fraud chaps 7-13

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SusanneS28
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fraud chaps 7-13
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2014-04-13 11:01:38
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fraud chaps 13
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fraud chaps 7-13
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fraud chaps 7-13
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  1. 
    • Which of the following is not a category used in the fraud triangle plus inquiry paradigm?
    • a. Theft investigative techniques.
    • b. Concealment investigative techniques.
    • c. Action investigative techniques.
    • d. Conversion investigative techniques.
    • c. Action investigative techniques.
  2. When beginning an investigation, fraud examiners should use techniques that will:
    A. Not arouse suspicion.
    B. Determine the amount of the fraud.
    C. Identify when the fraud occurred.
    D. Identify the perpetrator.
    A. Not arouse suspicion.
    (this multiple choice question has been scrambled)
  3. When conducting interviews during an investigation, which of the following words should usually be avoided?
    A. Audit.
    B. Inquiry.
    C. Investigation.
    D. Record examination.
    C. Investigation.
    (this multiple choice question has been scrambled)
  4. When beginning a fraud investigation, which of the following methods is most useful in identifying possible suspects?
    A. Preparing a vulnerability chart.
    B. Preparing a surveillance log.
    C. Preparing an identification chart.
    d. None of the above.
    A. Preparing a vulnerability chart.
    (this multiple choice question has been scrambled)
  5. invigilation:
    A. Is most commonly associated with crimes such as robbery, murder, and property offenses.
    B. Provides evidence to help determine whether fraud is occurring.
    C. Can create tremendous amounts of documentary evidence.
    d. All of the above are true.
    B. Provides evidence to help determine whether fraud is occurring.
    (this multiple choice question has been scrambled)
  6. Which of the following is not a theft investigative method?
    A. Surveillance and covert operations.
    B. Invigilation.
    C. Honesty testing.
    D. Seizing and searching computers.
    A. Surveillance and covert operations.
    (this multiple choice question has been scrambled)
  7. When deciding whether or not to investigate, which of the following factors should an organization not consider?
    a. Possible cost of the investigation.
    b. Perceived strength of the predication.
    c. Possible public exposure resulting because of the investigation.
    d. All of the above should be considered.
    d. All of the above should be considered.
  8. Surveillance, when properly performed, is done:
    A. During nonworking hours.
    B. Only by law enforcement agents.
    C. Without the perpetrator’s knowledge.
    d. None of the above.
    C. Without the perpetrator’s knowledge.
    (this multiple choice question has been scrambled)
  9. Which of the following is not included in a vulnerability chart?
    A. Internal controls that a company plans to institute in the future.
    B. Theft investigation methods.
    C. Breakdowns in key internal controls that may have created fraud opportunities.
    D. Explanations of the fraud triangle in relation to suspects of fraud.
    A. Internal controls that a company plans to institute in the future.
    (this multiple choice question has been scrambled)
  10. A vulnerability chart:
    a. Forces investigators to explicitly consider all aspects of a fraud.
    b. Shows the history of fraud in a company. c. Identifies weaknesses in every aspect of a company’s internal control.
    d. Gives a detailed record of all the movements and activities of the suspect.
    a. Forces investigators to explicitly consider all aspects of a fraud.
  11. Fixed-point, or stationary, observations can be conducted by:
    A. Certified fraud examiners.
    B. Company personnel.
    C. Private investigators.
    D. Anyone.
    D. Anyone.
    (this multiple choice question has been scrambled)
  12. Surveillance logs should include all of the following except:
    A. Time the observation began and ended.
    B. Cost of the surveillance equipment used.
    C. Distance the observation was from the scene.
    D. Movements and activities of the suspect.
    B. Cost of the surveillance equipment used.
    (this multiple choice question has been scrambled)
  13. Wiretapping, a form of electronic surveillance, can be used by:
    a. Internal auditors.
    b. Company controllers.
    c. CPAs.
    d. All of the above.
    e. None of the above.
    e. None of the above.
  14. Which theft investigative method is most limited in value during employee fraud investigations because of concerns regarding employees’ privacy at work?
    A. Electronic surveillance.
    B. Forensic accounting.
    C. Interviewing and interrogation.
    D. Invigilation.
    A. Electronic surveillance.
    (this multiple choice question has been scrambled)
  15. Who should be consulted before any form of surveillance takes place?
    A. State attorney general.
    B. All company executives.
    C. Public investors and the company’s board of directors.
    D. Legal counsel and human resources.
    D. Legal counsel and human resources.
    (this multiple choice question has been scrambled)
  16. When seizing computers, a calculation (also called a hash) that ensures you have an exact clone and have not changed data is called a(n):
    A. Internet packet calculation.
    B. CRC checksum number.
    C. NIST number.
    D. ODBC connection.
    D. ODBC connection.
    (this multiple choice question has been scrambled)
  17. A snapshot of active memory should be done:
    A. After calculation of the checksum number but before searching.
    B. Before seizure of the computer.
    C. After seizure of the computer but before turning off the computer.
    D. After turning off the computer but before calculation of the checksum number.
    C. After seizure of the computer but before turning off the computer
    (this multiple choice question has been scrambled)
  18. ________ must be present before beginning an investigation.
    A. Interrogation
    B. Cross-examination
    C. Invigilation
    D. Predication
    D. Predication
    (this multiple choice question has been scrambled)
  19. Theft investigation methods include all of the following except:
    A. searching public records.
    B.surveillance.
