Midterm #1 (Part 1-Quizzes)
Which is not one of Michael Comer's five broad categories of fraud? All of these are Comer's broad categories. Theft of assets. Technology abuse. Conflict of interest. Kickbacks.
a.
Which is not one of the general six requirements for a valid contract? Listed at the court house. . Offer and acceptance. . Lawful objective. Something of value exchanged. Entered into freely.
a.
Which is not one of the six requirements for a valid contract? All are a valid requirement. Offer and acceptance. Lawful objective. Capacity of parties to perform. Entered into freely
a.
Which is not one of the six requirements for a valid contract? Must be notarized. Entered into freely. Offer and acceptance. Lawful objective. Something of value exchanged.
a.
Which item would be a possible source document fraud symptom? Cancelled check. Out-of-balance entry. Unexplained adjustment. Entry by an unauthorized person. None of the above are source documents.
a.
Which item would not be considered a source document? Out-of-balance account. Sales invoice. Shipping document. Form 1099. All of these are source documents.
a.
Which of the following auditors is least interested in the materiality concept? Forensic auditor. Internal auditor. External auditor. GAO auditor.
a.
Which of the following is a public resource that can be accessed by the Internet? All of these. Police and sheriff records of arrests. Wills. Drivers' licenses
a.
Which of the following is an example of a proactive approach to fraud detection? All of the these. Logging of exceptions. Intelligence gathering. Reviewing variances. Effective internal controls.
a.
Which of the following is an example of a reactive approach to fraud detection? Suspicion. Effective internal controls. Intelligence gathering. Logging of exceptions.
a.
Which of the following might produce an investigative "lead" or "red flag"? All of these. Laboratory analysis of physical evidence. Anonymous letter or e-mail about the crime. The suspicions of an internal auditor. Item found on the Internet
a.
Which of these items would be unavailable to an IRS agent auditing a taxpayer? Checking with next door neighbors. Driving by the taxpayer's vacation home. Conduct a LEXIS search for assets. Checking prior year's tax returns.
a.
Which scheme is considered to be skimming? All of these. Unrecorded sales. Understated sales. Theft of incoming checks. Swapping checks for cash.
a.
Which statement is false? All of these statements are true. An indirect method may be used when a taxpayer has inadequate books and records. An IRS agent may conduct a LEXIS search to determine if a person purchased real estate during the year. An indirect method may be appropriate when there is a significant increase in year-to-year net worth. A Cash T is an analysis of all of the cash received by a person and all of the cash spent by a person over a period of time.
a.
Which statement is false? All of these statements are true. The net worth analysis may be used when searching for hidden income in drug trafficking and insurance fraud situations. Whereas the focus of the net worth method is on the year-end balances as well as other assets and liabilities, the bank deposit technique looks at the funds deposited during the year. The bank deposit method attempts to reconstruct gross taxable receipts rather than adjusted taxable income. The bank deposit method is appropriate when most of the income is deposited in banks and most of the expenses are paid by checks.
a.
Which statement is false? Probing missing income by pointing to specific items of income that do not appear on a tax return is an indirect method of reconstructing income. A special agent of the IRS developed a strategy to help indict Al Capone. District attorneys may obtain tax returns. (Assume this is true.) Tracing monies from a dummy corporation to an individual is a direct method of reconstructing income
a.
Which statement is false? The source and application of funds method is a variation of the bank deposit method. The source and application of funds technique is a variation of the net worth method that shows increases and decreases in a taxpayer's accounts at the end of the year. Often the IRS agent will use the expenditure approach when a taxpayer is spending income lavishly rather than purchasing assets or investments. The expenditure approach is similar to the Cash T, except that the data used is the increases and decreases in the taxpayer's accounts
a.
Which statement is false? Under the net worth method, nondeductible expenditures are deducted to arrive at adjusted gross income. The net worth method may be used when there is a year-to-year increase in net worth and the taxpayer does not have adequate records to determine taxable income or when fraud is strongly suspected. The net worth technique may be appropriate for any taxpayer when two or more years are being audited and the agent determines that there have been substantial changes in assets and liabilities from year to year. If a person's net worth increase (as adjusted) exceeds the reported taxable income, there may be unreported income (or a previous cash hoard or large gift).
a.
Which statement is false? All of these statements are true. The lifestyle of a person may give clues as to fraud possibilities. For taxpayers who are self-employed, IRS agents may use indirect methods to find unreported income. The IRS does not have unlimited discretion to use an indirect method.
a.
Which statement is true? Where the application of funds is greater than the sources, a person is deemed to have an understatement of income. a. Beauty and barber shops are not cash intensive businesses. Where the application of funds is less than the source, a taxpayer is deemed to have an understatement of income. The Cash T is appropriate for persons where a substantial amount of income is deposited in banks and the expenditures are proportionate to the income reported.
a.
