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What is the second most common financial statement fraud?
Inventory related fraud schemes
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Which one of the following is not a commonly used inventory related fraud scheme
side agreements
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When inventory is understated, how is net income affected?
Net income is understated
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What effect does the carry forward nature of the over/understatement of inventory and COGS have on the fraud perpetrator?
The fraud perpetrator must overstate ending inventory even more to further conceal the fraud
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What people in an organization provide investigators and auditors with the best information about inventory?
The people who actually handle the inventory on a day to day basis
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What are the most common account(s) manipulated when perpetrating financial statement fraud
Revenues and Receivables
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What is the most common type of revenue related financial statement fraud?
recording fictitious revenues
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Which is not a common revenue related fraud scheme
arms length transactions
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This fraud symptom is unexpected or unexplained economic events, accounting transactions or financial and nonfinancial relationships
analytical symptoms
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This fraud symptom can involve missing documents, pohotocopies, ledgers that don't balance, or unusual journal entires
accounting or doumentary symptoms
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The most common account(s) manipulated when perpetrating financial statement fraud are
revenues
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Why might a company want to understate net income
to pay less taxes
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Reported revenue and sales account balances that appear too high are examples of
analytical symptoms
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examines percent changes in account balances from peirod to period
Horizontal Analysis
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Recording fictitious receivables will usually result in a
increase in the number of days in receivables
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Comparing recorded amounts in the financial statements with the real world assets they are supposed to represent would be most effective in detecting
cash and inventory fraud
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Lifestyle symptomps are most effective with
employee frauds
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Which of the following is not an inventory related documentary symptom
duplicate purchase orders
missing inventory during inventory counts
unsupported inventory sales transactions
all of the above are
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When looking for inventory fraud, an important question to ask is
what is the nature of inventory
what is the age of inventory
what is the salability of inventory
all of the following are importanty
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Which of the following ratios would not generally be used to look for inventory and COGS related frauds
accounts payable turnover
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In order to analyze financial statements for fraud an auditor or fraud examiner should consider all of the following execpt
the types of accounts that should be included
the types of fraud to which the company is susceptible
the nature of the company's business and industry
all of the above
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Last minute revenue adjustments, unsuported balance sheet amounts, and improperly recorded revenues are
analytical symptoms
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Accounts that can be manipulated inrevenue fraud include all of the following except
inventory
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Which financial ratio is not useful in detecting revenue related fraud
gross profit margin
account receivable turnover ratio
asset turnover ratio
all of the above are useful
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The asset turnover ratio measures
sales that are generated with each dollar of sales
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The most common way to overstate revenues is to
abuse the cutoff line for recording revenues
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Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers
acoid recording of returned goods from customers
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All of the following ratios are useful in detecting large revenue frauds except
current ratio
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Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved exccept
don't write off uncollectible receivables - sales returns, sales discounts
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Indentify which ratio is correctly linked to the infromation it could reveal about the company's potential for revenue fraud
gross profit margin - this ratio will increase if managemnt overstates inventory
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Which of the following is a common way to perform fianncial statement analysis whicle searing for revenue related analystical symptoms
look for unusual changes in reveue related account balances from period to period
look for unusual changes in revenue related relationships from period to period
both of these
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Primarily occurring at the end of the year in an attempt to inflate sales the practice of shipping more items to distributors than they can sell in a reasonable time period is known as
channel stuffing
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