FRAUD INVESTIGATION
Jack learns that there was a side letter detailing special terms and conditions pertaining to a specific sale to significant customer. These terms and conditions are not in the company's normal contracts. The sale occurred three days before the end of the quarter. The sale was material in amount and necessary to achieve Wall Street analysts' expectations for the company's quarterly results. True or false: Based on this scenario, there is definitely a fraud. T/F
FALSE
CPT Company has a Massachusetts headquarters. It develops and sells enterprise software. It has an inhouse training facility in Grafton, MA. With each license, it provides coach airfare and lodging for up to four customer representatives to come to Grafton for a week of training at the company's on-site facility. The government of Pakistan bought the software for its Education Ministry. Four Pakistanis came to the U.S. and attended training in Grafton. CPT paid for their airfare and hotel. True or false: This is likely to be considered a bribe under the U.S. FCPA. T/F
FALSE
Companies can be held liable for compliance with the U.S. FCPA, but individuals cannot. T/F
FALSE
In a matter involving Securities and Exchange Section 10A, the external auditors decide the scope of an investigation. T/F
FALSE
In criminal tax cases, the Kovel accountant is name for the accountant with past connection to the tax case when the alleged fraud occurred. T/F
FALSE
It is almost impossible to analyze expenses recorded in the general ledger using Microsoft Excel, because most general ledger systems create structured data and Excel files are usually unstructured. T/F
FALSE
It is difficult or impossible to specifically quantify the exposures to specific fraud risks. For this reason, a strong fraud risk assessment does not attempt to assess the relatively likelihood or significance of individual fraud risks. T/F
FALSE
A "shadow investigation" describes a situation in which investigators analyze payments made with cryptocurrency. T/F
FALSE
Before collecting electronic evidence, like Excel files, the best practice is to open the file to determine if it contains relevant information. T/F
FALSE
Bitcoin is an example of a centralized virtual currency. It has a single administrating authority that issues the currency and has authority to redeem the currency. T/F
FALSE
One of the reasons that companies conduct exit interviews and employee surveys is to allow employees the ability to report unethical behavior or practices without fear of retaliation. T/F
TRUE
One typical starting point for an asset tracing exercise is to identify as much intelligence as possible about the potential targets as possible, including, if relevant, the names of their business associates, relatives, neighbors, competitrs, "straw men" or nominees, corporations, trusts, LLCs, LLPs and foundations. T/F
TRUE
Which of the following areas is LEAST likely to be part of a fraud scheme involving off-balance sheet transactions? A company discloses the existence of contingent liabilities that do not yet meet the requirements for accrual on the balance sheet under generally accepted accounting principles. A financial services company enters into securitization transactions that sell an interest in various receivables. As a result of the securitizations, the assets and liabilities are transferred to an off balance sheet vehicle, while the underlying economic benefits are retained by the seller. The company transfers its interest in a subsidiary that is deeply in debt and struggling. As a result of the transfer, the company plans de-consolidate the sub. Nonetheless, the former parent company still exerts operational control over the former sub and will participate in any economic benefits. A company enters into a series of sales and leasing transactions whereby real property, manufacturing equipment and related borrowings are transferred to a related company that is not consolidated. The company continues to use the assets for its world wide businesses.
A company discloses the existence of contingent liabilities that do not yet meet the requirements for accrual on the balance sheet under generally accepted accounting principles.
Lobna has been asked to investigate potential fraud in expense reimbursement. She has formed a theory that employees have been submitting fictitious documentation to support improper reimbursement requests. She has designed a series of investigative procedures to determine whether or not this is true. What kind of investigation approach is this? A fraud theory approach Benford's approach Generally accepted investigation procedures Data visualization
A fraud theory approach
Jane works in accounts receivable department at a lumber supply company. Most of the customers order lumber on a web application. The company ships lumber from its warehouse and sends an invoice by email. The company extends credit to many of its customers who must usually pay within 30 days. Most customers send their payments by check through the mail. (This is the same scenario as prior question.) Which of the following controls or procedures is MOST likely to reduce the risk of a fictitious sale to a fictitious customer? A process to obtain information about the nature of the customer and its creditworthiness before accepting the order. Trend analysis of cash collections over time. Sequentially dated shipping documents, analysis of order dates from the web application and observation of warehouse shipments at period end. Sequentially purchase orders and managerial review of bank reconciliations.
A process to obtain information about the nature of the customer and its creditworthiness before accepting the order.
Bradley is organizing information from his asset tracing investigation. Using Excel, he creates a worksheet that lists each event that he has identified. His worksheet has columns for date, the evidence ID number, an event type, and a description of the event. He sorts the worksheet by date. What kind of analysis is this? A timeline analysis or chronology A link analysis Following the money A Daubert challenge
A timeline analysis or chronology
Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because: It overstates revenues It understates liabilities It overstates assets It overstates net income All of the above
ALL OF THE ABOVE
Acme Industrial Company has received a whistleblower letter raising an allegation that the controller of the company's Argentina subsidiary is manipulating revenue and embezzling funds. The company is an SEC registrant and the Argentina subsidiary is material to the company. Which of the following is NOT true? The audit committee may engage legal counsel and forensic accountants. If a forensic accounting team is engaged, it will be important to have a forensic accounting team that speaks the local language and knows the local business environment. Acme should wait until the end of the investigation to inform its external auditors, so the information is complete The audit committee and the forensic accountants should assess whether there are audit independence issues associated with the proposed investigators.
Acme should wait until the end of the investigation to inform its external auditors, so the information is complete
Alanna has agreed to facilitate a fraud risk assessment at her company. Alanna feels very uncomfortable discussing the risk of management override with managers who could influence her performance review for the year. It seems too accusatory. She worries that they will be offended and her performance review could be negatively affected. Which of the following is NOT an appropriate strategy for Alanna to deal with this discomfort? Alanna can address all the other elements of the fraud risk discussion and just skip the discussion of management override of internal controls. Alanna can address her discomfort head on in the meeting, and explain to the assembled group that it is a difficult conversation, but a required element of a good fraud risk assessment. Alanna could discuss her concerns with other meeting attendees in advance of the meeting and ask other participants to assist her in addressing the subject. That way, she can act as a facilitator, but reduce the likelihood that the discussion will be accusatory or that she will be alone in raising the topic. Alanna could arrange to have another person to facilitate the discussion so that she can contribute without having to lead the discussion related to her own managers.
Alanna can address all the other elements of the fraud risk discussion and just skip the discussion of management override of internal controls. It is not appropriate to just skip the discussion of management override. Often, it is the most important part of the discussion. Finding an appropriate strategy to open and facilitate the dialog is one of the important roles of the person conducting the fraud risk assessment.
Which of the following are important considerations in selecting an investigation team? Independence and objectivity Understanding the legal requirements in the applicable jurisdiction Subject matter expertise Language and geographic reach Electronic evidence expertise All of the above are important considerations.
All of the above are important considerations.
Which of the following is NOT a consideration for a corporation considering whether to refer a case to government prosecutors? Whether or not the investigation is sufficiently advanced to make a reasonably informed decision about the nature of the suspected crime The potential deterrent effect of criminal referral The impact of public scrutiny on the company The nature of the offense All of the above are possible considerations.