Which type of investigative technique works at accumulating evidence to build a legal case against a financial fraudster? All of these. Interviewing. Surveillance. Informants. Invigilation.
a.
Which would be a red flag of phantom vendors? All of these. Unfamiliar vendor. Vendor's name consists of initials. Vendor has post office box address. Rapidly increasing purchases from one vendor.
a.
Which would be considered a negative trend for a governmental unit? Debt outstanding greater than 90% of the debt limit. Property taxes greater than 65% of the tax limit. Short-term interest and current year-end service greater than 15% of total revenue. Unreserved fund balance percentages increasing over time. None of the above is a negative trend.
a.
Which would be considered a negative trend for a governmental unit? Long-term Debt divided by Assets ratio is increasing. General Revenues plus Transfers divided by Expenses ratio is increasing. Unrestricted Net Assets divided by Expenses ratio is increasing. Change in Net Assets divided by Total Net Assets ratio is increasing. All of these.
a.
Which would be considered a negative trend for a municipality? Unreserved Fund Balance divided by Gross Expenditures ratio is decreasing over time. Fixed Costs less Personal Services and Debt Services is decreasing over time. Operating Surplus is increasing over time. The ratio of Cash and Investments divided by Current Liabilities is increasing over time. No answer text provided.
a.
Which would not be a direct IRS method for reconstructing taxable income? All of these are direct methods. Checking newspaper articles. Checking deed records of real estate transactions. Discussions with third parties. Checking public records.
a.
Which would not be a procurement fraud scheme? Kiting. Cost mischarging. Inflating invoice. Split purchases. False claims.
a.
Which would not be a procurement fraud scheme? Lapping. Phantom vendors. Defective pricing. Conflict of interest. Defective delivery
a.
Which would not be a procurement fraud scheme? Washing checks. Bid rigging. Duplicate invoices. Product substitution. Unnecessary purchases
a.
Which would not be a proper predication? All of these are proper predication. Tip. Complaint. Conflict-of-interest. Audit inquiry.
a.
Which would not be a way to detect an individual engaging in procurement fraud? All of these are ways to detect procurement fraud. Using audit rights. Involving duty to cooperate. Doing the parking lot test. Observing cliques
a.
Which would not be an indirect method used to investigate a taxpayer or employee suspected of fraud? Looking for cancelled checks. Cash T. Net worth method. Bank deposit method
a.
Which would not be considered a journal entry fraud symptom? Time clock record. Out of balance. Unexplained adjustment. Weekend entry. All of these are journal entries
a.
____________ requires keeping detailed records before and after the ____________ period to determine the amount of fraud. Invigilation, invigilation. Tracing, entity. Genogram, genogram. Entity, entity. Timeline, entity.
a.
COSA defines "internal controls" as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories except: a. A reasonable degree of transparency. b. Effectiveness and efficiency of operations. c. Reliability of financial reporting. d. Compliance with applicable laws and regulations. e. All of the above.
a. A reasonable degree of transparency.
Control risk is: A risk that a material error in the balance or transaction class will not be prevented or detected. The risk that an account or transactions contain material misstatements before the effects or the controls. The measure of whether something is significant enough to change an investor's investment decision is a prime consideration in how the audit is conducted. The risk that audit procedures will not turn up material error when it exists. None of the above.
a. A risk that a material error in the balance or transaction class will not be prevented or detected.
The Fraud Magazine is published by a. ACFE b. AICPA c. NACVA d. ACFEi. e. Lousiana State University
a. ACFE
Skimming can be caught by: All of these. Gross profit analysis. Comparing receipts with deposits. Surprise cash counts. Investigating customers' complaints.
a. All of these.
Which of the following statements is (are) true about equity fraud? a. All of these. b. It is also know as investment or securities fraud. c. Usually involves the promotion and sale of nonexistent or illegal securities d. Usually involves intentional misrepresentation or concealment of investment and financial statement information.
a. All of these.
Which technique is considered to be an "off-book" fraud? All of these. Skimming. Unrecorded sales. Understated sales. Theft of incoming checks.
a. All of these.