    C. invigilation.
    D. covert operations.
    E.seizing computers.
    E. seizing computers.
    (this multiple choice question has been scrambled)
  20. A vulnerability chart:
    A. proceeds from the generalities to the specifics.
    B. moves in concentric circles outward from interviewing the suspect.
    C.None of the choices pertain to vulnerability charts.
    D. coordinates the various elements of the possible fraud.
    E. All of the choices pertain to vulnerability charts.
    D. coordinates the various elements of the possible fraud.
    (this multiple choice question has been scrambled)
  21. Types of surveillance include all of the following except:
    A. electronic.
    B. All of the choices are types of surveillance.e.None of the choices are types of surveillance.
    C. tailing.
    D. stationary.
    B. All of the choices are types of
    (this multiple choice question has been scrambled)
  22. Undercover operations:
    A. may be used as fishing expeditions to obtain more information about possible fraud schemes.
    B. All of the choices are true of undercover operations.
    C. None of the choices are true of undercover operations.
    D. are most often used for small-scale frauds or crimes.
    E. are illegal, unless conducted by law enforcement.
    C. None of the choices are true of undercover operations.
    (this multiple choice question has been scrambled)
  23. Invigilation:
    A. can backfire.
    B. None of the choices are true of invigilation.
    C. All of the choices are true of invigilation.
    D. should cover the entire business being investigated in order to cast as wide a net as possible.
    E.is generally an inexpensive technique to use.
    A. can backfire.
    (this multiple choice question has been scrambled)
  24. Which of the following answers presents the steps in the correct order used to seize electronic evidence?
    I. Clone the device.
    II. Secure the device.
    III. Search the device using automated searches.
    IV. Search the device manually.
    A. II, I, IV, III
    B. IV, III, I, II
    C. III, IV, II, I
    D. I, II, III, IV
    A. II, I, IV, III
    (this multiple choice question has been scrambled)
  25. When a file is "deleted" on a disk, the data is removed from the disk.
    True              
    False
    False
  26. Checksums:
    A. will change only marginally when the underlying data is changed.
    B. should be calculated immediately upon seizing a computer drive.
    C. All of the choices are true of checksums.
    D. are generally not admissible in court to support data handling.
    B. should be calculated immediately upon seizing a computer drive.
    (this multiple choice question has been scrambled)
  27. Email:
    A. All of the choices are true regarding email.
    B. exists in many places including the computer or electronic device of the sender and the servers involved in transmission.
    C.in order to be considered during a fraud investigation, must be accessible from at least two different sources to ensure authenticity.
    D.is regarded by most people as a very insecure form of communication.
    B. exists in many places including the computer or electronic device of the sender and the servers involved in transmission.
    (this multiple choice question has been scrambled)
  28. In a fraud investigation, documents:
    A. Are not reliable sources of information.
    B. Are only valuable in obtaining a confession
    C. Usually contain extremely valuable information.
    D. Are rarely used in court.
    C. Usually contain extremely valuable information.
    (this multiple choice question has been scrambled)
  29. Chain of custody refers to:
    A. A record of when a document is received and what has happened to it since its receipt.
    B. Databases used in trials to assist lawyers. d. The way in which courts are organized.
    C. Marking on a document so it can be identified later.
    A. A record of when a document is received and what has happened to it since its receipt
    (this multiple choice question has been scrambled)
  30. Marking documentary evidence is important to ensure that:
    A. Databases can be created with valuable information.
    B. Documents are legal.
    C. Documents can be identified later.
    D. Marking documentary evidence is not important.
    C. Documents can be identified later.
    (this multiple choice question has been scrambled)
  31. 4. Discovery sampling:
    A. Is never used in conducting a fraud examination.
    B. Deals with the probability of discovering at least one error in a given sample size if the population error is a certain percentage.
    C. Is one of the more difficult statistical sampling methods to understand.
    D. Is a type of variables sampling.
    B. Deals with the probability of discovering at least one error in a given sample size if the population error is a certain percentage.
    (this multiple choice question has been scrambled)
  32. Documentary evidence such as private tax returns can usually be obtained only by:
    a. Subpoena.
    b. Search warrant.
    c. Voluntary consent.
    d. All of the above.
    d. All of the above.
  33. Which of the following is not true regarding document experts?
    a. They can usually determine whether a document was written by the person whose signature the document bears.
    b. They can usually determine whether a document has been forged.
    c. They can usually determine whether the date the document bears is the date the document was written.
    d. All of the above are true statements.
    d. All of the above are true statements.
  34. Which of the following is not a benefit of statistical sampling?
    A. It allows auditors to be certain that fraud does not exist in a population.
    B. It is helpful when populations are large.
    C. It allows inference about a population.
    D. It allows quantification of risk.
    A. It allows auditors to be certain that fraud does not exist in a population.
    (this multiple choice question has been scrambled)
  35. Which of the following methods of gathering documents is based primarily on luck?
    A. Documents discovered through searching public sources.
    B. Hard-to-get private documents that are subpoenaed.
    C. Documents provided by tipsters.
    D. Documents discovered during audits.
    C. Documents provided by tipsters.
    (this multiple choice question has been scrambled)
  36. Which of the following is true of graphologists?
    A. They perform the same type of work as forensic document experts.
    B. They study handwriting as a way to interpret and identify personalities.
    C. They can only perform their work in laboratory settings.
    D. They are required to be members of the ABFDE organization.
    B. They study handwriting as a way to interpret and identify personalities.
    (this multiple choice question has been scrambled)
  37. What can a fraud examiner conclude if one or more instances of fraud are found in a sample taken from a population?
    A. The sample is most likely not representative of the population as a whole.
    B. There is a slight risk that fraud exists in the population.
    C. The population contains fraud.
    D. The sample may not have been randomly selected, and thus no conclusions can be drawn.
    C. The population contains fraud.
    (this multiple choice question has been scrambled)
  38. What can a fraud examiner conclude if his or her tests confirm that no instances of fraud are present in a sample taken from a population?
