Question 1

Which of the following is not a common red flag for financial statement fraud?

Accepted Answer

A)  Missing documents 
B)  Previous net losses 
C)  Out-of-balance general ledger 
D)  Unexpected analytical relationships 
A)  Missing documents 
B)  Previous net losses 
C)  Out-of-balance general ledger 
D)  Unexpected analytical relationships B

Question 2

Financial Statement fraud is usually committed by

Accepted Answer

A)  Entry level accountants 
B)  Sophisticated lawyers 
C)  Middle management employees 
D)  Upper management 
A)  Entry level accountants 
B)  Sophisticated lawyers 
C)  Middle management employees 
D)  Upper management D

Question 3

Which of the following is a true statement regarding financial statement fraud?

Accepted Answer

A)  Financial statement frauds usually involve the theft of assets. 
B)  Financial statement frauds are usually detected by independent auditors. 
C)  Financial statement frauds are usually not costly to organizations. 
D)  Financial statement frauds are usually committed by the top management of the company. 
A)  Financial statement frauds usually involve the theft of assets. 
B)  Financial statement frauds are usually detected by independent auditors. 
C)  Financial statement frauds are usually not costly to organizations. 
D)  Financial statement frauds are usually committed by the top management of the company. D

Question 4

Which of the following items is NOT true, according to the study done by the Committee of Sponsoring Organizations (COSO)?

Accepted Answer

A)  Frauds were most commonly perpetrated by improper revenue recognition, overstating assets, and understating expenses. 
B)  The average financial statement fraud period extended over 5 years and the frequency of fraudulent acts was sporadic during the period. 
C)  Severe consequences were associated with companies who committed financial statement fraud (e.g., Chapter 11 bankruptcy, stock was delisted, lawsuits by stockholders or bondholders). 
D)  Most companies were experiencing net losses or were just holding break-even positions in periods prior to the fraud. Meaning, many frauds were used to reverse downward spirals or to maintain upward trends. 
A)  Frauds were most commonly perpetrated by improper revenue recognition, overstating assets, and understating expenses. 
B)  The average financial statement fraud period extended over 5 years and the frequency of fraudulent acts was sporadic during the period. 
C)  Severe consequences were associated with companies who committed financial statement fraud (e.g., Chapter 11 bankruptcy, stock was delisted, lawsuits by stockholders or bondholders). 
D)  Most companies were experiencing net losses or were just holding break-even positions in periods prior to the fraud. Meaning, many frauds were used to reverse downward spirals or to maintain upward trends.

Question 5

Gaining an understanding of management is crucial in identifying fraud exposures or opportunities for fraud. Which aspect of management should be investigated?

Accepted Answer

A)  Management compensation plan 
B)  Management backgrounds 
C)  Management's ability to influence organizational decision making 
D)  All of above 
A)  Management compensation plan 
B)  Management backgrounds 
C)  Management's ability to influence organizational decision making 
D)  All of above

Question 6

Revenue frauds are perpetrated by:

Accepted Answer

A)  Improperly timing transactions 
B)  Recording receivables to fictitious customers 
C)  Overestimating the extent to which the earnings process has been completed 
D)  All of the above 
A)  Improperly timing transactions 
B)  Recording receivables to fictitious customers 
C)  Overestimating the extent to which the earnings process has been completed 
D)  All of the above

Question 7

Which of the following is most likely a fraudulent cause for financial statement balances to deviate from an expected result?

Accepted Answer

A)  Lost documents 
B)  Unexpected changes in economic conditions 
C)  Manipulation of expenses 
D)  Accounting errors 
A)  Lost documents 
B)  Unexpected changes in economic conditions 
C)  Manipulation of expenses 
D)  Accounting errors

Question 8

Your firm has just acquired a new audit client. The new client is a company that is highly leveraged and has debt with several institutions. The new client is also planning on expanding its business and wants to obtain additional debt financing in the near future. Based on these facts, which one of the following should be most carefully examined?