Which is not one of the six areas of litigation services that the AICPA committee suggested in 1986? a. All these were suggested b. Damages c. Valuation d. Accounting e. Analyses
a. All these were suggested
Which individual went to prison for engaging in a Ponzi scheme? a. Allen Stanford b. Nick Day c. William Webster d. Guy Enright e. Helen Shaw
a. Allen Stanford
What was the smoking fun to convict Al Capone? a. An accountant's cash receipts ledger b. Murdering a competitor c. Lavish lifestyle d. Wholesaling alcoholic beverages
a. An accountant's cash receipts ledger
Which accounting firm audited all of these companies: Sunbeam, Waste Management, Global Crossing, and Baptist Foundation of Arizona? a. Arthur Andersen b. KPMG c. PriceWaterhouse d. Deloitte & Touche
a. Arthur Andersen
In an Eyewitness account it is reported that auditing firms can become too enmeshed with the companies being audited. Sherron Watkins said that by the mid-1990s a. Arthur Andersen needed Enron more than Enron needed Andersen b. Enron needed Arthur Anersen more than Arthur Andersen needed Enron c. Arthur Andersen did not directly approve aggressive accounting techniques d. Arthur Andersen tried to avoid publicity as auditor of Enron
a. Arthur Andersen needed Enron more than Enron needed Andersen
"Peremptory," which refers to trying to prevent fraud, means: a. Be there first b. Not requiring any cause to be shown c. One who strives to be the best d. Take the place of. e. None of the above
a. Be there first
Which characteristics would not indicate a financial audit? a. Broad ranging b. Rules-based c. Non-adversarial d. Periodic e. Historical
a. Broad ranging
Which is not a forensic-type certificate? a. CFA. b. CFE. c. Cr.FA. d. CFFA. e. CFF
a. CFA.
Which certificate is provided by the Association of Certified Fraud Examiners (ACFE)? a. CFE b. FASNA c. Cr. FA. d. CFFA e. None of these above
a. CFE
Expert witnessing can be traced back to a court decision in 1817 in what country? a. Canada b. United States c. Scotland d. Great Britain e. None of the above
a. Canada
What is an industry conditions risk factor? a. Company in a declining industry. b. Significant accounts based upon estimates. c. Significant related-party transactions. d. Aggressive incentive programs. e. None of the above.
a. Company in a declining industry.
The most common account-specific material weakness occurs in which account? Current accrual account. Accounts receivable. Revenue accounts. Inventory accounts. None of the above.
a. Current accrual account.
The COSO model of control: Encompasses best practice control perspectives from a number of professional associations. Includes these five major internal control variables: control environment, risk assessment, control activities, information and communication, and monitoring. Focuses on documented control procedures as the most important aspects of control. Acknowledges that management behaviors are not important, provided employees are given clear direction on conduct. States that a "risk assessment" is a good idea, but only really necessary for banks.
a. Encompasses best practice control perspectives from a number of professional associations. Includes these five major internal control variables: control environment, risk assessment, control activities, information and communication, and monitoring.
Forensic auditing is most commonly associated with which of the following actions? a. Gathering evidence b. Crime deterrence c. Investigating criminals d. Weak controls e. Both c and d.
a. Gathering evidence
Which statement is false? a. In the early 1980s, changed auditing standards resulted in less reliance on internal controls. b. The Public Oversight Board suggested an attitudinal shift in an auditor's degree of skepticism. c. If a forensic accountant conducts a separate fraud investigation, he or she must follow consulting standards d. The Public Oversight Board's report occurred before the Sarbanes-Oxley Act e. All of these are true
a. In the early 1980s, changed auditing standards resulted in less reliance on internal controls.
Which is the oldest professional organization devoted to the appraisal of closely held businesses? a. Institute of Business Appraisers. b. National Association of Certified Valuation Analysts. c. American Association of Appraisers. d. Certified Forensic Investigator. e. None of the above.
a. Institute of Business Appraisers.
Which of the following is not one of the six areas of litigation services? a. Investigations b. Damages c. General consulting d. Analysis e. Accounting
a. Investigations
An AICPA committee in 1986 broke forensic accounting into two broad areas: a. Investigative accounting and litigation support. b. Damages and valuation c. Accounting and valuation d. Accounting and general consulting e. None of the above
a. Investigative accounting and litigation support
In the Chapter 2 Eyewitness account involving the divorce dispute, how did the Forensic Accountant expert witness for the wife show that the small business owner husband had been understating his business income? a. Small business net income. b. Gross profit percentage for industry of small business. c. Tax documents. d. Accounts Receivable Turnover of small business e. Inventory Turnover of small business.
b. Gross profit percentage for industry of small business.
Which level of criminal intent is most commonly required in prosecutions of white-collar crime? Purposely. Knowingly. Recklessly. Negligently.
b. Knowingly.
Which statement is generally false? Before Enron, most external auditors assumed management was honest. Major employees in Equity Funding colluded for 14 years. Adelphia Communications hid billions of dollars of off-balance sheet debt. WorldCom shifted billions of expenses to capital accounts. None of the above is false.
b. Major employees in Equity Funding colluded for 14 years.
A typical lower-level employee in a public business would engage mostly in which type of crime? a. Fraudulent financial statements. b. Misappropriation of assets. c. Kickbacks. d. Bribery. e. Lapping.
b. Misappropriation of assets.
Forensic accounting always involves which of the following? a. Using accounting techniques and financial expertise in a legal environment b. Business valuation c. Investigating suspected fraud d. Testifying in the courtroom as an expert.
a. Using accounting techniques and financial expertise in a legal environment.
What is a red flag of kiting? All of these. Large deposits on Fridays. Frequent deposits and checks in the same amount. Short time lag between deposits and withdrawals.
a.
