Question 1

Which of the following may indicate management fraud?

Accepted Answer

A)  The name of a relative of a member of upper management is suggested to fill a board of directors' vacancy. 
B)  Increases and decreases in inventory fluctuate from period to period. 
C)  Inconsistencies exist between what management is telling the auditor and what the auditor observes. 
D)  Several mistakes are discovered in the inventory records. 
A)  The name of a relative of a member of upper management is suggested to fill a board of directors' vacancy. 
B)  Increases and decreases in inventory fluctuate from period to period. 
C)  Inconsistencies exist between what management is telling the auditor and what the auditor observes. 
D)  Several mistakes are discovered in the inventory records.

Question 2

Which of the following is a symptom of potential inventory fraud?

Accepted Answer

A)  An auditor observing a weakness in the inventory-receiving procedures 
B)  An auditor observing an override of an internal control 
C)  An auditor observing inadequate physical controls in the warehouse 
D)  An auditor observing the lack of authorization required for purchases of inventory under $1,000 
A)  An auditor observing a weakness in the inventory-receiving procedures 
B)  An auditor observing an override of an internal control 
C)  An auditor observing inadequate physical controls in the warehouse 
D)  An auditor observing the lack of authorization required for purchases of inventory under $1,000

Question 3

Which of the following is a rare situation that may arise in a privately owned company that wants to decrease the amount of income taxes paid to the government?

Accepted Answer

A)  Understating purchases 
B)  Overstating net income 
C)  Understating inventory 
D)  Understating cost of goods sold 
A)  Understating purchases 
B)  Overstating net income 
C)  Understating inventory 
D)  Understating cost of goods sold

Question 4

Inventory fraud often involves overstating inventory and/or understating cost of goods sold. The result is a decrease in the:

Accepted Answer

A)  gross profit ratio. 
B)  inventory turnover ratio. 
C)  number of days sales in inventory. 
D)  accounts receivable turnover ratio. 
A)  gross profit ratio. 
B)  inventory turnover ratio. 
C)  number of days sales in inventory. 
D)  accounts receivable turnover ratio.

Question 5

Which of the following statements is the least useful means to detect revenue-related frauds?

Accepted Answer

A)  Comparing financial statement amounts with the assets they represent 
B)  Comparing the financial statement performance between similar companies within the same industry 
C)  Focusing on changes in financial statement revenue-related relationships 
D)  Focusing on changes in recorded account balances from period to period 
A)  Comparing financial statement amounts with the assets they represent 
B)  Comparing the financial statement performance between similar companies within the same industry 
C)  Focusing on changes in financial statement revenue-related relationships 
D)  Focusing on changes in recorded account balances from period to period

Question 6

When a company understates the cost of goods sold, what is the effect on the inventory turnover ratio?

Accepted Answer

A)  The ratio might increase or decrease depending upon the amount by which it is understated 
B)  The ratio will decrease 
C)  No effect 
D)  The ratio will increase 
A)  The ratio might increase or decrease depending upon the amount by which it is understated 
B)  The ratio will decrease 
C)  No effect 
D)  The ratio will increase

Question 7

Given the following information, calculate the gross profit ratio.

Accepted Answer

A)  20% 
B)  28% 
C)  18% 
D)  13.33% 
A)  20% 
B)  28% 
C)  18% 
D)  13.33%

Question 8

According to a study sponsored by the Committee of Sponsoring Organizations (COSO), the most common way to manipulate revenue accounts is by:

Accepted Answer

A)  reclassifying expenses as revenues. 
B)  recording fictitious revenues. 
C)  inappropriately reducing sales returns and allowances. 
D)  prematurely recording revenue. 
A)  reclassifying expenses as revenues. 
B)  recording fictitious revenues. 
C)  inappropriately reducing sales returns and allowances. 
D)  prematurely recording revenue.

Question 9

Which of the following is a common inventory-related fraud scheme?

Accepted Answer

A)  Channel stuffing 
B)  Cutoff problems 
C)  Related-party transactions 
D)  Side agreements 
A)  Channel stuffing 
B)  Cutoff problems 
C)  Related-party transactions 
D)  Side agreements

Question 10

When using ratios to discover financial statement fraud, what is typically the most important aspect to evaluate?

Accepted Answer

A)  The size of the ratio 
B)  The direction of the ratio 
C)  The change in the ratio 
D)  The complexity of the ratio 
A)  The size of the ratio 
B)  The direction of the ratio 
C)  The change in the ratio 
D)  The complexity of the ratio

Question 11

What is often referred to as "abusing the cutoff?"