All of the above are possible considerations.
Irene has been asked to design a process for conducting background investigations. What types of information should be considered? Commerical databases Public records Internet research All of the above are potentially important information sources.
All of the above are potentially important information sources.
Which of the following are NOT one of the reasons that decentralized convertible virtual currencies are potentially vulnerable to money laundering, terrorist financing and other abusive transactions? Decentralized convertible virtual currencies are more anonymous Decentralized convertible virtual currencies have a global reach and can be used to make cross-border payments and transfers Decentralized convertible virtual currencies commonly rely on complex infrastructures that involve several entities, often across several countries, to transfer funds and execute payments. Legal jurisdiction may be unclear. All of the above are reasons that decentralized convertible virtual currencies are potentially vulnerable to money laundering, terrorist financing and other abusive transactions.
All of the above are reasons that decentralized convertible virtual currencies are potentially vulnerable to money laundering, terrorist financing and other abusive transactions.
Which of the following is a possible indication of a round-trip revenue fraud scheme? Mischaracterization of the true relationships, rights and obligations among the parties to the transaction. Complexity in the structure and rationale for the transaction. Attempts to disassociate the subject transaction from other transactions on which it is actually dependent. Concealment of the true sources and uses of the funds exchanged in the arrangement. All of the previous answers are possible indications of round-trip revenue transactions.
All of the previous answers are possible indications of round-trip revenue transactions.
Which of the following conditions are favorable to collusion among sellers? There are only a few sellers All of the products are relatively standard. It is easy to substitute one for another. The sellers all know each other socially. All of these are conditions favorable to collusion.
All of these are conditions favorable to collusion.
Which of the following are possible uses for dashboards created using Tableau software? Dashboards can be used to analyze data and search for anomalies. Dashboards can be used to combine different data sources into one view. Dashboards can be used to monitor known fraud risks or other types of risks. All of these are possible uses of dashboards created in Tableau software.
All of these are possible uses of dashboards created in Tableau software.
Which of the following is NOT true regarding fictitious vendor or fictitious invoice schemes? The disbursement is generally real, but the support for the disbursement is often fraudulent. Sometimes, the perpetrator sets up shell companies and submits fictitious invoices to the victim organization Sometimes, the fictitious vendor purportedly provided consulting or other services, so that there is no way to physically verify the receipt of the invoiced item. Fictitious vendor schemes are considered "on-books" schemes because the disbursements are actually recorded in the victim organizations accounting books and records.All All of these are true.
All of these are true.
Which of the following are NOT reasons that undisclosed liability schemes are difficult to detect? Auditors often use predictable procedures, making it easier for perpetrators to avoid detection. Auditors and investigators are looking for what's "not there", so it's harder to identify. Lying or fictitious documents can be hard to detect All of these can make detection of unrecorded liabilities difficult.
All of these can make detection of unrecorded liabilities difficult.
Which of the following types of cross-examination questions are NOT permitted in testimony in Federal Courts? Questions about the basis for the professional opinion Questions about any assumptions adopted in the analysis Questions about prior testimony of the expert in other cases All of these questions are permitted.in cross-examination
All of these questions are permitted.in cross-examination
Which of the following is a horizontal analytical review procedure? Analysis of sales returns by month for the last three years to look for unusual relationships. Analysis of the days sales in receivables at year end. Analysis of subsequent collection of cash. Comparison of a subject company's sales volumes as compared to competitor companies.
Analysis of sales returns by month for the last three years to look for unusual relationships.
The U.S. Foreign Corrupt Practices Act has which major provisions? (Check ALL that apply. ) Securities and Exchange Provisions Travel Act Provisions UK Bribery Provisions Anti-Bribery Provisions Accounting Provisions OECD Provisions
Anti-Bribery Provisions Accounting Provisions
Which of the following is NOT one of the possible benefits of asset tracing? Asset tracing always results in the recovery of stolen funds. Asset tracing can help prove an underlying crime by providing financial evidence. Asset tracing can help generate new leads for an investigation, by identifying other people who may be involved and other possible wrongdoing. Asset tracing can assist in identifying assets that may be subject to forfeiture in connection with a crime.
Asset tracing always results in the recovery of stolen funds.
Jamila is conducting an investigation interview. As she begins, she asks a series of questions about the witness's job, the witness's role in the company and the underlying business process. None of the questions should be particularly challenging. Among other things, Jane wants to assess the witness's reactions. What is the name for this kind of question? Baseline Admission-seeking Follow-up Upjohn
BASELINE
BigConglomerate is acquiring MiddleMarketCo. MiddleMarketCo has operations in 12 countries globally. After the acquisition closed, BigConglomerate learned that MiddleMarketCo had bribed government officials in at least two of the largest countries in Asia in order to win government contracts. Which of the following is NOT true? BigConglomerate probably overpaid for the acquisition, because their earnings projections were too high. If the bribery is stopped, it is likely that some anticipated business will not be obtained. Also, the costs of remediation were probably not considered in setting the acquisition price. BigConglomerate does not need to worry about self-reporting or liability exposure under the FCPA, since they intend to change policies after the acquisition. BigConglomerate will likely need to conduct an investigation to ascertain the nature and extent of the bribery in the three identified countries and whether it occurred anywhere else worldwide. One remedial action that will likely need to be taken is additional training for MiddleMarket's employees.
BigConglomerate does not need to worry about self-reporting or liability exposure under the FCPA, since they intend to change policies after the acquisition.
Which of the following professional standards do NOT necessarily apply to CPAs providing fraud investigation services? Professional competence Due professional care Consideration of fraud in the audit. Planning and supervision Sufficient relevant data
Consideration of fraud in the audit.
Which of the following statements is NOT true regarding background checks? Background checks for new and existing suppliers, customers, and business partners can help identify issues of financial health, ownership, reputation and integrity that may increase risk to an organization. Criminal records and personal financial information can always be gathered covertly, without the subject's consent. Background checks can help enable supervisors to evaluate a candidate's credentials and competence, match job skills and requirements and assess personal integrity. It makes sense to update background checks when circumstances change or when there are behavior red flags.
Criminal records and personal financial information can always be gathered covertly, without the subject's consent.
Big Blue Credit Card Company processes millions of transactions daily. Which approaches are likely to be most effective and efficient to identify potentially fraudulent transactions? Data analytics that employ "big data" approaches on a real-time or near real-time basis. Rules-based testing using Excel. Investigative interviews of deadbeat cardholders. Random sampling of suspicious transactions, with tests of underlying documentation.
Data analytics that employ "big data" approaches on a real-time or near real-time basis.
