Fraud and Forensic Accounting
Lockboxes are used for
collects payments, deposits them into the company's bank account, and send the company a remittance list. Minimizes the risk of theft and embezzlement
what does the principle of predication require
requires reasonable justification for each step in the evidence collection process
crime of using the threat of force to gain some benefit from a victim is
robbery
which of the following is a source of law in the United States? Case law, Constituational Law, Administrative Law, Statutory Law
Constitutional, Statutory, Case, and Administrative law
segregation of duties relates primarily to which of the following
Control activities
a false positive is said to occur when which of these occurs
a fraud indicator incorrectly indicates an ongoing or past fraud
one important element to include in an engagement letter is
a mediation or arbitration requirement
how is a determination of whether a segment is materially misstated made
by comparing the tolerable misstatement to the results of testing
investigation risk is...
chance of making less than than optimal decision in deciding what evidence to collect how to collect it and how to interpret it
what is the ultimate item of evidence that is admissible in court
confession
What is a term that some business processes are called
cycles
what elements must be present in a criminal matter?
damages
what happens in an arraignment
defendant brought before judge, receives copy of charges, defendant enters a plea of guilty or not guilty
what is the reason that auditors audit companies
determine whether their financial statements present the companies' financial position, results of operations, and cash flows in accordance with the accounting basis specified in the footnotes
how would you describe auditing
distinct from accounting
Fraud investigation process involves systematically gathering and reviewing evidence for the purpose of
documenting the presence or absence of fraud
what are the steps in a systematic fraud investigation
engagement process, evidence collection process, reporting process, loss recovery process
the first 10 amendments of the U.S. Constituion are the
Bill of rights
inspector general applies to ...
government agents
fraud theory is similar to a fraud schem except with respect to what
why?
best approach during interviews
withhold knowledge of evidence for strategic or tactical reasons
are corrective controls more expensive than detective controls
yes
the fraud theory approach to evidence collection
1. analyze data 2. create hypothesis regarding a possible fraud 3. test hypothesis 4. fraud theory is supported by evidence
what are specific objectives of internal controls
1. ensuring compliance with applicable laws, regulations, professional rules and contractual obligations. 2. promoting strategic, tactical and operational efficiency and effectiveness.
How many components of risk must an auditor consider
4, audit risk, inherent risk, control risk, detection risk
who has the descretion to bring charges against a suspect
District attorney and Grand jury
what is an exception to the hearsay rule
Dying declaration, state of mind, business and governmental records, excited utterance, prior inconsistent statements.
likely incidence of fraud discovered by accident in small companies?
Higher
the usual penalty in a civil case is
Monetary Damages and Equitable Releif
which of the following groups is the primary promulgator of financial auditing standards for private companies
PCAOB
which of the following organizations were created by sox
PCAOB
what are the primary rule make body that affects the auditing profession
PCAOB, Fasb, Gasb, SEC
the concept of preliminary judgment of materiality is defined in which of the following
Practice
Direct appeals of U.S. District court cases are heard by the
U.S. district court of appeals
a business process is a set of coordinated activities and tasks that...
accomplish some organization goal
segregation of duties applies to separating which three functions
accounting, authorization and custody
application controls help ensure
accuracy, integrity and security
the client changes accounting principles in the last year, what does the auditor do
add a paragraph that draws the readers attention to this change
what provides the most protection for a tipster's privacy?
anonymity
evidence is
anything that affects the truth or falsity of an assertion made in an investigation or legal proceeding
approval applies to transactions that...
are fully authorized
primary person responsible for collecting the actual evidence to be introduced in court is
attorney
suspicino f fraud probably affects what
audit procedures selected by the auditor and amount of testing
audit trail permits auditors to
balance and reconcile acounts because it is documentation and records that allow the auditor to trace back the account balances to the original sources
an objective of the review of physical and document evidence is to
become as familiar with the business processes as possible
when is the assessment of inherent risk made?
before considering the effects of internal controls
The burden of proof in a criminal case is
beyond a reasonable doubt
physical evidence is what?