Accepted Answer

A)  Large transactions that result in revenues and/or income 
B)  Loans and other financing transactions between related entities 
C)  Large amounts of goodwill on the balance sheet 
D)  Recent change in credit policies 
A)  Large transactions that result in revenues and/or income 
B)  Loans and other financing transactions between related entities 
C)  Large amounts of goodwill on the balance sheet 
D)  Recent change in credit policies

Question 9

In which of the following situations is fraud most likely to occur?

Accepted Answer

A)  Large companies with democratic leadership 
B)  Large companies with autocratic leadership 
C)  Small companies with democratic leadership 
D)  Small companies with autocratic leadership 
A)  Large companies with democratic leadership 
B)  Large companies with autocratic leadership 
C)  Small companies with democratic leadership 
D)  Small companies with autocratic leadership

Question 10

The senior on your audit engagement suspects there might be fraud in the company you are auditing. As such she assigns you, a first year staff, to investigate the financial statements and anything else you feel appropriate and then to report your findings. As part of your investigation will consider which of the following:

Accepted Answer

A)  The financial statements alone 
B)  Financial statement numbers compared with real-world numbers 
C)  Company management and their motivations 
D)  B and C 
A)  The financial statements alone 
B)  Financial statement numbers compared with real-world numbers 
C)  Company management and their motivations 
D)  B and C

Question 11

Which of the following is an auditor's most important area to search for detecting financial statement fraud?

Accepted Answer

A)  Management and the Directors. 
B)  The Company's relationships with other entities. 
C)  The financial results and operating characteristics. 
D)  None of the above. 
A)  Management and the Directors. 
B)  The Company's relationships with other entities. 
C)  The financial results and operating characteristics. 
D)  None of the above.

Question 12

Assuming your client has had a long-standing relationship with a law firm that has resulted in much profitable business for the law firm as they have advised the client in all areas of its business. If the law firm should decide it no longer wants to conduct business with your client, this should...

Accepted Answer

A)  not be a cause for concern of potential financial statement fraud. 
B)  be a minor concern that financial statement fraud may be occurring. 
C)  be a large cause for concern that financial statement fraud may be occurring. 
D)  indicate that the client has likely outgrown the law firm. 
A)  not be a cause for concern of potential financial statement fraud. 
B)  be a minor concern that financial statement fraud may be occurring. 
C)  be a large cause for concern that financial statement fraud may be occurring. 
D)  indicate that the client has likely outgrown the law firm.

Question 13

All of the following are true except?

Accepted Answer

A)  The CFO is the most likely executive to orchestrate and commit fraud. 
B)  Management fraud is usually committed on behalf of an organization rather than against it. 
C)  The four areas of financial statement fraud that need to be examined in detecting financial statement fraud are management and directors, relationships with others, the organization and financial results and operating characteristics. 
D)  Financial statements play an important role in keeping U.S. capital markets efficient. 
A)  The CFO is the most likely executive to orchestrate and commit fraud. 
B)  Management fraud is usually committed on behalf of an organization rather than against it. 
C)  The four areas of financial statement fraud that need to be examined in detecting financial statement fraud are management and directors, relationships with others, the organization and financial results and operating characteristics. 
D)  Financial statements play an important role in keeping U.S. capital markets efficient.

Question 14

Although GAAP does allow for some flexibility, which standards should be maintained in preparing financial statements?

Accepted Answer

A)  Assertiveness 
B)  Integrity & Objectivity 
C)  Independence 
D)  None of the above 
A)  Assertiveness 
B)  Integrity & Objectivity 
C)  Independence 
D)  None of the above

Question 15

According to the COSO's study of financial statement frauds, what is the average period of a financial statement fraud?

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 16

Understanding a company's debt or leverage is important for which of the following reasons?

Accepted Answer

A)  It helps in gaining a perspective of management's motivations. 
B)  It helps in understanding the pressures a company faces. 
C)  It helps identify opportunities in which the company might commit fraud. 
D)  B and C 
E)  All of the above 
A)  It helps in gaining a perspective of management's motivations. 
B)  It helps in understanding the pressures a company faces. 
C)  It helps identify opportunities in which the company might commit fraud. 
D)  B and C 
E)  All of the above

Question 17

Financial statement fraud, like other fraud, is rarely visible and may be concealed through which of the following?