Fraud Diamond
IROC Incentive Rationalization Opportunity Capacity
Fraud Pentagon
PROGE-d Pressure Rationalization Opportunity Greed Employee Disenfranchisement
Fraud Pyramid
ROM Rationalization Opportunity Motive
Which can be used to study signatures for forgery? Stereoscopic microscope. Ink tagging. Ultraviolent-light examination. No answer text provided.
a.
Which former comptroller of the City of Dixon, Illinois plead guilty to fraudulently obtaining over $53 million from the small town? Rita Crundwell. Maria Pappas. Jack Johnson. Elizabeth Coleman. Thomas Doyle.
a.
Which group is the source of more tips on a hotline? Employees. Vendors. Customers. Competitors. Shareholders/ owners.
a.
Which group probably is not an important element of a fraud risk program? All of these groups are important. Board of Directors. Audit Committee. Internal Audit Department. Management.
a.
Which is a bankruptcy for municipalities? Chapter 9. Chapter 11. Chapter XI. Chapter 7.
a.
Which is not a behavioral, covert aspect of fraud? Cash on hand. Attitudes. Norms. Values. All are behavioral aspects
a.
Which is not a conflict-of-interest? Tailgating. Non-arm's length transaction. Self-dealing. Related party transaction. Serving two parties.
a.
Which is not a social engineering scheme? Lapping. Pretexting. Phreaking. Dumpster diving. Shoulder surfing.
a.
64. Which is not an indirect method of reconstructing income of a taxpayer? Unreported mark-up. Net worth. Bank deposit. Cash T. Source and application of funds.
a.
A ____________ chart is a pictorial display of personal relationships among related or unrelated parties. Genogram. Link. Invigilation. Entity. None of these.
a.
A fraud investigation should not be commenced without proper ____________ Predication. Conviction. Timing. Motivation. Some other event
a.
A person on the payroll who does not work for that company is generally called: Ghost employee. Lapping. Missing employee. Kiting. None of these.
a.
According to 2012 CFEs, which was the primary reason for fraud in an organization? Lack of internal controls. Lack of management review. Override of existing internal controls. Poor tone at the top. Lack of competent oversight.
a.
According to published research by PricewaterhouseCoopers, larger companies rather than smaller companies tend to be: More likely to be victims of economic crime. More likely to be perpetrators of corporate crime. More likely to systematically discover fraud in their organization. More likely to be victims of computer crime. None of these.
a.
Accounts receivable fraud prevention controls mainly include all of the following except: Requiring investment documents to be sent only to upper management for safekeeping. Placing a credit limit on customer accounts to immediately flag when exceeded. Requiring supervisory approval for all credit memos and write-off. Requiring supervisory approval before customers are added to or deleted from the master file.
a.
Cash fraud, inventory fraud, fixed asset fraud, payables and disbursement fraud, and payroll fraud are all examples of: Misappropriation of assets. Financial reporting fraud. Management fraud. The fraud triangle
a.
Forensic accountants should compare travel and expense vouchers to employment records and tax records in order to find:. Ghost employees. Kiting schemes. Lapping. Layering schemes. All of these.
a.
In a 2009 PwC survey, which was the top action taken against fraudsters by companies? Dismissal. Warning/reprimand. Civil/Criminal action. Transfer. Did nothing.
a.
In a cut-off bank statement, you should trace bank transfers for the latter part of an audit period and the early part of the subsequent period to determine whether: The cash balances were overstated because of kiting. The cash receipts journal was held open for a few days after the end of the year. Any unusual payments to or receipts from related parties occurred. The last checks recorded before the year-end were really mailed by year-end.
a.
In attempting to stop purchasing agent's kickbacks, which would not be helpful in segregating duties? Sales requisitions. Vendor approvals. Purchase approval. Receiving. Payments
a.
Joseph Wells ( p. 5-39) believes that the most powerful audit technique is: Diligent inquiry. Strong internal controls. Surprise cash counts. Confirming account receivables. None of these
a.
Kickbacks occur in all of the following except: Kickbacks occur in all of these. Inventory theft. Shipping department in which a customer pays an employee to ship a higher quality of goods than ordered. Purchasing agent in charge of awarding contracts. Bid rigging.
a.
Lapping is defined as: Stealing a customer's payment and concealing the theft by applying subsequent payments from other customers to the first customer's account. Replacing new inventory with old. Taking kickbacks. False credits, discounts, and write-offs. None of these
a.
Other than loss of cash and assets due to fraud, what ranks highest as to additional damages in PWC's 2009 Global Economic Crime Survey? Employee morale. Business relations. Share price. Organization's reputation. Relations with regulators.
a.
Payroll and employee reimbursement fraud schemes include all of the following except: Unauthorized borrowing. Ghost employees. Fictitious expense schemes. Company credit card fraud.
a.
