Forensic Accounting Exam 3 and After

Which of the following scenarios involves skimming? A. Natalie removed cash from the register before the entries were made into the books of accounts. B. Olivia made false entries in a cash register to conceal the cash she removed without authorization. C. Keith removed cash from the safe after it had been entered into the cash book. D. Ian deducted cash from check deposits of the company.

A. Natalie removed cash from the register before the entries were made into the books of accounts.

Which of the following is the most common way to bias a graph? A. by manipulating the scale of the graph B. by using a scale that starts from zero C. by not including labels for the axes D. by not including labels for individual data points

A. by manipulating the scale of the graph

Which of the following terms describes the act of stealing cash revenue after it has been recorded in the accounting system? A. cash larceny B. skimming C. register disbursement D.less cash scheme

A. cash larceny

Which of the following terms describes a fraud scheme in which two conspiring companies exchange payments and services for the sole purpose of inflating revenues? A. swap transaction B. kickback C. switch contract D. billing scheme

A. swap transaction

Which of the following is the objective of journal entry testing in a forensic accounting engagement? A. to identify and assess any inappropriate or unusual activity B. to confirm the reasonableness of the suspicions of fraud C. to determine the reliability of the recorded journal entries D. to create a preliminary hypothesis

A. to identify and assess any inappropriate or unusual activity

Which of the following statements best differentiates compensatory and punitive damages in civil litigation? A.) Compensatory damages are meant to compensate a plaintiff's loss, while punitive damages are meant to deter similar misconduct by the same defendant or other parties in the future. B.) Compensatory damages are meant to reward a plaintiff, while punitive damages are meant to reward a defendant. C.) Compensatory damages are benefit streams the plaintiff would have received if not for the injury, while punitive damages are the benefit streams the plaintiff will receive for future damages. D.) Compensatory damages are meant to reward a defendant, while punitive damages are meant to punish a claimant.

A.) Compensatory damages are meant to compensate a plaintiff's loss, while punitive damages are meant to deter similar misconduct by the same defendant or other parties in the future.

Which of the following statements best defines the principle of integrity as per AICPA's Code of Professional Conduct ET Sec. 54, Article III? A.) It requires a member to be honest and candid within the constraints of client confidentiality. B.) It induces members to disclose any confidential client information without the specific consent of the client. C.) It precludes relationships that may appear to impair a member's objectivity in rendering various professional services. D.) It urges the members to adequately plan and supervise the performance of professional services.

A.) It requires a member to be honest and candid within the constraints of client confidentiality.

Which of the following statements is true of a computer forensics engagement? A.) Privacy rights related to confidential personal information must be observed, because improperly accessing data stored on electronic devices may constitute a violation of federal laws. B.) The type, make, or model of the subject storage devices must be identified because if the devices are not readily visible or perhaps stored out of sight, an expert can easily access the data. C.) The location of the subject devices is not so important because even if the devices are not readily visible or perhaps stored out of sight, an expert can easily access the data. D.) The number of subject devices is a not primary factor in estimating the time necessary to complete the analysis.

A.) Privacy rights related to confidential personal information must be observed, because improperly accessing data stored on electronic devices may constitute a violation of federal laws.

Which of the following standards of value is often used in dissenting minority interest in litigation? A.) fair value B.) fair market value C. investment value D.) book value

A.) fair value

Which of the following methods is a logical selection when engaged to value a nonoperating company or a company pending liquidation? A.) net asset value method B.) capitalization of earnings method C.) dividend payout method D.) guideline transaction method

A.) net asset value method

Which of the following gives the calculation of the capitalization rate? A.) the discount rate minus the expected long-term sustainable growth rate B.) the equity risk premium plus the specific company risk premium C.) the dividend payout rate plus the long-term sustainable growth rate D.) the required rate of return minus the risk free rate

A.) the discount rate minus the expected long-term sustainable growth rate

Which of the following is a drawback of link analysis? A. It cannot be used in cases where the subject is unknown. B. Compared to other investigative techniques, it can be time-consuming. C. Too many links may affect the quality of the information. D. It fails to reveal unapparent relationships.