Accepted Answer

A)  Inflating revenues by using implied side agreements 
B)  Inflating revenues by selling unused assets for a promise to buy them or similar assets back at roughly the same price 
C)  Inflating current revenues by allowing customers to return products and cancel sales in future periods 
D)  Inflating revenues by including revenues in the current period that should be recognized in the next period 
A)  Inflating revenues by using implied side agreements 
B)  Inflating revenues by selling unused assets for a promise to buy them or similar assets back at roughly the same price 
C)  Inflating current revenues by allowing customers to return products and cancel sales in future periods 
D)  Inflating revenues by including revenues in the current period that should be recognized in the next period

Question 12

When do frauds occur in related-party transactions?

Accepted Answer

A)  When the transactions are not properly disclosed 
B)  When assets are transferred between related parties at fair value 
C)  When arrangements are made between two parties that create a conflict of interest in a business setting 
D)  When the arrangement creates operating revenues 
A)  When the transactions are not properly disclosed 
B)  When assets are transferred between related parties at fair value 
C)  When arrangements are made between two parties that create a conflict of interest in a business setting 
D)  When the arrangement creates operating revenues

Question 13

Which of the following is most likely an indicator of potential revenue fraud?

Accepted Answer

A)  A sudden increase in the sales discount percentage 
B)  A high sales return percentage 
C)  A rapidly increasing asset turnover ratio 
D)  A rapidly decreasing working capital turnover ratio 
A)  A sudden increase in the sales discount percentage 
B)  A high sales return percentage 
C)  A rapidly increasing asset turnover ratio 
D)  A rapidly decreasing working capital turnover ratio

Question 14

Why is it that horizontal analysis is performed only on the income statement and balance sheet, but not on the statement of cash flows?

Accepted Answer

A)  When searching for fraud, examining the statement of cash flows is not as effective as comparing actual changes in account balances. 
B)  Horizontal analysis converts balance sheet and income statement to change statements whereas the statement of cash flow is already a change statement. 
C)  The statement of cash flows does not provide any valuable fraud-related information. 
D)  Horizontal analysis of balance sheets and income statements is relatively easy, while applying the same procedure to the statement of cash flows is complicated. 
A)  When searching for fraud, examining the statement of cash flows is not as effective as comparing actual changes in account balances. 
B)  Horizontal analysis converts balance sheet and income statement to change statements whereas the statement of cash flow is already a change statement. 
C)  The statement of cash flows does not provide any valuable fraud-related information. 
D)  Horizontal analysis of balance sheets and income statements is relatively easy, while applying the same procedure to the statement of cash flows is complicated.

Question 15

What does "Dex shuffling" refer to?

Accepted Answer

A)  Changing the publication dates on telephone directories to inflate revenue. 
B)  Selling equipment at twice the marked price and offering huge discounts. 
C)  Sales terms and arrangements made outside normal reporting channels. 
D)  Improperly recognizing revenue and altering documents to hide the fraud. 
A)  Changing the publication dates on telephone directories to inflate revenue. 
B)  Selling equipment at twice the marked price and offering huge discounts. 
C)  Sales terms and arrangements made outside normal reporting channels. 
D)  Improperly recognizing revenue and altering documents to hide the fraud.

Question 16

When a company records fictitious revenues, what is the effect on asset turnover ratio?

Accepted Answer

A)  The ratio increases 
B)  The ratio decreases 
C)  No effect 
D)  The ratio might increase or decrease depending upon the transaction 
A)  The ratio increases 
B)  The ratio decreases 
C)  No effect 
D)  The ratio might increase or decrease depending upon the transaction

Question 17

The first step to uncovering revenue fraud is to:

Accepted Answer

A)  determine how each transaction could be misstated. 
B)  evaluate the efficiency of the management. 
C)  analyze and diagram the various transactions between an organization and its customers. 
D)  identify scheme-specific symptoms and proactively search for more fraud. 
A)  determine how each transaction could be misstated. 
B)  evaluate the efficiency of the management. 
C)  analyze and diagram the various transactions between an organization and its customers. 
D)  identify scheme-specific symptoms and proactively search for more fraud.

Question 18

Which of the following is a true statement regarding searching for inventory analytical symptoms?

Accepted Answer

A)  Examining the changes in recorded amounts from period to period provides useful information regarding potential fraud. 
B)  Studying the statement of cash flows is not a useful means of looking for potential fraud. 
C)  Utilizing vertical analysis for the current year is a useful means of identifying potential fraud. 
D)  The pace of the change in the numbers can often be indicative of potential fraud. 
A)  Examining the changes in recorded amounts from period to period provides useful information regarding potential fraud. 
B)  Studying the statement of cash flows is not a useful means of looking for potential fraud. 
C)  Utilizing vertical analysis for the current year is a useful means of identifying potential fraud. 
D)  The pace of the change in the numbers can often be indicative of potential fraud.

Question 19

Which of the following is a valid reason behind the prevalence of revenue-related financial statement fraud?

