Question 1

Which legislation led to the establishment of the Public Company Accounting Oversight Board?

Accepted Answer

A)  Private Securities Litigation Reform Act 
B)  Sarbanes-Oxley Act 
C)  Gramm-Leach-Bliley Act 
D)  Glass-Steagall Act 
A)  Private Securities Litigation Reform Act 
B)  Sarbanes-Oxley Act 
C)  Gramm-Leach-Bliley Act 
D)  Glass-Steagall Act

Question 2

According to study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), who is the most common perpetrator of financial statement fraud?

Accepted Answer

A)  Chief Executive Officer 
B)  Chief Financial Officer 
C)  Chief Operating Officer 
D)  Finance Controller 
A)  Chief Executive Officer 
B)  Chief Financial Officer 
C)  Chief Operating Officer 
D)  Finance Controller

Question 3

The study done by the Committee of Sponsoring Organizations (COSO) on financial statement frauds that occurred during the period from 1987-1997 had many key findings. Which of the following is NOT among them?

Accepted Answer

A)  Frauds were most commonly perpetrated by improper revenue recognition, overstatement of assets, and understatement of expenses. 
B)  Most of these firms had audit committees that met at least four times a year. 
C)  Severe consequences were associated with companies who committed financial statement fraud. 
D)  Most companies were experiencing net losses or were just holding break-even positions in periods prior to the fraud. 
A)  Frauds were most commonly perpetrated by improper revenue recognition, overstatement of assets, and understatement of expenses. 
B)  Most of these firms had audit committees that met at least four times a year. 
C)  Severe consequences were associated with companies who committed financial statement fraud. 
D)  Most companies were experiencing net losses or were just holding break-even positions in periods prior to the fraud.

Question 4

Many financial statement frauds have been perpetrated because management:

Accepted Answer

A)  needed to report high income to support stock prices. 
B)  wanted to decrease the total tax payable by the company. 
C)  wanted to show artificial losses to employees. 
D)  wanted to pay lower dividends to the shareholders. 
A)  needed to report high income to support stock prices. 
B)  wanted to decrease the total tax payable by the company. 
C)  wanted to show artificial losses to employees. 
D)  wanted to pay lower dividends to the shareholders.

Question 5

Examining a company's relationships with other individuals and entities can reveal important information about financial statement fraud. Identify the piece of information that is correctly linked to its source.

Accepted Answer

A)  Examining relationships with financial institutions will show whether there has been significant "short selling" of the company's stock. 
B)  Examining relationships with related parties will show whether there are unusual transactions that significantly improve the company's reported financial performance. 
C)  Examining a company's relationships with its lawyers will show whether management is able to unduly influence the selection of accounting principles and the determination of significant estimates. 
D)  Examining relationships with regulatory bodies will show whether the company has recently changed legal counsel. 
A)  Examining relationships with financial institutions will show whether there has been significant "short selling" of the company's stock. 
B)  Examining relationships with related parties will show whether there are unusual transactions that significantly improve the company's reported financial performance. 
C)  Examining a company's relationships with its lawyers will show whether management is able to unduly influence the selection of accounting principles and the determination of significant estimates. 
D)  Examining relationships with regulatory bodies will show whether the company has recently changed legal counsel.

Question 6

In addition to changes in financial statements, which of the following can indicate financial statement fraud has occurred?

Accepted Answer

A)  Information in the footnotes to the financial statements 
B)  Stable dividend payout ratio 
C)  Increased hiring of qualified employees by the company 
D)  Addition of an independent member on the board 
A)  Information in the footnotes to the financial statements 
B)  Stable dividend payout ratio 
C)  Increased hiring of qualified employees by the company 
D)  Addition of an independent member on the board

Question 7

Identify an example of a perceived pressure that can motivate financial statement fraud.

Accepted Answer

A)  The ability to obfuscate the fraud behind complex transactions 
B)  Failure to meet Wall Street's earnings expectations 
C)  Rationalizing that all companies use aggressive accounting practices 
D)  A weak board of directors 
A)  The ability to obfuscate the fraud behind complex transactions 
B)  Failure to meet Wall Street's earnings expectations 
C)  Rationalizing that all companies use aggressive accounting practices 
D)  A weak board of directors

Question 8

A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders. Which element of the fraud triangle is discussed here?

Accepted Answer

A)  Perceived opportunity 
B)  Trauma 
C)  Rationalization 
D)  Perceived pressure 
A)  Perceived opportunity 
B)  Trauma 
C)  Rationalization 
D)  Perceived pressure

Question 9

While generally accepted accounting principles do allow flexibility, standards of , , and must always prevail in the financial statements.