B. Compared to other investigative techniques, it can be time-consuming.

Which of the following is a reason why dynamic visual exhibits are utilized in a courtroom? A. Visual tools bring a change in the pace of the presentation and prevent monotony. B. Information can be communicated more efficiently in visual form. C. A long presentation is less likely to produce memorable highlights. D. It is easier to present data in a visual form than in words.

B. Information can be communicated more efficiently in visual form.

Which of the following is an advantage of generalized audit software? A. It costs the same as basic programs and is more efficient. B. It can directly access and analyze data inside the database. C. It does not require extensive training to use it effectively. D. It facilitates alteration of data.

B. It can directly access and analyze data inside the database.

Which of the following is true of data mining? A. It cannot reflect the past behavior of the system being studied. B. It cannot detect a fraudulent transaction with certainty. C. It cannot examine the relationships among various factors. D. It cannot analyze an observation from multiple perspectives.

B. It cannot detect a fraudulent transaction with certainty.

Which of the following is a reason why the size of the data set is important to apply Benford's Law? A. The results of tests on large data sets are not as precise as the results of tests on small data sets. B. It is more difficult to identify significant deviations from Benford's profile in small data sets. C. It is easier to test small data sets for frequencies of digits, both lower and higher. D. Large data sets often have more irregularities than small data sets.

B. It is more difficult to identify significant deviations from Benford's profile in small data sets.

Which of the following statements best defines the term data analysis? A. It is the process of consolidating data. B. It is the separation of a whole into its component parts. C. It is the process of eliciting information. D. It is the act of conducting a systematic enquiry or appraisal.

B. It is the separation of a whole into its component parts.

Which of the following statements comparing alternative dispute resolution (ADR) with litigation is true? A. ADR is more time-consuming than litigation. B. Litigation is public whereas ADR maintains privacy. C. ADR is more expensive than litigation. D. Litigation has complete flexibility whereas ADR has limited flexibility.

B. Litigation is public whereas ADR maintains privacy.

Which of the following is a difference between mediation and arbitration? A. Mediation is generally time-consuming, whereas arbitration takes significantly less time. B. Mediation is a nonbinding structured process, whereas arbitration is a binding process. C. Mediation is done in front of a panel, whereas arbitration is facilitated by an independent third party. D. Mediation is completely flexible, whereas arbitration is comparatively rigid.

B. Mediation is a nonbinding structured process, whereas arbitration is a binding process.

Which of the following is a basic data analysis program? A. Microsoft Organizer B. Microsoft Excel C. Microsoft PowerPoint D. Microsoft Word

B. Microsoft Excel

Which of the following is a typical example of document dumping in litigation? A. Nyntal, Inc. kept all its old receipts, copies of contracts and agreements, bank slips and all other documents, created right from the inception of the company, in a separate warehouse. B. Sara requested Wilmerry, Inc. to produce four bank slips relating to the transactions under scrutiny. Wilmerry gave her all the bank slips of last two years. C. Quinn agreed with Kensington, Corp. to destroy the findings of the engagement and drown the documents collected during the investigation for a monetary benefit. D. Big Farm, Corp. reported that it has shredded all the original invoices provided by a particular vendor.

B. Sara requested Wilmerry, Inc. to produce four bank slips relating to the transactions under scrutiny. Wilmerry gave her all the bank slips of last two years.

Which of the following is true of first-party data? A. These are obtained from published and unpublished reference sources. B. These are obtained from an individual or an entity. C. These are obtained from are obtained from entities that maintain records regarding the subject. D. These are obtained from individuals or entities that are related or connected to the subject.

B. These are obtained from an individual or an entity.

Which of the following is a disadvantage of basic data analysis programs? A. They do not support complex statistical calculations or similar higher functions. B. They cannot accommodate data in certain formats, in which case the data must be converted. C. They do not allow flexibility of application. D. They are not suitable for forensic accounting engagements that require data mining.