Which of the following is NOT an element of the eDiscovery process? Culling process to eliminate duplicate documents Collection of forensic images of electronic evidence Deposition of expert witness Legal hold and preservation
Deposition of expert witness
Which of the following is usually outside the jurisdiction of the FBI? Healthcare fraud Divorce and family law matters Money laundering Intellectual property theft Corporate fraud Securities and commodities fraud Terrorist financing
Divorce and family law matters
Larry Lawyer is working on the process of discovery in a lawsuit involving potentially fraudulent transactions. He calls Frances Forensic to discuss the ESI on the case. What is he talking about? Electronically Stored Information Early Stratified Indicies Executive Summary Information European Standard Information
Electronically Stored Information
Which of the following is NOT a "badge of fraud" in criminal tax enforcement? Eva does business in foreign countries. To avoid US taxation, she asks her clients to wire the business income into accounts she has established in Cyprus. She does not report the accounts or the income on the tax returns for her business. Leona owns a chain of luxury hotels. During the renovation of one of her properties, she asked the contractor to renovate her multi-million dollar apartment in Manhattan. The apartment is not used for the business. All of the expenses were paid by the business and were deducted as business expenses. Eli prepays a pledged cash contribution to his alma mater. His correspondence with the organization, which is a charity for IRS purposes, reflects that the donation will "cover his donations for the next few years. As a result of paying all his donations in advance, Eli's donations exceed the thresholds for itemized deductions and he gets a tax benefit. Alice wants to avoid paying taxes on some rental property she owns. Alice asks the renters to pay her sister, instead of her. Her sister's effective tax rate is 0% because she has little income. Notwithstanding this arrangement, Alice controls the income and deposits the income into her account.
Eli prepays a pledged cash contribution to his alma mater. His correspondence with the organization, which is a charity for IRS purposes, reflects that the donation will "cover his donations for the next few years. As a result of paying all his donations in advance, Eli's donations exceed the thresholds for itemized deductions and he gets a tax benefit.
Which of the following is NOT one of the principles of a fraud risk management program, according to the Fraud Risk Management Guide? Montior the fraud risk management process, report results and improve the process. Establish a fraud reporting process and coordinated approach to investigation and corrective action. Establish a fraud risk management policy as part of organizational governance Eliminate fraud risk Perform a comprehensive fraud risk assessment Select, develop and deploy preventive and detective fraud control activities.
Eliminate fraud risk
Raj is conducting an investigation of potential payroll fraud. Which data analytic tests might be informative? Extract and analyze multiple payroll deposits to the same bank account in a single pay period. Identify payments to contractors that are outside the country. Analyze gross margin by month and identify any outliers. Identify payments that are inconsistent with purchase order terms.
Extract and analyze multiple payroll deposits to the same bank account in a single pay period.
Earnings management describes managerial techniques that appropriately recognize revenue when earned. T/F
F
Joachim is performing an audit of financial statements of a public company. He discovers that his client has made 3 small bribes to government officials in Russia and the Ukraine to help their business in that region. The total of the three transactions is less than $500. True or false: Joachim can pass on further audit work, since the amounts are clearly immaterial. T/F
FALSE
Kickbacks are payments made to influence a government official or to gain commercial or business advantage. T/F
FALSE
One method that the IRS uses to establish the amount of unreported income is the expenditures method. This method reconstructs income by analyzing the bank deposits made by the taxpayer. T/F
FALSE
Since each investigation is unique, based on the facts and circumstances of the underlying allegation and the case, it is generally not possible to gather and analyze metrics on the execution of an investigation. T/F
FALSE
The Federal Bureau of Investigation (FBI) rarely investigates white-collar crime, since this is usually the juridiction of the Securities and Exchange Commission. T/F
FALSE
The U.S. FCPA provisions require companies to devise and maintain a system of internal accounting controls. The specific controls that are required are shown in an appendix to the statute. True or false?
FALSE
The United States has the most stringent privacy and white-collar crime laws, so the investigation protocols for the United States are sufficient for almost all the juridictions of the world. T/F
FALSE
True or False?: Benford's Law requires interviewers to warn possible fraud perpetrators of the risk of self-incrimination prior to initiating an interview. T/F
FALSE
Typically, the accounting department is the only function that is involved in assessing and managing the risk of fraud. T/F
FALSE
Jorge is being deposed in connection with his work on a fraud investigation. He prepares for his deposition by reviewing the evidence. The night before his deposition, he discovers that he failed to consider an important element of evidence During the deposition, he is asked whether he considered that evidence before issuing his report. Since no one will know one way or the other what he considered, and the evidence didn't change Jorge's opinion, it is permissable for Jorge to testify that he actually considered the evidence before he issued his report. - T/F
FALSE - Depositions are sworn testimony. Witnesses must always tell the truth.
Subterfuge, including the use of a pretext of deception about who you are and what you are doing in order to gather investigation evidence, is a common technique which should be considered in the planning phase of most investigations. T/F
FALSE - False. Subterfuge is not commonly used, and should be undertaken only with appropriate legal counsel.
Upjohn Co. v. United States is the legal case that set the primary legal precedent for the admissibility of expert testimony in federal cases. T/F
FALSE - The Upjohn case gave rise to the Upjohn warning (about whether attorneys represent the people they interview in certain investigation cases.) Upjohn warnings were discussed in an earlier unit. Two cases that are often cited as the primarily legal precedents for the admissibility of expert testimony in federal cases are Daubert v. Merrell Dow Pharmaceuticals and Kumho Tire v. Carmichael. See, for example, the AICPA Fraud Investigations Practice Aid at p. 38.
Deposition testimony is usually conducted in a conference room. The judge is not present and it is not considered sworn testimony. As a result, depositions are usually considered to be just an informal, preliminary discussion regarding the facts of the case. T/F
FALSE - This is false. Although depositions are often conducted in a conference room setting without the judge present, they are considered sworn testimony. A court reporter creates a transcript of the testimony, which can be later used in court. They are anything but informal.
Typically, interview memoranda are written near the end of an investigation, when the interview evidence can be understood in context. T/F
FALSE - This is false. Interview documentation should be prepared as soon as possible after the completion of the interview.
In an information-seeking interview, investigators should normally exert sufficient pressure on a witness to ensure that the answers are complete and accurate. This can, for example, include embarassing, berating or demeaning a witness. T/F
FALSE - This is false. Investigative interview are not normally hostile interrogations, and interviewers should always treat witnesses respectfully.
Generally, investigators should conduct interviews first, and secure the relevant evidential matter after it is analyzed. T/F
FALSE - This is false. The preservation of evidence is usually among the first tasks of the investigation.
Upjohn warnings make clear that a company's company's employees may reasonably expect that the company's attorneys represent them and that the statements that they make in an investigation interview are covered by the attorney-client privilege. T/F
FALSE - This is false. Upjohn warnings should make clear that the investigators have been hired by the engaging entity (usually the company or the audit committee) and do not represent the witness, that the investigators are gathering facts in order to provide legal advice to the entity, and that any privilege belongs to the entity, which can waive the privilege and disclose information to third parties.
The attorney-client privilege protects an attorney's internal documentation of the work or analyses created in support of the attorney's representation of a client. If accountants or other specialists work at the attorney's direction to assist the attorney in providing legal advice, their work may be similarly privileged. T/F
FALSE - This is the definition of the attorney work product doctrine, not the attorney-client privilege.