Accepted Answer

A)  subjectivity; integrity; validation 
B)  objectivity; integrity; judgment 
C)  recording; reporting; accounting 
D)  quality; excellence; judgment 
A)  subjectivity; integrity; validation 
B)  objectivity; integrity; judgment 
C)  recording; reporting; accounting 
D)  quality; excellence; judgment

Question 10

Which of the following is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction?

Accepted Answer

A)  360-degree survey 
B)  Critical incidents method 
C)  Balanced scorecard 
D)  Pareto chart 
A)  360-degree survey 
B)  Critical incidents method 
C)  Balanced scorecard 
D)  Pareto chart

Question 11

Which of the following is NOT one of the components of the fraud exposure rectangle?

Accepted Answer

A)  Accounting system controls 
B)  Management and directors 
C)  Financial results and operating characteristics 
D)  Organization and its industry 
A)  Accounting system controls 
B)  Management and directors 
C)  Financial results and operating characteristics 
D)  Organization and its industry

Question 12

Understanding a company's relationships with financial institutions and bondholders is important because:

Accepted Answer

A)  it can indicate the extent to which the company is leveraged. 
B)  it can reveal whether significant short selling of the company's stock has occurred. 
C)  it can uncover the fraudulent transactions from special purpose entities. 
D)  it may help in raising additional funds from the financial institutions. 
A)  it can indicate the extent to which the company is leveraged. 
B)  it can reveal whether significant short selling of the company's stock has occurred. 
C)  it can uncover the fraudulent transactions from special purpose entities. 
D)  it may help in raising additional funds from the financial institutions.

Question 13

Which types of questions should be asked about a company's relationship with financial institutions?

Accepted Answer

A)  Is a significant part of the company's income or revenues derived from one or two large transactions? 
B)  Has management placed unreasonable demands on the auditor, including unreasonable time constraints? 
C)  Has significant "short selling" of the company's stock occurred? If so, for what reasons? 
D)  Is the organization highly leveraged through bank or other loans? 
A)  Is a significant part of the company's income or revenues derived from one or two large transactions? 
B)  Has management placed unreasonable demands on the auditor, including unreasonable time constraints? 
C)  Has significant "short selling" of the company's stock occurred? If so, for what reasons? 
D)  Is the organization highly leveraged through bank or other loans?

Question 14

Which of the following organizational characteristics is an indicator of a possible fraud?

Accepted Answer

A)  A board of directors comprised mainly of outsiders 
B)  An independent internal audit department 
C)  An audit committee comprised mainly of insiders 
D)  An overstaffed accounting department 
A)  A board of directors comprised mainly of outsiders 
B)  An independent internal audit department 
C)  An audit committee comprised mainly of insiders 
D)  An overstaffed accounting department

Question 15

Which of the following related party transactions need to be most carefully examined for fraud?

Accepted Answer

A)  Transactions that generate operating income 
B)  All transactions that appear anywhere within the company 
C)  Absence of loans or other financing transactions between related entities 
D)  Transactions that result in goodwill being recognized in the financial statements 
A)  Transactions that generate operating income 
B)  All transactions that appear anywhere within the company 
C)  Absence of loans or other financing transactions between related entities 
D)  Transactions that result in goodwill being recognized in the financial statements

Question 16

Which of the following is the term for a practice where the effective dates on stock options are deliberately changed for the purpose of securing extra pay for management?

Accepted Answer

A)  Backtracking 
B)  LEAP 
C)  Arbitrage 
D)  Backdating 
A)  Backtracking 
B)  LEAP 
C)  Arbitrage 
D)  Backdating

Question 17

There has been an auditor change at Company X. Which of the following situations may NOT signal a potential fraud problem?

Accepted Answer

A)  Failure to pay an audit fee 
B)  Auditee believing that the auditor's fees are too high 
C)  Suspected fraud or other problems by the auditor 
D)  Auditor-auditee disagreement 
A)  Failure to pay an audit fee 
B)  Auditee believing that the auditor's fees are too high 
C)  Suspected fraud or other problems by the auditor 
D)  Auditor-auditee disagreement

Question 18

According to a study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), the average fraud lasts for how many months?

Accepted Answer

A)  12 months 
B)  18 months 
C)  24 months 
D)  30 months 
A)  12 months 
B)  18 months 
C)  24 months 
D)  30 months

Question 19

Which of the following is a finding of the Treadway Commission?

