Question 1

Which of the following related party transactions need to 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 2

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 one 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 3

Which of the following is least likely to indicate possible financial statement fraud? ​

Accepted Answer

A) ​purchase of a small competitor that resulted in goodwill 
B) ​transactions that generate nonoperating income 
C) ​an unusually large transaction that resulted in income for the organization 
D) ​financing transactions between related parties 
A) ​purchase of a small competitor that resulted in goodwill 
B) ​transactions that generate nonoperating income 
C) ​an unusually large transaction that resulted in income for the organization 
D) ​financing transactions between related parties

Question 4

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 5

An auditor adjusts the audit plan by introducing unexpected audit procedures in response to what the auditor believes management may be doing to conceal a fraud based on management's strategic reasoning.Which order of reasoning is occurring here?

Accepted Answer

A) Low-order reasoning 
B) Zero-order reasoning 
C) Higher-order reasoning 
D) First-order reasoning 
A) Low-order reasoning 
B) Zero-order reasoning 
C) Higher-order reasoning 
D) First-order reasoning

Question 6

Your audit team working with a newly acquired client,discovers that there has been fraudulent financial reporting for the past 5 years.Who is most likely to have been involved in the fraud?

Accepted Answer

A) Middle management in positions of trust 
B) Disgruntled employees 
C) Top management 
D) The accountants in charge of preparing the financial statements 
A) Middle management in positions of trust 
B) Disgruntled employees 
C) Top management 
D) The accountants in charge of preparing the financial statements

Question 7

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 8

Which of the following statements is true?

Accepted Answer

A) Most financial statement frauds occur in large historically profitable companies. 
B) Most people who commit management fraud are first-time offenders. 
C) An active board of directors or audit committee does little to deter fraud. 
D) Perpetrating fraud is much easier in an organization with democratic leadership, where the decision making is spread among several individuals. 
A) Most financial statement frauds occur in large historically profitable companies. 
B) Most people who commit management fraud are first-time offenders. 
C) An active board of directors or audit committee does little to deter fraud. 
D) Perpetrating fraud is much easier in an organization with democratic leadership, where the decision making is spread among several individuals.

Question 9

Which of the following are considered the backbone of capitalism and allow investors,lenders,and regulators to measure the performance of a business?

Accepted Answer

A) Government policies 
B) Financial statements 
C) Stock prices 
D) Credit reports 
A) Government policies 
B) Financial statements 
C) Stock prices 
D) Credit reports

Question 10

According to the text authors,educators have failed in three areas and contributed to "the perfect fraud storm" that saw a rise in fraud activity in recent years.Which of the following is NOT one of those areas?​ ​

Accepted Answer

A) ​They have not trained students how to handle realistic ethical dilemmas. 
B) ​They have not taught business students the elements of fraud. 
C) ​They have not taught accounting students how to detect fraud during audits. 
D) ​They have taught content as an end unto itself rather than using content as a context for developing analytical skills. 
A) ​They have not trained students how to handle realistic ethical dilemmas. 
B) ​They have not taught business students the elements of fraud. 
C) ​They have not taught accounting students how to detect fraud during audits. 
D) ​They have taught content as an end unto itself rather than using content as a context for developing analytical skills.

Question 11

Which of the following observations concerning backdating of options is true?

Accepted Answer

A) It will not result in restatement of financial statements. 
B) The extraordinary timing and frequency of occurrences defied statistical probability. 
C) There is no concrete evidence that managers gained because of this practice. 
D) It is an accepted means of compensating managers who perform exceedingly well. 
A) It will not result in restatement of financial statements. 
B) The extraordinary timing and frequency of occurrences defied statistical probability. 
C) There is no concrete evidence that managers gained because of this practice. 
D) It is an accepted means of compensating managers who perform exceedingly well.

Question 12

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 13

Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?

Accepted Answer

A) Zero-order reasoning 
B) Deductive reasoning 
C) First-order reasoning 
D) Higher-order reasoning 
A) Zero-order reasoning 
B) Deductive reasoning 
C) First-order reasoning 
D) Higher-order reasoning

Question 14

​Which of the following would be least likely to indicate potential fraud activity?

Accepted Answer

A) ​increased borrowing at one specific bank 
B) ​increased numbers of short sales by investors 
C) ​increased business with related parties 
D) ​increased customer appreciation activities 
A) ​increased borrowing at one specific bank 
B) ​increased numbers of short sales by investors 
C) ​increased business with related parties 
D) ​increased customer appreciation activities

Question 15

10-K forms refer to which of the following?

Accepted Answer

A) the corporate reports filed with the SEC. 
B) the tax returns filed with the IRS. 
C) the press releases to the newswires. 
D) the bankruptcy filing document. 
A) the corporate reports filed with the SEC. 
B) the tax returns filed with the IRS. 
C) the press releases to the newswires. 
D) the bankruptcy filing document.