B. They cannot accommodate data in certain formats, in which case the data must be converted.

Which of the following best describes reduction as a key form of influence while transcribing an interview? A. deciding how to reduce the information obtained in an interview in order to include only relevant information B. determining how the information obtained in an interview is reduced to words C. defining what information is relevant and what information is to be left out D. describing what should be the word count and language to be used in the transcript

B. determining how the information obtained in an interview is reduced to words

Which of the following is the first and primary means by which a graph communicates information? A. label of the axes B. title of the graph C. label for data points D. scale of axes

B. title of the graph

Which of the following is a reason why a forensic accountant uses data mining? A. to collect observations that may be presented as evidence of misrepresentation of information B. to reduce a large number of observations to a smaller number that can be examined more closely C. to assist in providing random samples from a large set of data D. to generate population of data based on a small sample

B. to reduce a large number of observations to a smaller number that can be examined more closely

Which of the following statements best differentiates a principle and a rule as per AICPA's Code of Professional Conduct? A.) A principle is an external person who oversees the behavioral actions of those who practice a profession, while a rule is an authoritative regulatory force for behavioral action. B.) A principle is a value-based internal force for behavioral action and a rule is an authoritative regulatory force for behavioral action. C.) A principle is an external person who oversees the behavioral actions of those who practice a profession, while a rule is a value-based internal force for behavioral action. D.) A principle is regulatory force with advanced education and training and a rule is a value-based internal force for behavioral action.

B.) A principle is a value-based internal force for behavioral action and a rule is an authoritative regulatory force for behavioral action.

Which of the following statements best differentiates a profession and a professional? A.) A profession is an occupation that requires advanced education and training and a professional is a value-based internal force for behavioral action. B.) A profession is an occupation that requires advanced education and training and a professional is a person who practices a profession. C.) A profession is an occupation that requires advanced education and training and a professional is a person who oversees the behavioral actions of those who practice a profession. D.) A profession is a value-based internal force for behavioral action and a professional is a person who oversees the behavioral actions of those who practice a profession.

B.) A profession is an occupation that requires advanced education and training and a professional is a person who practices a profession.

Which of the following should be the first phase of analysis of information gathered for a business valuation engagement? A.) reconciling information collected with the financial statement analysis B.) analysis of the company's financial statements C.) developing a discount rate D.) identifying significant relevant factors

B.) analysis of the company's financial statements

The indirect method of proof ________ compared to the direct method of proof. A.) is harder to refute in court B.) is generally less persuasive C.) is more easily understood D.) provides a greater level of certainty

B.) is generally less persuasive

Under prevailing Rule 26 of the Federal Rules of Civil Procedure, an expert report A.) must contain an expert's draft report and related disclosures. B.) must contain facts and data considered by the witness in forming the opinions. C.) must contain a complete statement of all opinions to be expressed even if the basis and reason for them are absent. D.) is expected to be logically precise and short in length.

B.) must contain facts and data considered by the witness in forming the opinions.

The two components of lost earnings in a civil litigation claiming damages are A.) past lost earnings and unexpected lost earnings. B.) past lost earnings and future lost earnings. C.) past lost earnings and recoverable lost earnings. D.) expected lost earnings and unexpected lost earnings.

B.) past lost earnings and future lost earnings.

Which of the following is true of arbitration? A. It is a nonbinding structured process. B. It is formal as compared to a trial. C. It is focused on fact finding. D. it is less expensive than mediation.

C. It is focused on fact finding.

Which of the following is an advantage of third-party data source? A. It can be obtained independently by the forensic accountant, without the assistance of the subject or engaging counsel. B. It can give an insight on the environment in which the subject operates. C. It is outside the subject's ability to manipulate. D. It is direct and accessible.