In assessing the materiality of a potential misstatement, SEC registrants only need to be concerned with year end financial statements, since the quarters are typically unaudited. T/F
FALSE -This is false. SEC registrants are responsible for making accurate financial reports. Material misstatements of quarterly financial reports have been the subject of SEC enforcement scrutiny.
CPAs are obligated to be zealous advocates for their clients. T/F
FALSE -This is false. Whereas attorneys are advocates of their clients, forensic accountants must maintain objectivity in the performance of their professional services.
Jane works in accounts receivable department at a lumber supply company. Most of the customers order lumber on a web application. The company ships lumber from its warehouse and sends an invoice by email. The company extends credit to many of its customers who must usually pay within 30 days. Most customers send their payments by check through the mail. (This is the same scenario as prior questions.) Jane notices that there are 5 old accounts receivable balances that never seem to get collected. Her supervisor tells her that the company policy is to reissue the invoice for these customers because of their "special relationship". The process changes the accounts receivable aging, and eliminates review for collectibility since the account appears current. But, it as no net effect on sales and accounts receivable. Based on these facts, what fraud scheme might be suspected? Round-trip or related party transactions because of the supervisor's reference to a special relationship. Lapping of accounts receivable associated with the special customers. Fictitious or uncollectible revenue being misrepresented as current, collectible receivables. Overstatement of percentage-of-completion sales.
Fictitious or uncollectible revenue being misrepresented as current, collectible receivables.
Which of the following is true about authorized check maker schemes? These schemes involve stolen checks or online payment credentials used by outsiders to fraudulently disburse money. Segregation of duties around check disbursements prevent all authorized check maker schemes. Now that most banks do not return physical copies of canceled checks, it is impossible to review them. For small businesses, the owner should open the bank statements and review cancelled checks to detect this type of fraud.
For small businesses, the owner should open the bank statements and review cancelled checks to detect this type of fraud.
Gatekeepers (such as accountants, lawyers or financial advisors) are often essential for fraud and asset hiding schemes to succeed. Which of the following is NOT a reason that this is true? Gatekeepers can never be subpoenaed or compelled to testify. Gatekeepers sometimes facilitate the committing of a predicate offense, such as disguising a person's involvement in a transaction, commingling property or disguising the ultimate beneficial owners of assets. Gatekeeps can provide a veneer of respectability. Gatekeeper services help sever the connection between the fraudster and safe enjoment of the hidden assets.
Gatekeepers can never be subpoenaed or compelled to testify.
L'ticia works in the sales department of a privately-held company. Near the quarter end, she learns that the senior sales team has been working late at night for several days. She overheard one of them saying, "We should put an X in front of the transaction number for all the dummy transactions. That way, we can find them later when time to reverse them." She is worried that her co-workers might be faking sales at the end of the quarter. She's thinking of calling in to the whistleblower hotline, but wonders if she should call her friend who heads Internal Audit or just look into it herself. Which of the following statements is true? The best course of action would be for L'ticia to initiate a fraud investigation herself, because she is closest to the suspected issue and knows the sales department. If L'ticia reports what she knows to the head of Internal Audit or the company's whistleblower hotline, it would be a predicate for a fraud investigation. L'ticia should do nothing. Until she has definitive proof, it would be improper to report the matter internally or call a whistleblower hotline. This is clear evidence of fraud involving management. Accordingly, reporting internally to the head of Internal Audit or the corporate whistleblower hotline is a waste of time. She should probably call the SEC's whistleblower hotline.
If L'ticia reports what she knows to the head of Internal Audit or the company's whistleblower hotline, it would be a predicate for a fraud investigation.
Jack has been working as retail sales clerk. He has been skimming cash from the till by creating fictitious sales returns. He prepares the paperwork for a customer return and takes the cash from the register. In reality, there is no customer and no returned inventory. Which is NOT true about Jack's fraud scheme? Jack's scheme might be detected if the scheme is large enough to result in significant inventory shrink. Jack's scheme might not be detected. Jack's scheme will be detected by differences between the cash in the register and the daily net sales totals. Jack might be detected if the manager or an internal auditor scrutinizes the return paperwork and notices discrepancies.
Jack's scheme will be detected by differences between the cash in the register and the daily net sales totals.
udy is preparing a report of her investigation. Her report includes the following description of the evidence she accumulated: According to the warehouse logs, Customer Company received 18 units of equipment on March 18, 2016. However, the vendor invoice fictitiously indicated shipments of 36 units. Customer Company unwittingly paid the invoice on April 22, 2016. No one in Customer Company had knowledge that they had been deceptively charged. Accordingly, there is plausible evidence to support the allegation that the vendor's invoice was overstated. Should Judy revise her draft? If so, in what way? Judy's draft is fine as is. Judy should revise the draft to eliminate the adverbs that characterize the evidence and her broad statement about the knowledge of everyone at the Company. Judy should revise the draft to state more conclusively whether or not fraud was committed. Judy's report should be revised to state more clearly the intent of the alleged perpetrator.
Judy should revise the draft to eliminate the adverbs that characterize the evidence and her broad statement about the knowledge of everyone at the Company. Reports should let the evidence speak for itself, and avoid judgmental characterizations and language that appears not to be objective. Also, it is unlikely that Judy has interviewed everyone at the company, so the statement about the knowledge of people at the company likely overstates the evidence.
Jane works in accounts receivable department at a lumber supply company. Most of the customers order lumber on a web application. The company ships lumber from its warehouse and sends an invoice by email. The company extends credit to many of its customers who must usually pay within 30 days. Most customers send their payments by check through the mail. (This is the same scenario as prior questions.) One of the customers, Jack the Builder, called to complain that he was getting account statements that didn't reflect the payments that he had already made. Jane researched it and found that the Jack's payment had been misapplied to Joe the Architect's account. That mistake has been happening a lot lately. Based on these facts, what fraud scheme might be suspected? Lapping Coercion. Improper revenue cutoff. Channel-stuffing.
Lapping
Which of the following is NOT a true statement regarding lapping? Lapping is sometimes employed when a fraudster is attempting to avoid detection of either fictitious revenues and receivables that will not be collected or misappropriation of customer cash receipts. Lapping relates to the overlap of revenue transactions between two or more financial reporting periods. Lapping is plagued by complexity, and often requires extra recordkeeping to keep track of all the diversions and misapplications of cash. One lapping scheme might involve stealing the money that Customer A has paid the company. To further the scheme, the fraudster might misapply payments from Customer B to Customer A's account. To cover the diversion of Customer B's money, the fraudster might misapply payments from Customer C to Customer B.
Lapping relates to the overlap of revenue transactions between two or more financial reporting periods.
