial statement fraud are: a. expenses b. inventory c. revenues d. accounts payable

c. revenues

The asset turnover ratio measures: a. the average time an asset is used by the company b. the average useful life of capital assets c. sales that are generated with each dollar of the assets d. assets that are purchased with each dollar of sales

c. sales that are generated with each dollar of the assets

The three aspects of management that a fraud examiner needs to be aware of include all of the following except: a. their backgrounds b. their motivations c. their religious convictions d. their influence in making decisions for the organization

c. their religious convictions

which officer in a company is most likely to be the perpetrator of financial statement fraud? a. chief financial officer (CFO) b. controller c. chief operating officer (COO) d. chief executive officer (CEO)

d. Chief executive officer (CEO)

Many indicators of fraud are circumstantial: that is they can be caused by nonfraud factors. This fact can make convicting someone of fraud difficult. Which of the following types of evidence would be most helpful in proving that someone committed fraud? a. missing documentation b. a general ledger that is out of balance c. analytical relationships that dont make sense d. a repeated pattern of similar fraudulent acts

d. a repeated pattern of similar fraudulent acts

when looking for inventory fraud, an important question to ask is: a. what is the nature of inventory? b. what is the age of inventory? c. what is the salability of inventory? d. all are important questions to ask

d. all are important questions to ask

Proactively searching for analytical symptoms related to financial statements fraud means that we are looking for accounts that appear: a. too low b. too high c. unusual d. all of the above

d. all of the above

which financial ratio is not useful in detecting revenue-related fraud? a. gross profit margin ratio b. account receivable turnover ratio c. asset turnover ratio d. all of the above are useful revenue-related fraud detection ratios

d. all of the above are useful revenue-related fraud detection ratios

Which of the following is not a way to underrecord liabilities? a. borrowing but not disclosing debt incurred on existing lines of credit b. claiming that existing debt has been forgiven by creditors c. not recording loans incurred d. all of the above are ways to underrecord liabilities

d. all of the above are ways to underrecord liabilities

Which of the following factors does not make fraud more difficult to detect? a. collusion with outsiders b. forgery, which GAAS auditors are not routinely trained to detect c. off-book frauds in which no records on the company's books are fraudulent d. all of the above make fraud more difficult to detect

d. all of the above make fraud more difficult to detect

Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers? a. understate allowance for doubtful accounts b. record bank transfers when cash is received from customers c. write off uncollectible receivables in a later period d. avoid recording of returned goods from customers

d. avoid recording of returned goods from customers

when focusing on changes you should consider changes from period to period in: a. recorded balances b. relationships between balances c. balances of other nonsimilar companies d. both a and b e. all of the above

d. both a and b

Which of the following is a common way to perform financial statement analysis while searching for revenue-related analytical symptoms? a. look for unusual changes in revenue-related account balances from period to period. b. look for unusual changes in revenue related relationships from period to period c. look for unusual changes in the cost of goods sold account from period to period d. both a and b are common ways to perform within statement analysis while searching for revenue related analytical symptoms e. all of the above are common ways to perform financial statement analysis while searching for revenue-related analytical symptoms

d. both a and b are common ways to perform within statement analysis while searching for revenue related analytical symptoms

which of the following is usually the hardest fraud to detect? a. liability fraud b. revenue fraud c. asset fraud d. disclosure fraud

d. disclosure fraud

Recording fictitious receivables will usually result in an: a. sales return percentage that remains constant b. increased sales discount percentage c. increase in accounts receivable turnover d. increase in the number of days in receivables

d. increase in the number of days in receivables

All of the following are indicators of financial statement fraud except: a. unusually rapid growth of profitability b. threat of a hostile takeover c. dependence on one or two products d. large amounts of available cash

d. large amounts of available cash

When looking for accounting or documentary symptoms of fraud when a merger occurs, one of the first steps should be to: a. make sure that the purchasing company got a fair deal b. make sure that the selling company properly disclosed its financial troubles. c. make sure that both the buyer and the seller were content with the deal d. make sure that the accounting methods used were appropriate and consistent with accounting standards

d. make sure that the accounting methods used were appropriate and consistent with accounting standards

Which of the following is least likely to be considered a financial reporting fraud symptom, or red flag? a. grey directors b. family relationships between directors or officers c. large increases in accounts receivable with no increase in sales d. size of the firm

d. size of the firm

In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except: a. the types of accounts that should be included in the financial statements b. the types of fraud to which the company is susceptible c. the nature of the company's business and industry d. the auditor should consider all of the above

d. the auditor should consider all of the above

Why might a company want to understate net income? a. to increase profits b. to increase stock price c. to gain consumer confidence d. to pay less taxes

d. to pay less taxes

When examining whether a company has under-recorded accounts payable, each of the following ratios is helpful except: a. liquidity ratio b. accounts payable/purchases c. accounts payable/ cost of goods sold d. unearned revenue/ accounts payable e. current ratio

d. unearned revenue/ accounts payable

When looking for financial statement fraud, auditors should look for indicators of fraud by: a. examining financial statements b. evaluating changes in financial statements c. examining relationships the company has with other parties d. examining operating characteristics of the company e. all of the above f. none of the above

e. all of the above

which of the following is a primary type of transaction that can create liabilities for a company? a. purchasing inventory b. borrowing money c. selling purchased goods d. leasing assets e. all of the above

e. all of the above

which of the following is a good place to look for inadequate disclosures? a. board of directors minutes b. correspondence and invoices from attorneys c. confirmations with banks and others d. loan agreements e. all of the above are good places to look for inadequate disclosure

e. all of the above are good places to look for inadequate disclosure

Financial statement fraud is usually committed by: a. executives b. managers c. stockholders d. outsiders e. both a and b

e. both a and b

Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because: a. it understates liabilities b. it overstates revenues c. it overstates net income d. it overstates assets e. all of the above f. a, b, and c are correct

f. a, b, and c are correct