C. It is outside the subject's ability to manipulate.

Which of the following enhances client understanding and acceptance through interim (phase) reporting? A. incremental approach B. integrated approach C. phased approach D. unit approach

C. Phased Approach

Which of the following is a difference between second-party data and third-party data? A. Second-party data might require more time to obtain, whereas third-party data are readily available to the forensic accountant. B. The advantage of second-party data is that it can be obtained independently by the forensic accountant, whereas the advantage of third-party data is that it is outside the subject's ability to manipulate. C. Second-party data are obtained from individuals or entities that are related to the subject, whereas third-party data are obtained from entities that maintain records regarding the subject. D. Second-party data falls under the realm of primary research, whereas third-party data falls under the realm of secondary research.

C. Second-party data are obtained from individuals or entities that are related to the subject, whereas third-party data are obtained from entities that maintain records regarding the subject.

A ________ is a payment back by a seller of a portion of the purchase price to a buyer to induce purchase or influence future purchases. A. false discount B. check tampering C. kickback D. expense reimbursement

C. kickback

Which of the following statements is true of unconscious adversarial bias for testifying expert witnesses? A.) Identifying and eliminating, or at least neutralizing, unconscious bias is no big task. B.) The first opportunity to identify and eliminate unconscious bias falls to opposing counsel. C.) It is extremely prevalent among law enforcement and government witnesses. D.) It occurs when an expert is specifically hired to represent the engaging attorney's theory.

C.) It is extremely prevalent among law enforcement and government witnesses.

Which of the following statements best defines the principle of independence as per AICPA's Code of Professional Conduct, ET Sec. 55, Article IV? A.) It induces members to disclose any confidential client information without the specific consent of the client. B.) It requires a member to discharge professional responsibilities with competence and diligence. C.) It precludes relationships that may appear to impair a member's objectivity in rendering various professional services. D.) It imposes the responsibility to render services promptly and carefully, to be thorough, and to observe applicable technical and ethical standards.

C.) It precludes relationships that may appear to impair a member's objectivity in rendering various professional services.

Which of the following statements is true of the principle of due professional care in the ACFE Standards of Professional Conduct? A.) It requires a member to commit discreditable acts and to always conduct themselves in the best interests of the profession. B.) It urges a member to express an opinion or state affirmatively that the financial statements of an entity are presented in conformity with GAAP. C.) It requires members to adequately plan and supervise professional services. D.) It urges members to qualify the understanding with the client for any significant changes.

C.) It requires members to adequately plan and supervise professional services.

Which of the following statements is true of the methods of proof? A.) The indirect method of proof provides a lesser level of uncertainty compared to the direct method of proof. B.) Unlike the indirect method of proof, the direct method of proof is built on circumstantial evidence. C.) The indirect method of proof is easier to refute compared to the direct method of proof. D.) Unlike the indirect method of proof, the direct method of proof is based on inference rather than personal knowledge.

C.) The indirect method of proof is easier to refute compared to the direct method of proof.

As per Statement on Standards for Consulting Services (SSCS) No. 1, the standard of ________ requires a member to inform the client of conflicts of interest, significant reservations regarding the scope and benefits of the engagement, and significant findings. A.) understanding with the client B.) professional competence C.) communication with the client D.) client interest

C.) communication with the client

Which of the following is a primary issue of the business valuation theory? A). determining current benefits from the business B.) calculating financial ratios C.) estimating expected future benefits D.) calculating historical benefits received

C.) estimating expected future benefits

The purpose of the AICPA's Code of Professional Conduct is to A.) employ the degree of knowledge, skill, and judgment possessed by a rational individual. B.) induce the accountants through guidance, rules, interpretations, and rulings to join the AICPA. C.) help AICPA members monitor their own behavior. D.) fulfil all the client requirements included in the engagement agreement.

C.) help AICPA members monitor their own behavior.

The primary role of an economic expert in a damages claim is to A.) establish the facts of the damages claim to define the nature and extent of the injury. B.) prepare a reviewing and critiquing the opposing expert's report. C.) place a dollar value on the various damages components that have been identified. D.) establish the parameters of the damages determine the impact of the injury on the plaintiff.

C.) place a dollar value on the various damages components that have been identified.