Showing all of the following can be used as a rebuttal to the taxpayer against claims of a cash hoards except: Had excellent credit rating. Taxpayer lived frugally. Made installment payments. Had a poor credit rating. Incurred large debts.
a.
To prevent fraud, the entity may choose to: Do all of these. Develop a written code of ethics. Use background checks when hiring employees. Require an annual interview by internal auditors, security, or others of suspicious employees. Prosecute discovered fraud, as an example to other employees
a.
What audit procedures would not be highly effective for detecting fraud in the sales and collection cycle? Observe the actual distribution of payroll checks to employees. Ascertain appropriate segregation of duties. Review monthly bank reconciliations. Verify accounts receivable balances
a.
What audit step would be most appropriate for finding accounts receivables fraud? Check accounts receivable confirmations and review customer complaints. A bank reconciliation audit. Gross profit analysis. Surprise cash counts.
a.
Building up balances in bank accounts based upon floating checks drawn against similar accounts in other banks is best called: Kiting. Skimming. Money laundering. Lapping. None of these.
a. Kiting.
Who probably coined the phrase "forensic accounting?" a. Maurice E. Peloubet b. Joe M. Baker c. W.R. Forense d. Robert Lindquist
a. Maurice E Peloubet
Who is the father of the term forensic accounting? a. Maurice E. Peloubet b. Max Lourie c. James McCleland d. Robert Lindquist
a. Maurice E. Peloubet
Which is not considered to be public document review? Mirror imaging a computer or copying hard drive. Checking for a criminal record. Checking vendors. An internet search for real estate records. None of the above.
a. Mirror imaging a computer or copying hard drive.
Which is not one of the three M's of financial statement fraud? a. Missing general ledger. b. Manipulation. c. Misrepresentation. d. Intentional misapplication. e. None of the above.
a. Missing general ledger.
Which is not one of The three M's of fraudulent financial reporting outlined in SAS No. 99? a. Misuse of assets, liabilities, or owners' equity. b. Manipulation, falsification, or alteration of accounting records, or supporting documents. c. Misrepresentation in or intentional omission from the financial statements of events, transactions, or other significant information. d. Intentional misapplication of accounting principles relating to amounts.
a. Misuse of assets, liabilities, or owners' equity.
What was WorldCom's main fraud strategy? a. Moving expenses into asset accounts b. Bill-and-hold strategy c. Big bath d. Channel stuffing e. Cookie-jar reserves
a. Moving expenses into asset accounts
Which would not be a technique for a company to inflate sales figures? a. Overstating allowances for sales discounts. b. Recognizing sales on disputed claims against customers. c. Recognizing sales without shipping the goods. d. Recognizing full sales amount for partial shipments. e. Improperly holding the accounting year open in order to recognize sales.
a. Overstating allowances for sales discounts.
Which was one of the first groups/laws to encourage auditors to incorporate forensic techniques into audit programs? a. Panel on Audit Effectiveness b. PCAOB c. Sarbanes-Oxley Act d. COSO e. SAS No. 99
a. Panel on Audit Effectiveness
Which Italian company had major fraudulent financial statements? a. Parmalat. b. Carlo Z Industries. c. Monsanto Company. d. Dairy Food, Inc. e. None of the above
a. Parmalat.
Which is not a preventive control? a. Process redesign. b. Segregation of duty. c. Passwords on a computer. d. Job rotation. e. Requiring approvals.
a. Process redesign.
To which of the following factors in the fraud pyramid do the following relate: "Borrowing: money temporarily Justifying the theft out of sense of being underpaid Depersonalizing the victim of the theft. "I'm not stealing from my boss but from the company." "Everyone is doing it." " I deserve it." a. Rationalization b. Motive c. Opportunity d. Capacity
a. Rationalization
Which statement is false regarding SAS No. 99? a. SAS No. 99 places more emphasis on misappropriation of assets. b. SAS No. 82 was replaced by SAS No. 99. c. Three conditions are generally present when fraud occurs. d. Fraud is an intentional act that results in a material misstatement in financial statements.
a. SAS No. 99 places more emphasis on misappropriation of assets.
Which would be a preventive control? a. Segregation of duties. b. Reconciliations. c. Surprise cash count. d. Surprise inventory count. e. All of the above.
a. Segregation of duties.
Which of the following statement is true? a. There are two provisions to the Foreign Corrupt Practices Act. The anti-bribery provision is enforced by the Department of Justice. The accounting provisions are enforced by the SEC b. There are two provisions to the Foreign Corrupt Practices Act. The anti-bribery provision and the accounting provisions and both are enforced by the SEC. c. There are three provisions to the Foreign Corrupt Practice Act: Anti-bribery, insdier trading., and accounting provisions, all enforced by the SEC. d. There are three provisions to the Foreign Corrupt Practice Act: Anti-bribery, insdier trading., and accounting provisions, with the first enforced by the Department of Justice and the second and third enforced by the SEC
a. There are two provisions to the Foreign Corrupt Practices Act. The anti-bribery provision is enforced by the Department of Justice. The accounting provisions are enforced by the SEC
The most common method of detecting occupational fraud is: Tips. External auditors. Internal auditors. Accident. Some other method.
a. Tips.