Accepted Answer

A)  Financial statement frauds occur very often, the average fraud lasts about two years. 
B)  The CEO perpetrates the fraud in 72% of the cases. 
C)  While financial statement frauds occur infrequently, they are extremely costly. 
D)  Financial statement fraud occurs mostly in companies that are listed. 
A)  Financial statement frauds occur very often, the average fraud lasts about two years. 
B)  The CEO perpetrates the fraud in 72% of the cases. 
C)  While financial statement frauds occur infrequently, they are extremely costly. 
D)  Financial statement fraud occurs mostly in companies that are listed.

Question 20

Which of the following is NOT a kind of question that should be asked in order to understand the exposure to management fraud?

Accepted Answer

A)  Is a legitimate business purpose apparent for each separate entity of the business? 
B)  Have significant recent changes occurred in the nature of the organization? 
C)  Are the accounting and information technology staff and organization effective? 
D)  How many employees are there in the organization who have many years with the organization? 
A)  Is a legitimate business purpose apparent for each separate entity of the business? 
B)  Have significant recent changes occurred in the nature of the organization? 
C)  Are the accounting and information technology staff and organization effective? 
D)  How many employees are there in the organization who have many years with the organization?

Which legislation led to the establishment of the Public Company Accounting Oversight Board?

According to study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), who is the most common perpetrator of financial statement fraud?

The study done by the Committee of Sponsoring Organizations (COSO) on financial statement frauds that occurred during the period from 1987-1997 had many key findings. Which of the following is NOT among them?

Many financial statement frauds have been perpetrated because management:

Examining a company's relationships with other individuals and entities can reveal important information about financial statement fraud. Identify the piece of information that is correctly linked to its source.

In addition to changes in financial statements, which of the following can indicate financial statement fraud has occurred?

Identify an example of a perceived pressure that can motivate financial statement fraud.

A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders. Which element of the fraud triangle is discussed here?

While generally accepted accounting principles do allow flexibility, standards of , , and must always prevail in the financial statements.

Which of the following is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction?

Which of the following is NOT one of the components of the fraud exposure rectangle?

Understanding a company's relationships with financial institutions and bondholders is important because:

Which types of questions should be asked about a company's relationship with financial institutions?

Which of the following organizational characteristics is an indicator of a possible fraud?

Which of the following related party transactions need to be most carefully examined for fraud?

Which of the following is the term for a practice where the effective dates on stock options are deliberately changed for the purpose of securing extra pay for management?

There has been an auditor change at Company X. Which of the following situations may NOT signal a potential fraud problem?

According to a study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), the average fraud lasts for how many months?

Which of the following is a finding of the Treadway Commission?

Which of the following is NOT a kind of question that should be asked in order to understand the exposure to management fraud?

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

Revenue- and Inventory-Related Financial Statement Frauds

Liability, Asset, and Inadequate Disclosure Frauds

Fraud Against Organizations

Consumer Fraud

Bankruptcy, Divorce, and Tax Fraud

E-Commerce Fraud

Legal Follow-Up

Filters

Exam 11: Financial Statement Fraud

Which legislation led to the establishment of the Public Company Accounting Oversight Board?

According to study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), who is the most common perpetrator of financial statement fraud?

The study done by the Committee of Sponsoring Organizations (COSO) on financial statement frauds that occurred during the period from 1987-1997 had many key findings. Which of the following is NOT among them?

Many financial statement frauds have been perpetrated because management:

Examining a company's relationships with other individuals and entities can reveal important information about financial statement fraud. Identify the piece of information that is correctly linked to its source.

In addition to changes in financial statements, which of the following can indicate financial statement fraud has occurred?

Identify an example of a perceived pressure that can motivate financial statement fraud.

A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders. Which element of the fraud triangle is discussed here?

While generally accepted accounting principles do allow flexibility, standards of , , and must always prevail in the financial statements.

Which of the following is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction?

Which of the following is NOT one of the components of the fraud exposure rectangle?

Understanding a company's relationships with financial institutions and bondholders is important because:

Which types of questions should be asked about a company's relationship with financial institutions?

Which of the following organizational characteristics is an indicator of a possible fraud?

Which of the following related party transactions need to be most carefully examined for fraud?

Which of the following is the term for a practice where the effective dates on stock options are deliberately changed for the purpose of securing extra pay for management?

There has been an auditor change at Company X. Which of the following situations may NOT signal a potential fraud problem?

According to a study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), the average fraud lasts for how many months?

Which of the following is a finding of the Treadway Commission?

Which of the following is NOT a kind of question that should be asked in order to understand the exposure to management fraud?

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

Revenue- and Inventory-Related Financial Statement Frauds

Liability, Asset, and Inadequate Disclosure Frauds

Fraud Against Organizations

Consumer Fraud

Bankruptcy, Divorce, and Tax Fraud

E-Commerce Fraud

Legal Follow-Up

Filters