Accepted Answer

A)  Unintentional errors 
B)  Collusion 
C)  Falsified documentation 
D)  B and C
E
All of the above 
A)  Unintentional errors 
B)  Collusion 
C)  Falsified documentation 
D)  B and C
E
All of the above

Question 18

Which of the following organizational characteristics is a possible fraud red flag:

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 19

The background of both management and the directors is investigated during the detection of fraud in a company because:

Accepted Answer

A)  Managers often commit financial statement fraud when they fall on hard times in order to cover their bills. 
B)  Financial statement fraud is like gambling, once you start you get addicted easily. 
C)  Individuals high up in the company defraud on behalf of the company as opposed to against the organization 
D)  Management and directors' backgrounds are not usually investigated during the detection of fraud in a company. 
A)  Managers often commit financial statement fraud when they fall on hard times in order to cover their bills. 
B)  Financial statement fraud is like gambling, once you start you get addicted easily. 
C)  Individuals high up in the company defraud on behalf of the company as opposed to against the organization 
D)  Management and directors' backgrounds are not usually investigated during the detection of fraud in a company.

Question 20

Lifestyle changes are usually not factors in detecting

Accepted Answer

A)  investment scams. 
B)  kickback schemes. 
C)  bankruptcy fraud. 
D)  financial statement fraud. 
A)  investment scams. 
B)  kickback schemes. 
C)  bankruptcy fraud. 
D)  financial statement fraud.

Which of the following is not a common red flag for financial statement fraud?

Financial Statement fraud is usually committed by

Which of the following is a true statement regarding financial statement fraud?

Which of the following items is NOT true, according to the study done by the Committee of Sponsoring Organizations (COSO)?

Gaining an understanding of management is crucial in identifying fraud exposures or opportunities for fraud. Which aspect of management should be investigated?

Revenue frauds are perpetrated by:

Which of the following is most likely a fraudulent cause for financial statement balances to deviate from an expected result?

In which of the following situations is fraud most likely to occur?

Which of the following is an auditor's most important area to search for detecting financial statement fraud?

Assuming your client has had a long-standing relationship with a law firm that has resulted in much profitable business for the law firm as they have advised the client in all areas of its business. If the law firm should decide it no longer wants to conduct business with your client, this should...

All of the following are true except?

Although GAAP does allow for some flexibility, which standards should be maintained in preparing financial statements?

According to the COSO's study of financial statement frauds, what is the average period of a financial statement fraud?

Understanding a company's debt or leverage is important for which of the following reasons?

Financial statement fraud, like other fraud, is rarely visible and may be concealed through which of the following?

Which of the following organizational characteristics is a possible fraud red flag:

The background of both management and the directors is investigated during the detection of fraud in a company because:

Lifestyle changes are usually not factors in detecting

The Nature of Fraud

Why People Commit Fraud

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

Fraud in E-Commerce

Legal Follow-Up

Filters

Exam 11: Financial Statement Fraud

Which of the following is not a common red flag for financial statement fraud?

Financial Statement fraud is usually committed by

Which of the following is a true statement regarding financial statement fraud?

Which of the following items is NOT true, according to the study done by the Committee of Sponsoring Organizations (COSO)?

Gaining an understanding of management is crucial in identifying fraud exposures or opportunities for fraud. Which aspect of management should be investigated?

Revenue frauds are perpetrated by:

Which of the following is most likely a fraudulent cause for financial statement balances to deviate from an expected result?

In which of the following situations is fraud most likely to occur?

Which of the following is an auditor's most important area to search for detecting financial statement fraud?

All of the following are true except?

Although GAAP does allow for some flexibility, which standards should be maintained in preparing financial statements?

According to the COSO's study of financial statement frauds, what is the average period of a financial statement fraud?

Understanding a company's debt or leverage is important for which of the following reasons?

Financial statement fraud, like other fraud, is rarely visible and may be concealed through which of the following?

Which of the following organizational characteristics is a possible fraud red flag:

The background of both management and the directors is investigated during the detection of fraud in a company because:

Lifestyle changes are usually not factors in detecting

The Nature of Fraud

Why People Commit Fraud

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

Fraud in E-Commerce

Legal Follow-Up

Filters