Which of the following are primarily corruption schemes? LittleWhitePillco sells pharmaceutical products globally. In some Asian countries, the government runs all health programs. LittleWhitePillco hosts a lavish annual "educational conference" about its products and pays all the expenses of the doctors and health ministers who attend with their families. Only a few of them come to any product-related meetings. Johanna and Peter each own competing trash hauling businesses. They've been competing aggressively for business in eastern Massachusetts and the bidding war has driven their profits way down. Then, Johanna and Peter met at bar and came to an agreement that Johanna's company will serve Needham and Peter will serve Newton. Now, they can finally raise prices and make a little money. Oded is the chief operating officer of BigParentCo. He is leading the negotiating team for BigParentCo's planned acquisition of LittleStartUp. Oded did not disclose that he has conflict of interest. He owns 20% of LittleStartUp and will personally benefit from a higher acquisition price. Horace is CEO of a software company. He makes a side arrangement with a key customer, in which he agrees that the customer can return a large shipment of goods any time the customer desires, as long as he agrees to report it as a purchase for the audit confirmation. They make the agreement on a handshake, and there is no paperwork. Allen is the CFO of a hospital. He approves his own expense reports. Occasionally, he overstates the reports so he gets $500 extra in reimbursement for expenses he didn't actually incur. Rachel is in charge of supply chain management for an auto manfacturer. She's made it clear to all the suppliers that she cares about on-time performance, absence of product defects and price. She also expects all suppliers to make a $10,000 annual cash donation to her "retirement fund." The ones that didn't donate last year were cut from the vendor list. Jack is the warehouse manager for a company that sells carpeting. He puts 18 rolls of carpet in a shipment but records only 2 rolls in the shipment logs. He and the truck driver sell the extra 16 to a family-owned carpet retailer for cash. Jack and the truck driver split the cash proceeds. Ahmed has been analyzing inventory, and notes that one of company's products has had no sales in the last 19 months. The products are unusable because they are technologically obsolete. Ahmed does not write them off because there's not enough money in the reserve this quarter.
LittleWhitePillco sells pharmaceutical products globally. In some Asian countries, the government runs all health programs. LittleWhitePillco hosts a lavish annual "educational conference" about its products and pays all the expenses of the doctors and health ministers who attend with their families. Only a few of them come to any product-related meetings. Johanna and Peter each own competing trash hauling businesses. They've been competing aggressively for business in eastern Massachusetts and the bidding war has driven their profits way down. Then, Johanna and Peter met at bar and came to an agreement that Johanna's company will serve Needham and Peter will serve Newton. Now, they can finally raise prices and make a little money. Oded is the chief operating officer of BigParentCo. He is leading the negotiating team for BigParentCo's planned acquisition of LittleStartUp. Oded did not disclose that he has conflict of interest. He owns 20% of LittleStartUp and will personally benefit from a higher acquisition price. Rachel is in charge of supply chain management for an auto manfacturer. She's made it clear to all the suppliers that she cares about on-time performance, absence of product defects and price. She also expects all suppliers to make a $10,000 annual cash donation to her "retirement fund." The ones that didn't donate last year were cut from the vendor list.
Which of the following is NOT a normal role of attorneys in fraud investigation? Makes the final decisions on whether an investigation should be conducted and investigation scope. May assist with reporting and remediation. Provides legal advice regarding the investigation procedures. Participates in investigation interviews.
Makes the final decisions on whether an investigation should be conducted and investigation scope. - While attorneys may provide counsel, the investigation sponsor makes the final decisions on whether an investigation should be conducted and investigation scope.
Which of the following is a detective control actIvity? Segregation of duties and requiring approvals prior to executing certain transactions. Locks, physical barriers and other restrictions to access of facilities. Passwords, technological and information systems access controls. Managerial review of transactions at month end.
Managerial review of transactions at month end.
Bruno Bigshot is the CEO of WhateverWorks, Inc., an SEC registrant. At least once a year, Bruno tells the staff that they "shouldn't do anything that their mother would be embarrassed to read in the Wall Street Journal." The company has no written code of conduct or corporate ethics policies. Bruno says that the company's executives regularly communicate their expectations in staff meetings. Is this sufficient fraud risk governance under the Fraud Risk Management Guide? Y/N
NO
Paolo works as the VP of sales at a distributor of toys and children's products. Paolo's team is responsible for managing the largest and most significant customers. The company ships toys from its warehouse and sends an invoice by email. The company extends credit to many of its customers who must usually pay within 30 days. Most customers send their payments by check through the mail. Paolo and his team receive modest salaries, but they will all receive large compensation bonuses if the company hit its sales targets. By quarter end, Paolo convinces his longstanding customer to buy 250% more than the normal order. He offers a steep price discount to close the sale before quarter end. The CEO is aware of the transaction and approves. The revenue is recognized in the quarterly financial statements and the sales team celebrates, knowing they'll get their bonuses. The amount of revenue recognized correctly reflects the discount. Is this a channel-stuffing scheme? Y/N
NO
During the course of an investigation, an employee confessed to embezzling $55,000. The employee signed a statement acknowledging her actions and confessing to embezzlement. John is a CPA but has no other credentials. He is drafting a report of the investigation. Should John's report express a conclusion that the employee committed fraud? YES, NO
NO - John's report cannot conclude as to the existence of fraud. CPAs are not permitted to express a legal conclusion as to whether fraud was committed. Their reports can describe the evidence obtained, including the nature and extent of any statements by the alleged perpetrator.
Jay is a CPA and a member of the AICPA. In the course of a fraud investigation engagement, he became privy to confidential client information, some of which is retained in his workpapers. Following the investigation, Jay's workpapers were subpoenaed in a civil litigation proceeding. Jay has consulted with legal counsel, who advised that the subpoena is validly issued and enforceable. If Jay produces his workpapers in response to the subpoena, is he in violation of the AICPA's Confidential Client Information Rule (ET section 1.700.001.01)? YES/NO
NO - The Confidential Client Information Rule specifically permits the CPA to comply with a validly issued and enforceable subpeona or summons.
Which two attributes are the keys to whether an investigation will be considered reliable by the various stakeholders? Objectivity and competence Objectivity and exhaustiveness Specific and detailed Subject matter expertise and electronic evidence.
Objectivity and competence -- To be considered reliable, an investigation must be objective and competently executed.
Laura has embezzled several million dollars through a fictitious invoice scheme. She was able to establish a corporation called Big Steer, Inc. in Wyoming where her name will not be associated with the corporation. Once the money flows into Big Steer, it is then sent by wire transfer to another corporation that Laura controls in the British Virgin Islands, called Blue Beach Company. Neither Big Steer nor Blue Beach have any other business activity. Recently, Blue Beach Company transferred 100 Bitcoins to Laura's account on Coinbase. What kind of entities are Big Steer, Blue Beach and Coinbase (in order)? Trust company, AML facilitator, Digital currency Shell company, nominee trust, TOR router Onshore shell corporation, Offshore shell corporation, Digital wallet provider. FATCA account, grantor trust, altcoin
Onshore shell corporation, Offshore shell corporation, Digital wallet provider.
Murray, a CPA who practices forensic accounting as a sole proprietor, was engaged to investigate a whistleblower allegation. She hired a private investigator, Stuart, who has over 30 years of relevant experience. Murray collaborated with Stuart regarding the workplan, carefully reviewed his workproduct and formed her own opinions, which were documented in the report. Which professional standard was demonstrated by this conduct? Planning and supervision Outsourced investigations Sole propriety Acts discreditable
Planning and supervision
Which of the following is not a corruption of the competitive bidding process? Creation of fictitious bid documents Price-fixing among bidders Purchasing manager submits false expense reports claiming reimbursement for entertainment of suppliers. Collusion between employees and a preferred bidder to share information about bids.