Which would be a corrective control? a. Training. b. Testing for drugs. c. Perpetual inventory system. d. Job rotation. e. Alarm system.
a. Training.
Which statement is false? The PCAOB is empowered to set accounting standards. Only three members of the PCAOB can be, or have been, CPAs. The PCAOB is a five-member oversight group. Professional skepticism was emphasized in SAS No. 99. None of the above.
b. Only three members of the PCAOB can be, or have been, CPAs.
SAS No. 99 states that the auditor has the responsibility to plan and perform the audit to obtain reasonable assurance about whether financial statements are free of material misstatement, whether caused by error or fraud. Main points of SAS No. 99 are all of the following except: a. Increased emphasis on professional skepticism. b. Preparation of a fraud prevention plan. c. Discussion with management about risk of fraud. d. Upredictable audit tests. e. Responding to management's overriding of controls.
b. Preparation of a fraud prevention plan.
Which would be an example of the bill-and-hold strategy? a. Books are kept open beyond the appropriate time. b. Sell products and keep them, with an agreement to invoice customers later. c. Combine restricted fund account with the general fund account. d. Inflate revenues with phony software sales. e. None of the above.
b. Sell products and keep them, with an agreement to invoice customers later.
Which type of auditor opinion is probably the most common? Unqualified. Unqualified with explanation. Qualified. Adverse. Disclaimer.
b. Unqualified with explanation.
Implementing a code of ethics is a Sarbanes-Oxley requirement related to which component of the management process? Operational activities. Information/communication. Control environment. Monitoring.
c. Control environment.
The National Association of Certified Valuation Analysts has not provided the following certification: a. CVA. b. MAFF. c. CFD d. CFA.
d. CFA.
Using a survey, two professors (D.A. McMullen and M.H. Sanchez) found the most important skill of a forensic accountant was: a. Problem solving. b. Interviewing. c. Analytical. d. Accounting. e. Computer.
c. Analytical.
Which certification is given by the AICPA? a. CVA. b. CFE. c. CFF. d. Cr.FA. e. MAFF.
c. CFF.
Horizontal analysis typically involves what? a. Comparison of companies by market share in the industry. b. Comparison of cash value at a predictable moment in liquidity. c. Comparison of year-to-year changes in financial statements. d. Comparison of organizational structure best suited for a planned business venture. e. Both a and b.
c. Comparison of year-to-year changes in financial statements.
In the three-layered wedding cake mentioned in the Chapter 2 "Ovrview," which is not one of the layers? a. Legal environment. b. Accounting background. c. Criminology background. d. Auditing background. e. None of the above.
c. Criminology background.
Elements in the fraud pyramid can be restated as all of the following except: a. Individual is either dishonest or able to rationalize theft. b. Notices or creates an opportunity to commit fraud. c. Generally acts alone, out of embarrassment. d. Feels some sort of pressure or incentive to commit fraud.
c. Generally acts alone, out of embarrassment.
Which forensic certificate is provided by the National Association of Certified Valuation Analysts? a. CFE b. Cr.FA c. MAFF d. FCPA e. CFF
c. MAFF
Which statement is false? Reactive auditing occurs when there are reasons to suspect that fraud may have occurred. Fraudsters often make up a company name with three letters. Proactive auditing occurs when there are reasons to suspect that fraud may have occurred. Tests of controls may not be effective in detecting fraud, because management can override controls. None of the above is false.
c. Proactive auditing occurs when there are reasons to suspect that fraud may have occurred.
Which is not one of the classic "red flags" of "cooking the books"? a. Regular changes in reserves. b. Receivables that are not correlated with revenues. c. Raises or bonuses to employees. d. Related-party transactions. e. Income increasing faster than cash.
c. Raises or bonuses to employees.
What best describes auditing that occurs when there are reasons to suspect that fraud may have occurred and appropriate audit steps are taken? Internal auditing. Top down auditing. Reactive auditing. Proactive auditing. Items b and d
c. Reactive auditing.
Which statement is false? a. Accounting is the language of business, and internal controls set the ethical standards that govern business activities. b. The internal auditor's standard states that the auditor must consider the possibility of material irregularities or noncompliance during an internal audit. c. Tests of controls are always effective in detecting fraud. d. The internal auditor's competency framework does not stress technical accounting knowledge. e. None of the above.
c. Tests of controls are always effective in detecting fraud.
What is an investigative technique used by the SEC to investigate specific companies for cooking the books? a. Lapping. b. Kiting. c. Wildcatting. d. Crusing.. e. Channeling
c. Wildcatting.