Question 16

According to the study done by the Securities and Exchange Commission,greatest number of enforcement actions was in the area of ________.

Accepted Answer

A) improper use of off-balance-sheet arrangements 
B) improper expense recognition 
C) improper accounting for business combinations 
D) improper revenue recognition 
A) improper use of off-balance-sheet arrangements 
B) improper expense recognition 
C) improper accounting for business combinations 
D) improper revenue recognition

Question 17

Which of the following is depicted when the auditor simply considers his or her own incentives,such as audit fees,sampling costs,and penalties?

Accepted Answer

A) Higher-order reasoning 
B) Zero-order reasoning 
C) First-order reasoning 
D) Deductive reasoning 
A) Higher-order reasoning 
B) Zero-order reasoning 
C) First-order reasoning 
D) Deductive reasoning

Question 18

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

Question 19

Should nonfinancial indicators be used for assessing fraud risk? Why or why not?

Accepted Answer

A) No.A company's financial statement data need not always be consistent with its nonfinancial measures. 
B) Yes.Management can more easily manipulate financial numbers but finds it harder to keep all the nonfinancial information consistent with the financial information. 
C) No.Nonfinancial measures are indicative of physical assets alone. 
D) Yes.Management attempts to commit fraud first show up in these indicators.Financial statement fraud is an attempt to cover up those attempts. 
A) No.A company's financial statement data need not always be consistent with its nonfinancial measures. 
B) Yes.Management can more easily manipulate financial numbers but finds it harder to keep all the nonfinancial information consistent with the financial information. 
C) No.Nonfinancial measures are indicative of physical assets alone. 
D) Yes.Management attempts to commit fraud first show up in these indicators.Financial statement fraud is an attempt to cover up those attempts.

Question 20

In this phase of the economy,most businesses appear to be highly profitable.

Accepted Answer

A) Trough 
B) Recession 
C) Recovery 
D) Boom 
A) Trough 
B) Recession 
C) Recovery 
D) Boom

Which of the following related party transactions need to most carefully examined for 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 one among them?

Which of the following is least likely to indicate possible financial statement fraud?

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

An auditor adjusts the audit plan by introducing unexpected audit procedures in response to what the auditor believes management may be doing to conceal a fraud based on management's strategic reasoning.Which order of reasoning is occurring here?

Your audit team working with a newly acquired client,discovers that there has been fraudulent financial reporting for the past 5 years.Who is most likely to have been involved in the fraud?

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

Which of the following statements is true?

Which of the following are considered the backbone of capitalism and allow investors,lenders,and regulators to measure the performance of a business?

According to the text authors,educators have failed in three areas and contributed to "the perfect fraud storm" that saw a rise in fraud activity in recent years.Which of the following is NOT one of those areas?

Which of the following observations concerning backdating of options is true?

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

Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?

Which of the following would be least likely to indicate potential fraud activity?

10-K forms refer to which of the following?

According to the study done by the Securities and Exchange Commission,greatest number of enforcement actions was in the area of ________.

Which of the following is depicted when the auditor simply considers his or her own incentives,such as audit fees,sampling costs,and penalties?

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

Should nonfinancial indicators be used for assessing fraud risk? Why or why not?

In this phase of the economy,most businesses appear to be highly profitable.

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 of the following related party transactions need to most carefully examined for 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 one among them?

Which of the following is least likely to indicate possible financial statement fraud? ​

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

An auditor adjusts the audit plan by introducing unexpected audit procedures in response to what the auditor believes management may be doing to conceal a fraud based on management's strategic reasoning.Which order of reasoning is occurring here?

Your audit team working with a newly acquired client,discovers that there has been fraudulent financial reporting for the past 5 years.Who is most likely to have been involved in the fraud?

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

Which of the following statements is true?

Which of the following are considered the backbone of capitalism and allow investors,lenders,and regulators to measure the performance of a business?

According to the text authors,educators have failed in three areas and contributed to "the perfect fraud storm" that saw a rise in fraud activity in recent years.Which of the following is NOT one of those areas?​ ​

Which of the following observations concerning backdating of options is true?

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

Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?

​Which of the following would be least likely to indicate potential fraud activity?

10-K forms refer to which of the following?

According to the study done by the Securities and Exchange Commission,greatest number of enforcement actions was in the area of ________.

Which of the following is depicted when the auditor simply considers his or her own incentives,such as audit fees,sampling costs,and penalties?

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

Should nonfinancial indicators be used for assessing fraud risk? Why or why not?

In this phase of the economy,most businesses appear to be highly profitable.

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

Which of the following is least likely to indicate possible financial statement fraud?

According to the text authors,educators have failed in three areas and contributed to "the perfect fraud storm" that saw a rise in fraud activity in recent years.Which of the following is NOT one of those areas?

Which of the following would be least likely to indicate potential fraud activity?

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