    A. The population contains no fraud.
    B. There is virtually no risk that fraud exists in the population.
    C. Only that no fraud is present in that particular sample.
    D. The sample is most likely not representative of the population as a whole.
    C. Only that no fraud is present in that particular sample.
    (this multiple choice question has been scrambled)
  39. How are most frauds concealed?
    A. By converting to a paperless office without paper transactions.
    B. By shredding source documents.
    C. By firing employees who will not go along with the fraud.
    D. By creating fictitious documents or altering source documents.
    D. By creating fictitious documents or altering source documents.
    (this multiple choice question has been scrambled)
  40. Which of the following is usually the best way to obtain documentary evidence?
    A. Chance, accident, or tip discovery.
    B. A statistically sound sampling approach like discovery sampling.
    C. Computer-based queries of full-population accounting and other databases.
    d. None of the above are effective methods of discovering evidence.
    C. Computer-based queries of full-population accounting and other databases.
    (this multiple choice question has been scrambled)
  41. Programs like CaseMap, Case Central, ZANTAZ, Ringtail, and DatiCon are examples of:
    A. Software that implements discovery sampling techniques.
    B. Forensic software used to investigate hard drives and other digital devices.
    C. Software packages used to index and store evidence.
    D. Link analysis software.
    C. Software packages used to index and store evidence.
    (this multiple choice question has been scrambled)
  42. Documents:
    A. can frequently be cross-examined by opposing attorneys.
    B. All of the choices are true of documents.
    C. None of the choices are true of documents.
    D. often commit perjury.
    E. may contain fingerprints.
    E. may contain fingerprints.
    (this multiple choice question has been scrambled)
  43. Information on the back of a check typically includes all of the following except:
    a. teller who processed the transaction.
    b. branch number where check was cashed. c. whether the check represented a payment or was deposited.
    d. All of the choices are true regarding checks.
    e. None of the choices are true regarding checks.
    b. branch number where check was cashed.
  44. Marking the evidence includes:
    A. All of the choices are true regarding marking the evidence.
    B. None of the choices are true regarding marking the evidence.
    C. assigning a Bates number to each document.
    D. copying the document and storing the original in an envelope.
    E. digitizing the evidence.
    D. copying the document and storing the original in an envelope.
    (this multiple choice question has been scrambled)
  45. Link analysis is used to:
    A. associate people, places and events.
    B. calculate checksums that support the chain of evidence.
    C. link each document to its original Bates number.
    D. organize documents by witness, chronology, or transaction.
    A. associate people, places and events.
    (this multiple choice question has been scrambled)
  46. Documentary evidence may be obtained in a variety of ways. Rank the following methods for acquiring documents from the most effective to the least effective.
    I. Traditional audits, including discovery sampling.
    II. Computer-based queries of full-population accounting and other databases.
    III. Tips, accidents, chance.
    A. II, III, I
    B. II, I, III
    C. I, II, III
    D. III, II, I
    B. II, I, III
    (this multiple choice question has been scrambled)
  47. Auditors perform a variety of tests, each of which yields a form of evidence. Which of the following are tests auditors perform?
    I. Establishment of chain of custody
    II. Tests of reasonableness
    III. Physical examinations
    IV. Recalculations
    A. II, III, and IV only
    B. I and III only
    C. I, II, III, and IV
    D. I, III, and IV only
    A. II, III, and IV only
    (this multiple choice question has been scrambled)
  48. Discovery sampling:
    a. allows an auditor to make inferences about a sample based on a study of the population. b. is only considered useful and efficient with relatively small populations.
    c. is among the most difficult forms of statistical sampling to understand and implement.
    d. All of the choices are true regarding discovery sampling.
    e. None of the choices are true regarding discovery sampling.
    e. None of the choices are true regarding discovery sampling.
  49. An auditor who is conducting a sampling test for fraud will be 100% certain fraud exists if one fictitious transaction is discovered.
    True
    False
    True
  50. Regarding sampling procedures, the more confident an auditor wants to be, the smaller the sample size that must be examined.
    True
    False
    False
  51. Sampling risk is:
    a. the risk that findings will be misinterpreted; for example, not recognizing an error or mistake.
    b. the risk that the sample is not representative of the population.
    c. a significant risk that cannot be reduced.
    d. All of the choices are true regarding sampling risk.
    • b. the risk that the sample is not representative of the population.
    • Financial statement fraud is usually committed by:
    • a. Executives.
    • b. Managers.
    • c. Stockholders.
    • d. Outsiders.
    • e. Both a and b.
    • e. Both a and b.