Purchasing manager submits false expense reports claiming reimbursement for entertainment of suppliers.
Which of the following should NOT be included in the protocols for an organization's initial response to an allegation of possible wrongdoing? Notifying employees regarding document preservation and securing of data systems. Logging or documenting the initial allegation, ideally in a central repository Initially evaluating the allegation to determine if an investigation is warranted and the appropriate degree of urgency Reaching a conclusion as to whether the conduct is a fraud.
Reaching a conclusion as to whether the conduct is a fraud
Which of the following is usually an open source record? Department of Motor Vehicles records Real estate records Law enforcement databases Grand jury testimony
Real estate records
Which of the following is LEAST likely to be a cookie-jar reserve? Miscellaneous liability Litigation reserves Reserve for employee tax withholdings payable to government authorities Allowance for doubtful accounts
Reserve for employee tax withholdings payable to government authorities
Victoria has established an analytic test to screen employee expense reimbursements that may be fraudulent. Her test creates an alert whenever an employee submits a request for reimbursement for travel expenses over the $500 per day limit stated in the corporate expense policy. What type of data analytic test is this? Keyword search Data visualization Pattern and link analysis Rules-based test
Rules-based test
Which of the following is NOT a form of data visualization? Heat maps Rules-based tests Geospatial analysis Word clouds All of the above are forms of data visualization.
Rules-based tests
osses of inventory due to theft or misappropriation is often detected when lower levels of inventory are reflected in physical inventory counts than shown on the perpetual inventory records. The common name for this is ....
SHRINKAGE
Which of the following controls is LEAST likely to detect shell companies set up as part of a fictitious vendor scheme? Performance of periodic analytics to detect unusual attributes in the vendor master file, such as vendors and employees with the same address, vendors with multiple addresses or similar names. Processes to conduct reasonable diligence on vendors before setting them up for payment in the cash disbursement system. Segregation of duties between the person issuing the disbursements and reconciling the bank statements. Segregation of duties between people responsible for generating cash disbursements and those responsible for approving new vendors or approving specific invoices for payment.
Segregation of duties between the person issuing the disbursements and reconciling the bank statements.
Jane works in accounts receivable department at a lumber supply company. Most of the customers order lumber on a web application. The company ships lumber from its warehouse and sends an invoice by email. The company extends credit to many of its customers who must usually pay within 30 days. Most customers send their payments by check through the mail. Which of the following controls or procedures is MOST likely to reduce the risk of improper revenue cutoff? Sequentially dated shipping documents, analysis of order dates from the web application and observation of warehouse shipments at period end. Trend analysis of cash collections over time. Sequentially purchase orders and managerial review of bank reconciliations. A process to obtain information about the nature of the customer and its creditworthiness before accepting the order.
Sequentially dated shipping documents, analysis of order dates from the web application and observation of warehouse shipments at period end.
Which of the following schemes is LEAST likely to result in the overstatement of net assets? Call Me Inc has a maintains a large inventory of telecommunications equipment. A recent internal audit identified that almost a quarter of the cell phone equipment cannot be found. The CFO wanted to write down in the inventory on the balance sheet, but the CEO convinced her that the goods could be located or replaced. Accordingly, she left the inventory at full value. Jump Up Incorporated improperly shifted liabilities from consolidated subsidiaries to unconsolidated special purpose entities (or variable interest entities) while retaining most of the assets in the consolidated companies. Sit Down Company failed to disclose guarantees of the personal debts of its CEO. Because the CEO had been paying those debts as they came due, Sit Down Company had never had to perform under its guarantee and was not required to record a contingent liability to the GL. The US recently passed landmark tax legislation. It had the effect of rendering some of the deferred tax assets less valuable, but the tax director chose to delay recording a write down until earnings were stronger.
Sit Down Company failed to disclose guarantees of the personal debts of its CEO. Because the CEO had been paying those debts as they came due, Sit Down Company had never had to perform under its guarantee and was not required to record a contingent liability to the GL.
Generally, subsequent cash collection is good evidence of a valid sale and a collectible asset. However, there may still be instances where the underlying transactions are fraudulent. T/F
T
Keyword search is a kind of text analytics that scans free text fields and unstructured data to search for specific words or phrases. T/F
T
Manipulation of judgmental reserves and other areas of accounting judgment is a form of financial statement fraud. T/F
T
Often, an investigation may reveal multiple types of fraud schemes, some of which can be interrelated. T/F
T
Skimming of cash receipts can sometimes be detected by customer complaints about being billed for amounts that they already paid. T/F
T
True or false: There is no materiality threshold related to the accounting provisions (books and records provisions) of the U.S. FCPA. T/F
T
When sales people simply do not enter a sale in the register or in the accounting books and records and simply pocket the sales proceeds, this is a form of "off-the-books" cash skimming. T/F
T
"Badges of fraud" are provable, sneaky behavior that are used to circumstantially demonstrate a taxpayer's criminal intent. T/F
TRUE
A few years ago, Eleanor filed a tax return that significantly understated her taxable income. All of the income was from legal sources, but she did not report it. Feeling remorseful, she wants to correct the situation, but she is afraid that if she corrects the tax return she will be criminally prosecuted. Her tax advisor strongly recommends that she file an amended return using the voluntary disclosure process, saying that it is unlikely that she will be prosecuted if she files a truthful, timely and complete disclosure. Is this true? T/F
TRUE
A summary of findings can hazardous for the writer of an investigation report, because it can be difficult to ensure that the summary is sufficiently precise and accurate. T/F
TRUE
Adequate preparation, knowledge of relevant professional standards, command of the facts, methodology and results of procedures performed is the foundation from which a witness can confidently explain and support the professional opinion expressed in the expert report. - T/F
TRUE
An ethical conflict arises when a CPA encounters obstacles to following an appropriate course of action due to internal or external pressures, or when conflicts exist in applying relevant professional standards or legal standards or both. T/F
TRUE
As investigators plan the sequence of interviews, they often use an "outside-in" strategy, in which the order of witnesses to be interviewed typically proceeds in ascending order of importance. In this way, the investigators can build their knowledge of the matter as they prepare to conduct the highest-priority interviews. T/F
TRUE
Assessment of U.S. FCPA risk is fundamental to developing a strong compliance program. It's one of the factors that the U.S. Department of Justice and Securities and Exchange Commission evaluate when assessing a company's compliance program. T/F
TRUE
Auditors are more likely to trust and accept the results of an investigation if they have been kept informed in a timely and transparent manner. T/F
TRUE
Big Joe Company, a U.S. issuer, wants to open a subsidiary in Hyderbad, India. Big Joe doesn't want to get involved in bribery, so the company hired an agent to handle all the leases and leasehold improvements. The agent's agreement provides for a lump sum payment that is equal to two times the value of the lease, but provides little specifics on what the agent will do. True or false? Big Joe Company may still have liability under the U.S. FCPA if its agent bribes government officials in the course of its work. T/F