Accepted Answer

A)  It is easy to manipulate net income using revenues and receivables accounts. 
B)  Revenue-related frauds are difficult to hide from detection. 
C)  A reversing effect of the fraud automatically occurs in the subsequent period. 
D)  Auditors generally focus more on balance sheet items than on revenue accounts. 
A)  It is easy to manipulate net income using revenues and receivables accounts. 
B)  Revenue-related frauds are difficult to hide from detection. 
C)  A reversing effect of the fraud automatically occurs in the subsequent period. 
D)  Auditors generally focus more on balance sheet items than on revenue accounts.

Question 20

Smart fraudsters will avoid financial statement fraud involving the overstatement of because of the compounding effect from period to period.

Accepted Answer

A)  revenue 
B)  accounts receivable 
C)  inventory 
D)  fixed assets 
A)  revenue 
B)  accounts receivable 
C)  inventory 
D)  fixed assets

Which of the following may indicate management fraud?

Which of the following is a symptom of potential inventory fraud?

Which of the following is a rare situation that may arise in a privately owned company that wants to decrease the amount of income taxes paid to the government?

Inventory fraud often involves overstating inventory and/or understating cost of goods sold. The result is a decrease in the:

Which of the following statements is the least useful means to detect revenue-related frauds?

When a company understates the cost of goods sold, what is the effect on the inventory turnover ratio?

Given the following information, calculate the gross profit ratio.

According to a study sponsored by the Committee of Sponsoring Organizations (COSO), the most common way to manipulate revenue accounts is by:

Which of the following is a common inventory-related fraud scheme?

When using ratios to discover financial statement fraud, what is typically the most important aspect to evaluate?

What is often referred to as "abusing the cutoff?"

When do frauds occur in related-party transactions?

Which of the following is most likely an indicator of potential revenue fraud?

Why is it that horizontal analysis is performed only on the income statement and balance sheet, but not on the statement of cash flows?

What does "Dex shuffling" refer to?

When a company records fictitious revenues, what is the effect on asset turnover ratio?

The first step to uncovering revenue fraud is to:

Which of the following is a true statement regarding searching for inventory analytical symptoms?

Which of the following is a valid reason behind the prevalence of revenue-related financial statement fraud?

Smart fraudsters will avoid financial statement fraud involving the overstatement of because of the compounding effect from period to period.

The Nature of Fraud

Who Commits Fraud and Why

Fighting Fraud: an Overview

Preventing Fraud

Recognizing the Symptoms of Fraud

Data-Driven Fraud Detection

Investigating Theft Acts

Investigating Concealment

Conversion Investigation Methods

Inquiry Methods and Fraud Reports

Financial Statement Fraud

Liability, Asset, and Inadequate Disclosure Frauds

Fraud Against Organizations

Consumer Fraud

Bankruptcy, Divorce, and Tax Fraud

E-Commerce Fraud

Legal Follow-Up

Filters

Exam 12: Revenue- and Inventory-Related Financial Statement Frauds

Which of the following may indicate management fraud?

Which of the following is a symptom of potential inventory fraud?

Which of the following is a rare situation that may arise in a privately owned company that wants to decrease the amount of income taxes paid to the government?

Inventory fraud often involves overstating inventory and/or understating cost of goods sold. The result is a decrease in the:

Which of the following statements is the least useful means to detect revenue-related frauds?

When a company understates the cost of goods sold, what is the effect on the inventory turnover ratio?

Given the following information, calculate the gross profit ratio.

According to a study sponsored by the Committee of Sponsoring Organizations (COSO), the most common way to manipulate revenue accounts is by:

Which of the following is a common inventory-related fraud scheme?

When using ratios to discover financial statement fraud, what is typically the most important aspect to evaluate?

What is often referred to as "abusing the cutoff?"

When do frauds occur in related-party transactions?

Which of the following is most likely an indicator of potential revenue fraud?

Why is it that horizontal analysis is performed only on the income statement and balance sheet, but not on the statement of cash flows?

What does "Dex shuffling" refer to?

When a company records fictitious revenues, what is the effect on asset turnover ratio?

The first step to uncovering revenue fraud is to:

Which of the following is a true statement regarding searching for inventory analytical symptoms?

Which of the following is a valid reason behind the prevalence of revenue-related financial statement fraud?

Smart fraudsters will avoid financial statement fraud involving the overstatement of because of the compounding effect from period to period.

The Nature of Fraud

Who Commits Fraud and Why

Fighting Fraud: an Overview

Preventing Fraud

Recognizing the Symptoms of Fraud

Data-Driven Fraud Detection

Investigating Theft Acts

Investigating Concealment

Conversion Investigation Methods

Inquiry Methods and Fraud Reports

Financial Statement Fraud

Liability, Asset, and Inadequate Disclosure Frauds

Fraud Against Organizations

Consumer Fraud

Bankruptcy, Divorce, and Tax Fraud

E-Commerce Fraud

Legal Follow-Up

Filters