  52. Which officer in a company is most likely to be the perpetrator of financial statement fraud?
    A. Chief operating officer (COO).
    B. Controller.
    C. Chief executive officer (CEO).
    D. Chief financial officer (CFO).
    C. Chief executive officer (CEO).
    (this multiple choice question has been scrambled)
  53. When looking for financial statement fraud, auditors should look for indicators of fraud by:
    a. Examining financial statements.
    b. Evaluating changes in financial statements.
    c. Examining relationships the company has
    with other parties.
    d. Examining operating characteristics of the
    company.
    e. All of the above.
    f. None of the above because auditors don’t have a responsibly to find financial statement fraud.
    e. All of the above.
  54. The three aspects of management that a fraud examiner
    needs to be aware of include all of the following
    except:
    A. Their motivations.
    B. Their backgrounds.
    C. Their influence in making decisions for the
    D. Their religious convictions.
    organization.
    D. Their religious convictions.
    (this multiple choice question has been scrambled)
  55. Which of the following is least likely to be considered
    a financial reporting fraud symptom, or red
    flag?
    a. Grey directors.
    b. Family relationships between directors or
    officers.
    c. Large increases in accounts receivable with no increase in sales.
    d. Size of the firm.
    d. Size of the firm.
  56. Many indicators of fraud are circumstantial; that is, they can be caused by nonfraud factors. This fact can make convicting someone of fraud difficult. Which of the following types of evidence would be most helpful in proving that someone committed fraud?
    A. A repeated pattern of similar fraudulent acts.
    B. A general ledger that is out of balance.
    C. Analytical relationships that don’t make sense.
    D. Missing documentation.
    A. A repeated pattern of similar fraudulent acts.
    (this multiple choice question has been scrambled)
  57. In the Phar-Mor fraud case, several different methods were used for manipulating the financial statements. These included all of the following except:
    A. Overstating inventory.
    B. Recognizing revenue that should have been
    C. Funneling losses into unaudited subsidiaries.
    deferred.
    d. Manipulating accounts.
    C. Funneling losses into unaudited subsidiaries.
    (this multiple choice question has been scrambled)
  58. Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations.
    This is because:
    A. Smaller organizations do not have investors.
    B. It is easier to implement good internal controls in a small organization.
    C. Management fraud is more difficult to commit when there is a more formal organizational structure of management.
    D. People in large organizations are more honest.
    C. Management fraud is more difficult to commit when there is a more formal organizational structure of management.
    (this multiple choice question has been scrambled)
  59. Management fraud is usually committed on behalf of the organization rather than against it. Which of the following would not be a motivation of fraud on behalf of an organization?
    A. Pressure to meet expected earnings.
    B. A highly competitive industry.
    C. Restructure debt covenants that can’t be met.
    D. CEO needs a new car.
    D. CEO needs a new car.
    (this multiple choice question has been scrambled)
  60. All of the following are indicators of financial
    statement fraud except:
    A. Threat of a hostile takeover.
    B. Large amounts of available cash.
    C. Dependence on one or two products.
    D. Unusually rapid growth of profitability.
    B. Large amounts of available cash
    (this multiple choice question has been scrambled)
  61. During an audit, an auditor considers the conditions of the auditee and plans the audit accordingly.This is an example of which of the
    following?
    A. First-order reasoning.
    B. High-order reasoning.
    C. Zero-order reasoning.
    D. Fraudulent reasoning.
    A. First-order reasoning.
    (this multiple choice question has been scrambled)
  62. In the context of strategic reasoning, if an auditor only follows the established audit plan and does not consider other factors relating to the auditee, then this is an example of which of the following?
    A. Fraudulent reasoning.
    B. Zero-order reasoning.
    C. Higher-order reasoning.
    D. First-order reasoning.
    B. Zero-order reasoning.
    (this multiple choice question has been scrambled)
  63. In recent years, many SEC investigations have taken place on the improper issuance of stock options to corporate executives. These practices increase executive compensation at the expense of shareholders. This practice is known as:
    A. Backdrafting stock options.
    B. Stock option reversals.
    C. Backdating stock options.
    D. Stock option extensions.
    C. Backdating stock options.
    (this multiple choice question has been scrambled)
  64. Backdating is:
    A.using "bucket" accounts rather than recording cost of goods sold.
    B.using insider information to profit from stock trading.
    C.banks providing favorable loans to companies in return for the opportunity to make money from other transactions and fees.
    D.deliberately changing stock options for the purpose of securing extra pay for management.
    D.deliberately changing stock options for the purpose of securing extra pay for management.
    (this multiple choice question has been scrambled)
  65. Generally accepted accounting principles (GAAP):
    A.tend to be more objectives-based than standards in other countries.
    B.tend to be more principles-based than standards in other countries.
    C.allow for companies to exploit loopholes in the standards.
    D.enable companies to find specific rules to support their fraudulent transactions.
    C.allow for companies to exploit loopholes in the standards.
    (this multiple choice question has been scrambled)
  66. The educator failures element of the perfect fraud storm includes all of the following except:
    A.educators not teaching students about fraud.
    B.the way educators have taught accounting failed to instill analytical skills in students.
    C.educators not providing sufficient ethics training to students.
    D.too few educators with the CFE credential.
    D.too few educators with the CFE credential.
    (this multiple choice question has been scrambled)
  67. Fraud statistics cited in the text indicate that the CEO participates in approximately 95 percent of financial statement frauds.
    True   
    False
    False
  68. Generally, financial statement fraud can be detected simply by analyzing the financial statements and applying ratio analysis.
    True   
    False
    False
  69. The Fraud Exposure Rectangle includes:
    A.rationalization.
    B.All of the choices are included in the Fraud Exposure Rectangle
    C.perceived pressure.