TRUE
Big X Corp has just acquired Little Y Corp. The accounting for the acquisition relies, in part, on a valuation of the intangible assets of Little Y. Once goodwill is recorded, it will not be amortized until it is impaired. It's come out that Big X Corp fired two valuation companies before obtaining a satisfactory opinion of value from a small business valuation firm True or false: The auditor or investigator should be vigilant and skeptical regarding whether the acquired assets are overstated. T/F
TRUE
CPAs providing fraud investigations are governed by SSCS No. 1, "Consulting Services: Definitions and Standards." T/F
TRUE
Expense reimbursement schemes often involve individually immaterial amounts, but can have significant impact when taken as a whole. An uncontrolled expense reimbursement process can provide rich opportunity for widespread abuse and contribute to a weak corporate culture. T/F
TRUE
Experts who are testifying about a fraud investigation are not lawyers, but they need to be aware of laws, statutes, regulations, case precedents and specific court orders that are relevant to the matter. T/F
TRUE
Generally, obtaining information about someone's tax returns or government benefits requires some sort of service of process, such as a subpoena or search warrant. T/F
TRUE
If employees and outsiders see that a company will tolerate wrongdoing within the company, including its management, it may undermine their willingness to come forward if they are aware of wrongdoing. T/F
TRUE
In an information-seeking interview, one objective is to uncover as many relevant facts (or sources of facts as possible) T/F
TRUE
In the early stages of an investigation, electronic evidence should be secured. Usually, this is accomplished by creating a forensic image of the data. T/F
TRUE
Investigation reports should take care to avoid subjective, inflammatory, libelous or other prejudicial statements. T/F
TRUE
It is important for a fraud risk assessment to evolve and to be updated periodically to reflect both internal changes, such as expansion of the organization's mission, changes in personnel, changes in processes, updates to information systems and controls, and external changes. T/F
TRUE
Machine learning and predictive analytics are techniques that can be used to search for fraud by learning from historical information or observed patterns to differentiate between normal and fraudulent behavior. T/F
TRUE
Normally, in a case in which the IRS is building a criminal tax case using the expenditures method, they: 1) Establish opening net work with reasonable certainty and show that the taxpayer's expenditures did not result from funds available at the beginning of the period; 2) Establish that taxpayer's expenditures during the period were non-deductible; 3) Establish the likely source of income that funded the expenditures or disprove the existence of nontaxable sources of funds; and 4) Investigate all relevant and reasonable leads relating to potential sources of income. T/F
TRUE
Oftentimes, fraud investigators spend more time preparing data for analysis than they do on the actual analytical procedures. T/F
TRUE
Once people learn that an investigation may be underway, any delay in securing electronic or documentary evidence may result in the alteration, destruction or deletion of documents or computer data. For this reason, preservation of documents should be undertaken as soon as possible. T/F
TRUE
PolarBear Inc. is a construction company that regularly builds roads and bridges. Rosa works in PolarBear Inc's Buenos Aires office, in the accounting department. Her boss regularly entertains government officials who are responsible for awarding government contracts. Rosa's boss doesn't want the U.S. corporate headquarters to go crazy over the amount he spends on client entertainment, so he tells Rosa to record all the expenses as marketing publication expenses. Rosa prepares supporting documents to mischaracterize the expenses. True or false? Recording the entertainment inaccurately may violate the U.S. FCPA. T/F
TRUE
Sometimes organizations consider certain fraud risks to be too expensive and time-consuming to address via preventive controls. For these risks, the organization may decide to tolerate the risk or put detective controls in place to detect occurrences rather than attempting to prevent them. T/F
TRUE
Sometimes reports on fraud investigations are made in the form of expert testimony in deposition or in a written expert report. T/F
TRUE
Super Pineapple is a Chilean company. It has a business office in New York, from which the company manages sales of its products into the U.S. During 2017, the company's sales manager, a British citizen, met with a Chilean customs official in Manhattan. He took the customs official to a show, gave him a Rolex watch and asked the customs official to ensure that none of the company's shipments were subjected to routine government inspections that might delay shipments. True or False? These transactions fall within the FCPA's jurisdiction. T/F
TRUE
Tax avoidance describes legal permissable conduct that results in reduced or eliminated tax liability. T/F
TRUE
The Enforcement Division of the Securities and Exchange Commission executes its function by recommending the commencement of investigations of securities law violations, by recommending that the Commission bring civil actions in federal court or before an administrative law judge, and by prosecuting these cases. T/F
TRUE
The Federal Sentencing Guidelines are one of the sources of information regarding the US government's expectations for effective regulatory compliance programs. T/F
TRUE
The IRS is involved in investigating narcotics-related financial crimes and counterterrorism financing. T/F
TRUE
The board or senior management should establish a process to evaluate allegations of fraud and misconduct. The process should include some type of tracking or case management so that allegations can be tracking from initial report to resolution. T/F
TRUE
The requirement to exercise due professional care means that members are to be diligent when performing professional services and to engage in critical analysis of their work. T/F
TRUE
To ensure that an investigation is credible and reliable, it is important that the investigation sponsors are independent of the activities, transactions and people that could potentially be subjects of the investigation. T/F
TRUE
United States Foreign Account Tax Compliance Act (FATCA) was enacted to promote transparency of offshore accounts and to curtail tax evasion. It establishes requirements for non-US financial institutions to conduct due diligence on the holders of its accounts, to provide reports to the IRS and to collect withholding amounts. T/F
TRUE
When AICPA guidance uses the phrase "should consider", the AICPA member is presumptively required to to think about the subject, but the member is not required to carry out a specific procedure or action. T/F
TRUE
When determining the nature and extent of an investigation that may be needed, an issue that was properly detected by internal controls and processes usually requires a lesser response than an issue that suggests that internal controls and processes may lack integrity or not function as expected. T/F
TRUE
While preventive controls are often apparent and readily identifiable by employees, third parties and others, specific detective controls are sometimes covert in nature. T/F
TRUE
Whistleblower systems generally preserve the confidentiality of those reporting and provide assurance to employees that they will not be subject of retaliaton. T/F
TRUE
Waldo is responsible for ensuring that all new buildings in Asia have proper construction permits. He works routinely with Xong Liu, a government official responsible for issuing such permits. Waldo realized that one of the construction sites lacked the proper permits, and arranged for his company to give Xong Liu an all expenses paid vacation to Los Angeles for himself and his family, which they took. Then, Waldo asked Zong Liu if he would prepare a back-dated permit. Xong Liu refused and the permit was never issued. Which is true? The all expenses paid vacation is not a bribe, because Xong Liu did not provide the requested permit. If it is correctly recorded in the books and records of the company, there can be no U.S. FCPA liability associated with the transaction. The all-expenses paid vacation may be considered a bribe under the U.S. FCPA. The all expenses paid vacation cannot be a bribe under the U.S. FCPA because it was not paid in cash.
The all-expenses paid vacation may be considered a bribe under the U.S. FCPA.