broad category of collected evidence, includes documentary evidence
best way to optimize loss management system is to first do what
budget fraud risk and maximize prevention effectiveness
one assessment of acceptable audit risk is made for which of these
entire audit
hypothesis testing involves what
examination of a piece of evidence to decide whether it is consistent with the fraud theory under consideration
what describes auditors
facilitators of the movement of capital between investorsa and companies issuing stock or between lenders and borrowers
those auditing the financial statements are most concerned about which of the following
flow of transactions through the accounts
two types of transactions processing controls are
general controls and application controls
SAS no. 99 requires auditors design financial audits in such a way to have a reasonable chance to what
have a reasonable chance of detecting misstatements in the financial reports
primary control in the purchasing side of the financial cycle is
having the treasury function make payments based on documentation from other departments
what general source of data does not apply to data driven fraud detection
reconciliation figures, batch control totals, missing invoices
what does fraud detection involve
identify fraud indicators
the engagement process includes what steps
incident report, make notifications, consider legal issues, consider loss mitigation, define scope, objectives and cost, engagement letter
acceptalbe detection risk depends on what?
inherrent risk, control risk and acceptable audit risk
sas 99 requires that auditors report any evidence found that fraud may exist to what?
inventory accounts, cash accounts, financial reports
after an initial assessment...
investigate some suspected frauds
describe the licensing of CPA's
issued at state level, and must pass uniform cpa exam
what is true of having a centralized case file in fraud investigation
it is advisable because doing so can be helpful in optimizing a fraud management system
crime intentionally and permanently converting another's property to one's own.
larceny
when should the primary suspect be interviewed?
last
the turnkey approach to systems developement is
less expensive than the classical approach
risk in the context of financial information is defined as..
likelihood that a material misstatement will influence the decision of a reasonable user of the financial statements
try to catch the fraudster in the act can...
lower investigation cost and provide good evidence in court
define tolerable misstatement
maximum amount of misstatement the auditor is willing to tolerate in a segment
an incident report is important because...
may serve as probable cause needed to subpoena records
The turnkey approach of systems development is
ready made prefabricated systems that include all needed software, documentation, training materials and vendor support are used without any design or programming work
when properly implemented, internal controls
minimize loss exposures
which way do companies tend to develop their information systems
modular
what is the process where the judge can rule out ceratin evidence.
motion in liminy
when fully operating, control processes
must be continuously monitored
risks affect what
nature, timing and extent of testing
when should CFE's include an opinion of guilt in their fraud reports
never
worldcom is an example of
none of the above
good general rule is that individual fraudsters are...
not deterred by prosecution
ideal control over cash registers, there should be
one employee assigned to each cash register
what function is not compatible with managing the AR ledger?
opening the mail, approving writeoff of bad debt, depositing customer payments to the company bank account
what is fraud theory
organized set of answers to questions: who, what, when, where, how and why
which of the following types of data would be useful for social networking analysis
phone records, membership records for boards of diretors for various companies, exmployment records containing lists of past employers
what are the major types of evidence
physical evidence, documentary evidence, observational evidence, interview evidence
fraud theory approach is...
posits a hypothesis, tests the hypothesis against evidence, then accepts, modifies or discards the hypothesis as warranted by the evidence
what is fraud scheme
predefined set of answers to who what how when where
three conditions that auditors consider when making judgments on materiality
presence of fraud, consequences arising from contractional obligations, and misstatements that affect earnings trends
what is the principle of reverse proof
principle that requires investigator to consider the evidence for both sides. investigator must consider and rule out all evidence that would support defense agruments
Define Auditing
process of gathering and evaluating evidence about information to determine the degree of correspondence between the information and the standards used to prepare the information
fraud reporting process can be defined as
process that involves documenting and summarizing the results of the fraud investigation
on which of these does internal control focus
processes
the classical approach to systems development, the developer
produces a custom blueprint for the desired system
what best describes how the principle of predication can affect private fraud investigators compared to law enforcement officials
provides less restraint
discovery sampling does what?
sometimes detect errors
in absence of a confession, which of the following is true about the fraud investigation?
sometimes points to a guilty person
what are the list of types of opinions expressed in audit reports
standard unqualified, unqualified with modified wording, qualified, adverse, disclaimer
primary objective in a fraud investigation is to
stop the fraud from continuing, make an example of the fraudster, punish the fraudster
what techniques would likely be most useful in determine whether a particular invoice is fraudulent?
text analysis
whose is responsible for the fraud theory in court
the attorney
fraud theory approach to fraud investigation involves using a fraud theory to structure which of the following?
the evidence collection process
GAAP dictate which of the following
the four basic transaction cycles
In many frauds, such as embezzlement, the cover-up is
the most difficult part of the fraud
define extortion
the threat of future force to gain some type of benefit from the victim
how are frauds most likely discovered in large companies
through hotlines
an attorney pursuing a court case against a fraudster generally
uses the same or different theory as the fraud investigator
an accountant opens the mail and posts check to AR, what is the best way to describe this internal control
weak
first question asked in a fraud investigation
what