    D.relationships with others.
    D.relationships with others.
    (this multiple choice question has been scrambled)
  70. Committing financial statement fraud is easiest:
    A.in large, historically-profitable organizations.
    B.with an active audit committee and board of directors.
    C.when decision making is done by one or two individuals.
    D.when three or more people work together to cover up the fraud.
    C.when decision making is done by one or two individuals.
    (this multiple choice question has been scrambled)
  71. Special purpose entities (SPE) are:
    A.a type of illegal maneuver used by Enron to hide losses.
    B.considered independent if they are profitable and have outside bank loans.
    C.independent if the company itself has 3% of its equity invested, and the equity is at risk.
    D.business interests formed solely to accomplish a specific task or tasks.
    D.business interests formed solely to accomplish a specific task or tasks.
    (this multiple choice question has been scrambled)
  72. An 8-K is filed with the SEC when:
    A.All of the choices are true regarding form 8-Ks.
    B.there has been a change of attorneys for the company.
    C.there has been a change of auditors for the company.
    D.a client fails to pay its audit fees.
    C.there has been a change of auditors for the company.
    (this multiple choice question has been scrambled)
  73. Financial statement fraud is easiest to commit in organizations that:
    A.have a board of directors comprised primarily of outsiders.
    B.have complex organizational structures.
    C.have a large internal audit department.
    D.have democratic leadership.
    B.have complex organizational structures.
    (this multiple choice question has been scrambled)
  74. The most common account(s) manipulated when perpetrating financial statement fraud are:
    A. Expenses.
    B. Inventory.
    C. Accounts Payable.
    D. Revenues.
    D. Revenues.
    (this multiple choice question has been scrambled)
  75. Why might a company want to understate net
    income?
    A. To increase profits.
    B. To increase stock price.
    C. To gain consumer confidence.
    D. To pay less taxes.
    D. To pay less taxes.
    (this multiple choice question has been scrambled)
  76. Reported revenue and sales account balances that appear too high are examples of:
    A. Analytical symptoms.
    B. Lifestyle symptoms.
    C. Documentary symptoms.
    D. Verbal symptoms.
    A. Analytical symptoms.
    (this multiple choice question has been scrambled)
  77. Horizontal analysis is a method that:
    A. Examines financial statement numbers from period to period.
    B. Examines percent changes in account balances from period to period.
    C. Examines transactions from period to period.
    d. None of the above.
    B. Examines percent changes in account balances from period to period.
    (this multiple choice question has been scrambled)
  78. Recording fictitious receivables will usually result in a(n):
    A. Increased sales discount percentage.
    B. Increase in accounts receivable turnover.
    C. Sales return percentage that remains constant.
    D. Increase in the number of days in
    receivables.
    D. Increase in the number of days inreceivables.
    (this multiple choice question has been scrambled)
  79. Comparing recorded amounts in the financial
    statements with the real-world assets they are supposed to represent would be most effective in detecting:
    A. Accounts payable fraud.
    B. Revenue-related fraud.
    C. Accounts receivable fraud.
    D. Cash and inventory fraud.
    D. Cash and inventory fraud.
    (this multiple choice question has been scrambled)
  80. Lifestyle symptoms are most effective with:
    a. Revenue-related financial statement frauds.
    b. Inventory-related financial statement
    frauds.
    c. Employee frauds.
    d. Accounts payable financial statement
    frauds.
    c. Employee frauds.
  81. Which of the following is not an inventory-related documentary symptom?
    A. Unsupported inventory sales transactions.
    B. Duplicate purchase orders.
    C. Missing inventory during inventory counts.
    d. All of the above are inventory-related
    documentary symptoms.
    C. Missing inventory during inventory counts.
    (this multiple choice question has been scrambled)
  82. When looking for inventory fraud, an important
    question to ask is:
    A. What is the nature of inventory?
    B. What is the age of inventory?
    C. All are important questions to ask.
    D. What is the salability of inventory?
    C. All are important questions to ask.
    (this multiple choice question has been scrambled)
  83. Which of the following ratios would not generally be used to look for inventory- and cost of goods sold-related frauds?
    A. Inventory turnover.
    B. Number of days’ sales in inventory.
    C. Gross profit margin.
    D. Accounts payable turnover.
    D. Accounts payable turnover.
    (this multiple choice question has been scrambled)
  84. In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except:
    a. The types of accounts that should be included in the financial statements.
    b. The types of fraud to which the company is
    susceptible.
    c. The nature of the company’s business and
    industry.
    d. The auditor should consider all of the above.
    d. The auditor should consider all of the above.
  85. Last-minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of:
    A. Documentary symptoms.
    B. Control symptoms.
    C. Perceptional symptoms.
    D. Analytical symptoms.
    A. Documentary symptoms.
    (this multiple choice question has been scrambled)
  86. Accounts that can be manipulated in revenue fraud include all of the following except:
    A. Inventory.
    B. Sales Discounts.
    C. Accounts Receivable.
    D. Bad Debt Expense.
    A. Inventory.
    (this multiple choice question has been scrambled)
  87. Which financial ratio is not useful in detecting
    revenue-related fraud?
    a. Gross profit margin ratio.
    b. Account receivable turnover ratio.
    c. Asset turnover ratio.
    d. All of the above are useful revenue-related
    fraud detection ratios.
    d. All of the above are useful revenue-relatedfraud detection ratios.