Which of the following is a definition of the investigation predicate? The investigation predicate is the reason for the investigation. In can include an anomalous transaction, a tip or a whistleblower allegation. The investigation predicate is the person or group of people who are responsible for directing the investigation and making decisions about the outputs of the investigation. The investigation predicate is a type of analytical relationships that allows the investigator to compare actual results to predicted results. The investigation predicate is a measure of the responsiveness of the investigation team.
The investigation predicate is the reason for the investigation. In can include an anomalous transaction, a tip or a whistleblower allegation.
Ahmed was not asked to prepare a written report, but he documented the investigation findings in a memorandum to the file. The memorandum was brief, did not include the final versions of his analysis and did not include all the disclosures that he would have included if the document was prepared for external use. What are the risks of such documentation? AICPA professional standards prohibit memoranda to the file. The memorandum could be requested, subpoenaed or otherwise become public. With superseded analyses and incomplete disclosures, it may be incomplete or misleading to a reader. Without a written expert report, there is no way for the client to know the results of the investigation. Unless there is a written report, most clients will not pay for the professional services.
The memorandum could be requested, subpoenaed or otherwise become public. With superseded analyses and incomplete disclosures, it may be incomplete or misleading to a reader.
Xing is assessing the possible materiality of a misstatement to the 3rd quarter of a public company's financial statements. The company's reported results for that almost exactly met Wall Street analyst's estimates for the quarter. The misstatement has been quantified as 1% of the company's revenues for the quarter. If the misstatement were corrected, the company's earnings would have been below the Wall Street analyst's estimates for the quarter, breaking a long-term trend. Which of the following is true? The misstatement is probably material primarily because of the qualitative attributes of the misstatement are such that the amount would be important to investors. The misstatement is probably not material, because the amount is less than 5% of revenues for the quarter. The misstatement is probably not material, because it involves a quarter-end, as opposed to the year-end financial statements. The misstatement is probably material primarily because the amount is greater than 0.5% of revenues.
The misstatement is probably material primarily because of the qualitative attributes of the misstatement are such that the amount would be important to investors. The misstatement is probably material primarily because of the qualitative attributes of the misstatement are such that the amount would be important to investors. While 5% of revenues is a common starting point for analysis, the assessment of materiality focuses on what is important to investors. The impact of the misstatement on whether they "make the estimates" and the fact that the company's trends are changing are qualitative factors that weigh heavily in the assessment of materiality.
Which of the following is not an example of payroll fraud? Employees collude with one another to "punch in" earlier and "punch out" later than the times actually worked, resulting in unearned overtime pay. A supervisor has created a fictitious employee and submits false documentation to set the employee up for weekly salary to be sent to the office. The supervisor cashes the check at a local check cashing business and spends the money on himself. The payroll records reflect two purported employees sharing the same address and same bank account. An employer withholds federal and state taxes, but fails to remit them to the governmental authority as reflected on the employee paystub.
The payroll records reflect two purported employees sharing the same address and same bank account.
Pink Pony, Inc. identified that it had a risk of fraudulent disbursements, since it frequently pays for supplies based on oral agreements with longstanding vendors. Until last year, the company had a single bookkeeper who wrote and signed most of the checks. Pink Pony, Inc. implemented a new control to require the chief executive to sign all checks greater than $2,500 before issuance. Also, each quarter, the treasurer reviews a list of all the cash disbursements and reviews the bank reconciliations to identify any unusual disbursements. The company also has an annual external audit. Which of the following is true? The audit is an effective part of the company's internal control structure. The treasurer's review of cash disbursements and bank reconciliations is a detective control activity. The company has strong preventive controls on all its disbursements. Internal control weaknesses are unavoidable for small businesses.
The treasurer's review of cash disbursements and bank reconciliations is a detective control activity.
Which of the following is NOT a common characteristic of corrupt payments? They are often hidden. They usually relate to financial disclosures. They are often associated with hidden financial interests or relationships. The often include gifts, travel and entertainment.
They usually relate to financial disclosures.
Which of the following best describes cutoff or timing schemes related to revenue recognition? : Timing or cutoff schemes involve changing depreciation methods from an accelerated method to the more conservative, straight-line method or vice versa. Timing or cutoff schemes are associated with fictitious customers. Timing or cutoff schemes involve premature (or improperly delayed) recognition of revenue generated from legitimate customers. Timing schemes are frequently characterized by two offsetting transactions in the same reporting period.
Timing or cutoff schemes involve premature (or improperly delayed) recognition of revenue generated from legitimate customers.
Padma is the CFO at auto parts manufacturer. Her company typically sells to regional distributors. She's aware that there have been instances of channel-stuffing at other companies in her industry. She is thinking about indicators of channel stuffing and possible strategies to detect it. Which of the following control procedures is LEAST likely to detect channel-stuffing? Analytical review of accounts receivable aging, sales, sales returns and bad debts. Confirmations with significant customers Scrutinizing large or unusual orders, especially those near period end. Tracing sales invoices to sales journals.
Tracing sales invoices to sales journals.
Swush Company sell high-end hair dryers and other consumer electronics. The company accepts returns in the ordinary course, maintains a warranty reserve liability for customer returns and discloses this fact in its financial statements. Ralph, the internal auditor, has been analyzing warranty reserves and learned that one of the accountants has a stack of warranty claims that she keeps in her drawer but has not entered into the system. She says that her supervisor told her not to book the claims until next quarter. What kind of fraud scheme is Ralph most worried about? Inflated assets Improper revenue recognition Inadequate disclosure Unrecorded liabilities
Unrecorded liabilities
Which of the following is NOT true regarding capitalization of assets? Usually, when assets are inappropriately capitalized, net assets are understated and expenses are overstated. It is a red flag when deferred charges are a significant proportion of a company's assets. It is a red flag when the subject company capitalizes assets that are usually expensed by other companies in the same industry. If the company has a strong incentives to manage earnings, managers, auditors and investigators should be even more skeptical about capitalization of expenditures as corporate assets.
Usually, when assets are inappropriately capitalized, net assets are understated and expenses are overstated.
Which of the following are legal considerations in the selection of investigation procedures? Select ALL that apply. Whether the underlying data meets legal requirements Whether the approach is reliable Whether the conclusion is supported by the evidence Whether the work has been competently executed Whether the analyst is a US citizen Whether the analyst is a CPA
Whether the underlying data meets legal requirements Whether the approach is reliable Whether the conclusion is supported by the evidence Whether the work has been competently executed
Which of the following is NOT an element of a well-developed fraud risk management program, according to the Fraud Risk Management Guide? Zero whistleblower complaints A documented fraud risk management program Established roles and responsibilities throughout the organization for fraud risk management. An organizational commitment to fraud risk management
Zero whistleblower complaints
Which of the following techniques can be used to analyze data in fraud investigations? Ratios and relationships Sorting and filtering Aggregation Comparison of multiple data sources Cluster analysis Statistical analyses Neural networks ALL
all
Oral reports of fraud investigations are NOT permitted by AICPA professional standards. t/f
false - The AICPA Practice Aid explicitly states that practitioners can communicate findings by a variety of oral or written means. (p. 35)