As reported in the Chapter 2 Eyewitness recap, Sherron Watkins, ( former Enron VP and "Enron whistle blower") said that by the mid 1990s, billings by Arthur Anderson to Enron were approaching: a. $10,000 a week b. $100,000 a week c. $500,000 a week d. $1,000,000 a week
d. $1,000,000 a week
COSO lists which of the following as the most common financial statement fraud methods? Fictitious earnings. Overstatement of assets. Understatement of allowances for accounts receivable. All of the above.
d. All of the above.
COSO suggests which of the following are major motives for fraud? a. To obtain national stock exchange listing status. b. To cover up assets misappropriated for personal gain. c. To increase stock prices and benefit inside traders. d. All of the above.
d. All of the above.
Which statements is false? a. Fraud courses are increasing in the United States. b. Practitioners rank litigation services higher than educators. c. Finding fraud is not easy. d. Arthur Andersen was the auditor at HealthSouth during the massive fraud. e. None of the above.
d. Arthur Andersen was the auditor at HealthSouth during the massive fraud.
An AICPA committee did not suggest the following area would be available to an accounting litigation consultant: a. Computations b. Business valuation c. Tax issues assessment d. Auditing issues e. All of the areas were listed
d. Auditing issues
Which variable is in the fraud diamond but not in the fraud pyramid? a. Opportunity. b. Motive also referred to as "Incentive / Pressures" c. Rationalization also referred to as "Rationalization / Integrity" d. Capacity.
d. Capacity.
Which financial statement in particular should be studied to determine if a company has the ability to pay a significant debt? a. Balance sheet. b. Shareholders equity. c. Income statement. d. Cash flow statement. e. Annual budget.
d. Cash flow statement.
Laboratory analysis would not include: a. Checking for altered documents. b. Analyzing fingerprints. c. Checking for forged signatures. d. Checking vendors. e. Mirror imaging or copying hard drive.
d. Checking vendors.
Which certificate is provided by the American College of Forensic Examiners? a. CFE. b. CFA. c. CFFA. d. Cr.FA. e. None of the above.
d. Cr.FA
Which is not one of the seven areas for the MAFF designation? a. Matrimonial litigation b. Business valuation c. Fraud risk management d. Damages e. Forensic Accounting Specialization
d. Damages
Who has the main responsibility for internal controls? Internal auditors. External auditors. Audit committee. Management. Board of Directors
d. Management.
Corruption would not include: a. Bribery of a government official. b. Kickbacks to a purchasing agent. c. Free vacation to an acquisition agent. d. None of the above.
d. None of the above.
Which company had a fake $4.83 billion Bank of America bank account? Enron. WorldCom. Tyco. Parmalat. Adelphia.
d. Parmalat.
Name of the major Italian company that had major fraudulent financial statements a. Gucci. b. Shell. c. Peroni. d. Parmalot. e. Ferrari.
d. Parmalot.
Using a survey, two professors (D.A. McMullen and M.H. Sanchez) found that the top ranking of characteristics of a forensic accountant? a. Work in teams. b. Flexibility c. People skills d. Persistence e. Puzzle skills
d. Persistence
Based upon KPMG studies, what factor is most likely to cause fraud? a. Management override. b. Employee collusion. c. High risk industry. d. Poor internal controls. e. Some other factor is most likely.
d. Poor internal controls.
If an internal auditor finds fraud, what communication step should not be taken? a. Notify management or the Board of Directors. b. A written report should be prepared. c. Draft of written report should be submitted to legal counsel for review. d. Report the offense to the appropriate government authority. e. None of the above.
d. Report the offense to the appropriate government authority.
Which would be a good name for the scheme of listing investment income as operating revenue? a. Period shift. b. Expense manipulation. c. Liability trap. d. Revenue trick. e. Asset scam.
d. Revenue trick.
If a person commits a fraud against a governmental unit, knowing full well that such fraud may result in injury or loss of life (like selling police departments defective guns), what type of criminal intent woule be involved. a. General intent. b. Injury intent. c. Constructive intent. d. Scienter. e. None of the above.
d. Scienter.
Which would be a detective control? a. Required approvals. b. Job rotation. c. Passwords. d. Surprise cash account. e. All of the above.
d. Surprise cash account.
Which statement is false? SAS No. 99 indicates that auditors must be skeptical. Skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. SAS No. 99 instructs auditors to question management about possible fraud. Tests of controls by auditors are sufficient for auditors to catch fraud. None of the above.
d. Tests of controls by auditors are sufficient for auditors to catch fraud.
Which statement is generally false? a. Neither inventory nor accounts receiveable should grow faster than sales. b. The trend in operating income is as important as the trend is earnings. c. If net income is moving up while cash flow from operations is drifting downward, something may be wrong. d. Horizontal analysis is commonly used with the Statement of Cash Flow. e. None of the above is false
d.Horizontal analysis is commonly used with the Statement of Cash Flow.