  88. The asset turnover ratio measures:
    a. The average time an asset is used by the
    company.
    b. The average useful life of capital assets.
    c. Sales that are generated with each dollar of the assets.
    d. Assets that are purchased with each dollar of sales.
    c. Sales that are generated with each dollar of the assets.
  89. The most common way to overstate revenues is to:
    A. Create fictitious revenues.
    B. Abuse the cutoff line for recording revenues.
    C. Record revenues prematurely.
    d. None of the above.
    A. Create fictitious revenues.
    (this multiple choice question has been scrambled)
  90. Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers?
    a. Understate allowance for doubtful accounts
    (thus overstating receivables).
    b. Record bank transfers when cash is received from customers.
    c. Write off uncollectible receivables in a later
    period.
    d. Avoid recording of returned goods from
    customers.
    d. Avoid recording of returned goods fromcustomers.
  91. All of the following ratios are useful in detecting large revenue frauds except:
    A. Gross profit margin.
    B. Current ratio.
    C. Working capital turnover.
    D. Accounts receivable turnover.
    B. Current ratio.
    (this multiple choice question has been scrambled)
  92. Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except:
    a. Recognizing revenues too early—Accounts
    Receivable, Revenue.
    b. Understate allowance for doubtful accounts— Bad Debt Expense, Allowance for Doubtful Accounts.
    c. Don’t write off uncollectible receivables—Sales Returns, Sales Discounts.
    d. Don’t record discounts given to customers—Cash, Sales Discounts, Accounts
    Receivable.
    e. Record returned goods after the end of
    the period—Sales Returns, Accounts Receivable.
    c. Don’t write off uncollectible receivables—Sales Returns, Sales Discounts.
  93. Identify which ratio is correctly linked to the information it could reveal about the
    company’s potential for revenue fraud.
    a. Gross profit margin—this ratio will increase if management overstates inventory.
    b. Sales return percentage—a sudden decrease in
    this ratio can mean that customer discounts
    are not being recorded in the accounting
    records.
    c. Allowance for uncollectible accounts as a
    percent of receivables—when a company
    records fictitious receivables, this ratio
    increases.
    d. Operating profit margin—a dramatic decrease in this ratio could indicate fraud.
    a. Gross profit margin—this ratio will increase if management overstates inventory.
  94. Which of the following is a common way to perform financial-statement analysis while searching for revenue-related analytical symptoms?
    A. Look for unusual changes in revenue-related relationships from period to period.
    B. Both a and b are common ways to perform
    C. Look for unusual changes in the cost of goods sold account from period to period.
    D. Look for unusual changes in revenue-related account balances from period to period (trends).
    within-statement analysis while searching for
    revenue-related analytical symptoms.
    e. All of the above are common ways to perform financial-statement analysis while searching for revenue-related analytical symptoms.
    B. Both a and b are common ways to performwithin-statement analysis while searching forrevenue-related analytical symptoms.
    (this multiple choice question has been scrambled)
  95. 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:
    A. Channel stuffing.
    B. Lapping.
    C. Bill-and-hold transactions.
    D. Consignment sales.
    A. Channel stuffing.
    (this multiple choice question has been scrambled)
  96. Channel-stuffing, lapping, and round-tripping are all forms of:
    A.revenue-related fraud schemes.
    B.inventory-related fraud schemes.
    C.improperly holding the books open.
    D.expense-related fraud schemes.
    A.revenue-related fraud schemes.
    (this multiple choice question has been scrambled)
  97. Using horizontal analysis, what is the change experienced by a company whose Accounts Receivable balance was $400,000 in 2009 and $325,000 in 2008?
    A.23 percent
    B.81 percent
    C.Cannot be determined from the information as 3 years of data are needed.
    D.19 percent
    A.23 percent
    (this multiple choice question has been scrambled)
  98. All of the following are true of the gross profit ratio except:
    A.a revenue-related fraud scheme that overstates sales will result in an increase in this ratio.
    B.the gross profit ratio is calculated by dividing gross margin by net sales.
    C.gross profit is a function of the markup percentage.
    D.the gross profit ratio will increase if cost of goods sold is overstated.
    D.the gross profit ratio will increase if cost of goods sold is overstated.
    (this multiple choice question has been scrambled)
  99. Adding fictitious receivables to the accounts receivable balance will result in:
    A.the accounts receivable turnover ratio either increasing or decreasing, depending upon its starting point.
    B.a decrease in the number of days in receivables ratio.
    C.the sales return percentage increasing dramatically.
    D.All of the choices are true regarding fictitious receivables.
    A.the accounts receivable turnover ratio either increasing or decreasing, depending upon its starting point.
    (this multiple choice question has been scrambled)
  100. Using common-size financial statements:
    A.is a process whereby financial statements are converted to various financial ratios for easy analysis.
    B.allows a fraud examiner to definitively conclude that management is committing financial statement fraud.
    C.is a very effective way to search for fraud symptoms related to changes in account balances.
    D.allows comparisons between companies in the same industry to highlight variations in performance.
    D.allows comparisons between companies in the same industry to highlight variations in performance.
    (this multiple choice question has been scrambled)
  101. Financial statement auditors, under SAS 99, are required to make inquires about possible fraudulent activity of all of the following parties except:
    A.management.
    B.audit committee members.
    C.internal auditors.
    D.bond holders.
    D.bond holders.