To make a report effective, a forensic accountant A.) should be concise even if it not comprehensive. B.) should not rely on others' work. C.) should avoid redundant statements. D.) should be mindful of the plaintiff requirements rather than audience.

C.) should avoid redundant statements.

John Ambre has just accepted a forensic investigative engagement. Which of the following should be the first step to be taken by John? A. Create a fraud hypothesis. B. Test and refine the fraud hypothesis via financial statements analysis. C. Conduct interviews and gather relevant data and evidence. D. Confirm the reasonableness of the suspicions of fraud.

D. Confirm the reasonableness of the suspicions of fraud.

Which of the following is a disadvantage of generalized audit software? A. It does support the creation of an audit trail or log. B. It cannot be customized for specific tasks. C. It requires data to be converted to a format that can be processed by it. D. It requires extensive training to use it effectively.

D. It requires extensive training to use it effectively.

Which of the following is true of the process of transcribing an interview? A. The forensic accountant does not play a very active role in the transcription process. B. Interview transcription involves data analysis and interpretation. C. The focus is on the transcript itself and not on the process. D. The interview should be transcribed by the person who conducted the interview.

D. The interview should be transcribed by the person who conducted the interview.

Which of the following is true of timelines? A. Timelines fail to highlight missing information in the sequence. B. Timelines are more time-consuming than other data analysis tools. C. Timelines are prepared to reveal hidden relationships. D. Timelines are the most effective means of communicating a story.

D. Timelines are the most effective means of communicating a story.

Rule 702 of Federal Rules of Evidence requires that A. any qualitative data presented is supported by quantitative data. B. only direct evidence is used in a case. C. the CPAs use complex technological analysis tools for gathering data. D. the expert testimony is the product of reliable principles and methods.

D. the expert testimony is the product of reliable principles and methods.

Which of the following is a reason why purpose of business valuation is important? A.) It determines the premise of value. B.) It helps develop a suitable capitalization rate. C.) It can assist in representing the expected future benefits. D.) It identifies assumptions and limiting conditions.

D.) It identifies assumptions and limiting conditions.

________ occurs when a testifying expert is specifically hired to represent the engaging attorney's theory. A.) Unconscious bias B.) Witting bias C.) Conscious bias D.) Selection bias

D.) Selection bias

Which of the following is true of nonoperating assets of a business? A.) These are included in the valuation depending on the approach used. B.) These are required to produce the expected future benefit stream. C.) These should always be included in the valuation. D.) These should be excluded from the valuation.

D.) These should be excluded from the valuation.

Which of the following statements is true of a forensic accountant's summary report? A.) It is structured to provide a comprehensive discussion of the assignment, allowing the reader to develop a greater understanding of the data, reasoning, and analyses leading to the conclusions stated. B.) A summary report usually mentions methodologies considered but not used. C.) A summary report usually presents calculation of a range of values, given certain facts and assumptions and the result is shown as a calculated value. D.) When presenting a summary report, the objective is to provide a credible and legally sufficient communication within the time and cost limitations.

D.) When presenting a summary report, the objective is to provide a credible and legally sufficient communication within the time and cost limitations.

Which of the following valuation approaches employs the time value of money? A.) market approach B.) liabilities approach C.) asset approach D.) income approach

D.) income approach

Which of the following is the AICPA's Code of Professional Conduct principle that requires a member to observe the principles of objectivity, independence, and due care? A.) accounting principles B.) general standards C.) due professional care D.) integrity

D.) integrity

Which of the following standards of value is also known as strategic value? A.) book value B.) fair market value C.) fair value D.) investment value

D.) investment value

Which of the following methods is commonly used to establish a floor value for the company? A.) dividend payout method B.) guideline transaction method C.) capitalization of earnings method D.) net asset value method

D.) net asset value method

The direct method of proof is always preferable to the indirect method because it A.) is easier to refute. B.) uses more circumstantial evidence. C.) is generally more dissuasive. D.) provides a lesser level of uncertainty.

D.) provides a lesser level of uncertainty.