Which scheme does not inflate sales? Recognizing sales on disputed claims against customers. Recognizing sales without shipping the goods. Understating allowances for sales discounts. Recognizing full sales amount for partial shipments. All inflate sales
e. All inflate sales
Which would not be considered an analytical procedure? a. Comparison with other operating information. b. Vertical analysis. c. Variance analysis. d. Ratio analysis. e. All of above are analytical procedures.
e. All of above are analytical procedures.
A forensic accountant may: a. Perform fraud audits b. Provide litigation support c. Investigate an embezzlement d. Trace missing funds e. All of the above
e. All of the above
As an expert witness, the forensic accountant should have an understanding of: a. Business valuations b. Commercial litigation c. Bankruptcy d. Courtroom technology e. All of the above
e. All of the above
Under the KPMG categories of fraud, what would probably not be an employee internal fraud? a. Lapping. b. Petty cash fraud. c. Kickbacks. d. Check forgery. e. All of the above are considered employee internal fraud.
e. All of the above are considered employee internal fraud.
Which item would not be a fraud identifier to spot fraudsters? a. Large ego. b. Gambling addiction. c. Hard worker. d. Takes few or no vacations. e. All of the above are fraud identifiers.
e. All of the above are fraud identifiers.
Which technique would not be helpful to uncover improper revenue recognition? Perform substantive analytical procedures relating to revenue using disaggregated data. Confirm with customers certain relevant contract terms and the absence of side agreements. Inquire of the entity's sales and marketing personnel or in-house legal counsel regarding sales or shipments near the end of the period and their knowledge of any unusual terms or conditions associated with these transactions. Be physically present at one or more locations at period end to observe goods being shipped or being readied for shipment. All of the above are helpful.
e. All of the above are helpful.
Which of the following is not included in a forensic accountant's knowledge base? a. Computer science b. Criminology c. Accounting d. Law e. All of the above are included
e. All of the above are included
Which of these would not be possible signs that a person is lying? Biting or licking lips. Crossing arms. Avoiding eye contact. Playing with collars. All of the above are red flags that a person is lying.
e. All of the above are red flags that a person is lying.
Which task probably would not be required of a Certified Fraud Examiner? a. Gather evidence b. Write reports c. Assist in investigating fraud d. Testify in the courtroom e. All of the above may be required
e. All of the above may be required
Which is not one of the surprise or unpredictable elements that the Panel on Audit Effectiveness recommended? Recount of inventory Interviews of financial and non-financial client personnel in different locations. Requests for written confirmations from client employees regarding matters about which they have made representation to the auditors. Tests of accounts not normally performed annually. All of the above were recommended.
e. All of the above were recommended.
Employee fraud can be discovered by considering: a. Behavioral habits. b. Employee stress factors. c. Lifestyle of the employee. d. Assets owned by the employee. e. All of the above.
e. All of the above.
The collapse of Enron was caused by: Special-purpose entities. Conflicts of interest. Unconsolidated subsidiaries. Off-balance sheet financing. All of the above.
e. All of the above.
What would be a task of a litigation services practitioner? a. Issue identifications. b. Expert testimony. c. Mediation. d. Arbitration. e. All of the above.
e. All of the above.
Which would not be a behavioral red flag indicating the possibility of fraud? a. Close association with a vendor. b. Executive has a wheeler-dealer attitude. c. Living beyond means. d. Employee does not take vacations. e. All of these are red flags.
e. All of these are red flags.
Which statement is false: SAS No. 99 does not mention forensic accounting. SAS No. 99 does not require autitors to make inquiries of "others" as opposed to managment. Many of the companies indicted by the SEC after Enron had CEOs with compenssation 75 percent above their peers. Bill and hold refers to improper revenue recognition. All of these are true.
e. All of these are true.
Which is not one of the factors in SAS No. 99's pyramid of fraud (similar to "Pyramid of Fraud" studied in Chapter. 3? Incentives. Pressures. Opportunities. Attitudes/rationalization. Capacity/means
e. Capacity/means
Which organization or group controls forensic accounting? a. ACFEI. b. Association of Certified Fraud Specialists. c. ACFE. d. NACVA. e. None of the above.
e. None of the above.
Which would be a nonfraudulent earnings management scheme? a. Bill-and-hold technique. b. Channel stuffing. c. Cookie-jar reserves. d. Backdating stock options. e. None of the above.
e. None of the above.
Which would not be useful in searching for hidden assets? a. Looking at lifestyles of major players. b. Computing industry ratios. c. Comparing cash flow with income. d. Using the net worth method. e. None of the above.
e. None of the above.
Which is a false statement? A "day's sales in receivable index" for manipulators is 1.5 to 1. The "gross margin index" for manipulators is 1.2 to 1. The "asset quality index" for manipulators is 1.25 to 1. The "sales growth index" for manipulators is 60 percent. The "total accruals to total assets index" for manipulators is .018
e. The "total accruals to total assets index" for manipulators is .018