    (this multiple choice question has been scrambled)
  102. Which of the following relationships is invalid?a.Beginning inventory + purchases of inventory - returns of inventory to vendor-purchase discounts on inventory purchases = goods available for sale.
    b.Beginning inventory + goods available for sale - ending inventory = cost of goods sold.
    c.Gross revenues - sales returns - sales discounts = net revenues.
    d.Net revenues - cost of goods sold - expenses = net income.
    b.Beginning inventory + goods available for sale - ending inventory = cost of goods sold.
  103. Overstating inventory in order to overstate net income:
    A.will impact cost of goods sold in the current year and the subsequent year.
    B.is a relatively easy fraud to maintain without getting caught.
    C.requires that, in subsequent periods, inventory must be understated by larger and larger amounts to maintain the fraud.
    D.All of the choices are true regarding overstating inventory.
    A.will impact cost of goods sold in the current year and the subsequent year.
    (this multiple choice question has been scrambled)
  104. In the Mini scribe fraud described in the text, management created a computer program called "Cook Book" to generate fictitious inventory numbers.
    True              
    False
    True
  105. The ratio that is computed by dividing the number of days in a period by the inventory turnover ratio is:
    a.accounts receivable turnover ratio.
    b.number of days' sales in inventory.
    c.inventory turnover ratio.
    d.working capital turnover ratio.
    • b.number of days' sales in inventory.
    • Which of the following is a primary type of transaction that can create liabilities for a company?
    • a. Purchasing inventory.
    • b. Borrowing money.
    • c. Selling purchased goods.
    • d. Leasing assets.
    • e. All of the above.
    • e. All of the above.
  106. When accounts payable-related liabilities are understated, purchases and inventory are often, or the financial statements don’t balance.
    A. It is impossible to tell.
    B. Understated.
    C. Overstated.
    D. Correctly stated.
    B. Understated.
    (this multiple choice question has been scrambled)
  107. Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because:
    a. It understates liabilities.
    b. It overstates revenues.
    c. It overstates net income.
    d. It overstates assets.
    e. All of the above.
    f. a, b, and c are correct.
    f. a, b, and c are correct.
  108. The most common fraud involving car companies and the warranties they offer would most likely be:
    A. Recognizing unearned revenue.
    B. Not recording or under recording future
    C. Understating accrued liabilities.
    obligations.
    d. Not recording or under recording various
    types of debt.
    B. Not recording or under recording future obligations.
    (this multiple choice question has been scrambled)
  109. FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is:
    A. Reasonably possible.
    B. Not determinable.
    C. Probable.
    D. Remote.
    C. Probable.
    (this multiple choice question has been scrambled)
  110. Analytical symptoms of accounts payable fraud most often relate to reported “accounts payable” balances that appear:
    A. Too high.
    B. Unchanged.
    C. Too low.
    D. Too perfect.
    C. Too low.
    (this multiple choice question has been scrambled)
  111. Proactively searching for analytical symptoms related to financial statement fraud means that we are looking for accounts that appear:
    a. Too low.
    b. Too high.
    c. Unusual.
    d. All of the above.
    d. All of the above
  112. When focusing on changes, you should consider changes from period to period in:
    A. Relationships between balances.
    B. Both a and b.
    C. Balances of other non-similar companies.
    D. Recorded balances.
    e. All of the above.
    B. Both a and b.
    (this multiple choice question has been scrambled)
  113. Overstating cash is usually difficult because:
    a. Cash balances can be easily confirmed with
    banks and other financial institutions.
    b. Cash is hard to steal.
    c. Cash is normally not a fraudulent account.
    d. Cash is usually a small asset.
    a. Cash balances can be easily confirmed with banks and other financial institutions.
  114. Inadequate disclosure fraud usually involves:
    A. Disclosures that should have been made in the footnotes but were not.
    B. Statements in the footnotes that are wrong but do not impact the financial statement.
    C. Both a and b.
    D. Neither a nor b.
    C. Both a and b.
    (this multiple choice question has been scrambled)
  115. When examining whether a company has under-recorded accounts payable, each of the following ratios is helpful except:
    A. Unearned revenue/Accounts payable.
    B. Accounts payable/Cost of goods sold.
    C. Current ratio.
    D. Acid-test ratio.
    E. Accounts payable/Purchases.
    A. Unearned revenue/Accounts payable.
    (this multiple choice question has been scrambled)
  116. Each of the following is a symptom relating to understatement of liability frauds except:
    a. Original purchase-related records where
    copies could exist.
    b. Denied access to records, facilities, certain
    employees, customers, vendors, or others
    from whom audit evidence might be sought.
    c. Last-minute adjustments by the entity that
    significantly affect financial results.
    d. Missing documents.
    e. All of the above are documentary symptoms of understatement of liability fraud.
    a. Original purchase-related records where copies could exist.
  117. Each of the following assets is correctly linked with how it can be overstated except:
    a. Inventory can be overstated by improperly
    capitalizing these assets.
    b. Marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities.
    c. Fixed assets can be overstated by leaving
    expired assets on the books.
    d. Assets can be inflated in mergers, acquisitions, and restructurings by having the wrong entity act as the acquirer.
    b. Marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities.
  118. Which of the following factors does not make
    fraud more difficult to detect?
    a. Collusion with outsiders.
    b. Forgery, which GAAS auditors are not
    routinely trained to detect.
    c. Off-book frauds in which no records on the
    company’s books are fraudulent.
    d. All of the above make fraud more difficult to detect.
    d. All of the above make fraud more difficult to detect.
  119. A form 1099 with missing withholdings (where they should be reported) may be a fraud symptom for which liability account?
    A. Accounts Payable.
    B. Accrued Liabilities.
    C. Contingent Liabilities.
    D. Unearned Revenues.
    B. Accrued Liabilities.
    (this multiple choice question has been scrambled)
  120. In liability fraud, liabilities are most often:
    A. Recorded as expenses.
    B. Understated.
    C. Overstated.
    D. Recorded as assets.
    B. Understated.
    (this multiple choice question has been scrambled)
  121. Which of the following is usually the hardest fraud to detect?
    A. Revenue fraud.
    B. Asset fraud.
    C. Liability fraud.
    D. Disclosure fraud.
    D. Disclosure fraud.
    (this multiple choice question has been scrambled)
  122. You observe that a company’s current ratio is dramatically
    increasing. This may indicate fraud in that:
    a. Probable contingent liabilities that will settle
    in the next year for an amount that can be
    estimated are not recorded.
    b. Accounts payable are understated.
    c. Expenses have been inappropriately
    capitalized as fixed assets.
    d. Fixed assets are overstated.
    e. Both b and c
    e. Both b and c
  123. Of the following, the most difficult account for
    management to intentionally misstate is:
    A. Prepaid Expenses.
    B. Cash.
    C. Securities.
    D. Income Taxes Payable.
    B. Cash.
    (this multiple choice question has been scrambled)
  124. Which of the following is not a way to under-record liabilities?
    A. Not recording loans incurred.
    B. Claiming that existing debt has been forgiven by creditors.
    C. Borrowing but not disclosing debt incurred on existing lines of credit.
    d. All of the above are ways to under-record
    liabilities.
    B. Claiming that existing debt has been forgiven by creditors.
    (this multiple choice question has been scrambled)
  125. When looking for accounting or documentary
    symptoms of fraud when a merger occurs, one of the first steps should be to:
    A. Make sure that the accounting methods used were appropriate and consistent with
    B. Make sure that the selling company  properly disclosed its financial troubles.
    C. Make sure that the purchasing company got a fair deal.
    D. Make sure that both the buyer and the seller were content with the deal.
    accounting standards.
    A. Make sure that the accounting methods used were appropriate and consistent withaccounting standards.
    (this multiple choice question has been scrambled)
  126. Which of the following is a good place to look for inadequate disclosures?
    a. Board of directors’ minutes.
    b. Correspondence and invoices from attorneys.
    c. Confirmations with banks and others.
    d. Loan agreements.
    e. All of the above are good places to look for
    inadequate disclosure.
    e. All of the above are good places to look forinadequate disclosure.
  127. Understatement of liability frauds:
    A.can be accomplished by understating purchase returns.
    B.can be accomplished by recording accruals in a later period.
    C.are among the easiest types of fraud to detect due to the availability of documentary evidence.
    D.can be accomplished by recording payments made in earlier periods as being paid in later periods.
    B.can be accomplished by recording accruals in a later period.
    (this multiple choice question has been scrambled)
  128. Which of the following is not among the ways discussed in the text to understate accounts payable?
    A.Overstate purchase returns.
    B.Not record purchases.
    C.Make it appear as if liabilities have been paid off when they have not.
    D.Understate purchase discounts.
    D.Understate purchase discounts.
    (this multiple choice question has been scrambled)
  129. All of the following are ways to understate liabilities except:
    A.failure to record warranty obligations.
    B.understate accounts payable.
    C.omission of contingent liabilities.
    D.overstate unearned revenue.
    D.overstate unearned revenue.
    (this multiple choice question has been scrambled)
  130. Computing each liability as a percentage of total assets is known as:
    A.All of the choices are true.
    B.the acid-test ratio.
    C.horizontal analysis.
    D.common-size financial statements.
    D.common-size financial statements.
    (this multiple choice question has been scrambled)
  131. Which of the following is not discussed in the text as one of the ways to actively search for "accounting and documentary" symptoms of under-reporting of liabilities fraud?
    A.All of the choices are discussed
    B.Discrepancies in cut-off tests.
    C.Amounts listed on vendor statements not recorded as purchases.
    D.More inventory counted than identified through purchasing and inventory records.
    A.All of the choices are discussed
    (this multiple choice question has been scrambled)
  132. Which of the following ratios was not discussed in the text as one useful in detecting understatement of liability fraud?a.Quick assets/current liabilities
    b.Accounts payable/purchases
    c.Accounts payable/net salesd.Current assets/current liabilities
    c.Accounts payable/net salesd.Current assets/current liabilities
  133. Overstatement of asset fraud can be perpetrated through:
    A.All of the choices are true.
    B.capitalization of expenditures.
    C.depreciation methods.
    D.asset impairments.
    A.All of the choices are true.
    (this multiple choice question has been scrambled)
  134. Under-reporting depreciation expense can be accomplished by:
    A.allocating too much cost in as basket purchase of land and building to the building account.
    B.establishing useful lives for assets that exceed their true expected lives.
    C.All of the choices are methods of under-reporting depreciation expense.
    D.establishing salvage values for assets that fall below the asset's true estimated salvage value.
    B.establishing useful lives for assets that exceed their true expected lives.
    (this multiple choice question has been scrambled)
  135. Disclosure fraud can include statements that should have been, but were not, made by management.
    True   
    False
    True
  136. Included among the "other" types of financial statement fraud is the improper accounting for roundtrip transactions.
    True   
    False
    True

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