Question 1

Management has an obligation to disclose to the shareholders any fraud that is committed by the company's employees or vendors.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a red flag associated with fictitious revenues?

Accepted Answer

A)  An unusual decrease in gross margin 
B)  An unusual decline in the number of days' purchases in accounts payable 
C) Several unusual and highly complex sales transactions recorded close to the period end 
D)  Recurring losses while reporting increasing cash flows from operations 
A)  An unusual decrease in gross margin 
B)  An unusual decline in the number of days' purchases in accounts payable 
C) Several unusual and highly complex sales transactions recorded close to the period end 
D)  Recurring losses while reporting increasing cash flows from operations

Question 3

In one of the cases in the textbook, Michael Weinstein was the head of Coated Sales, Inc., a company that coated fabrics for use in producing things like parachutes, helmet liners, and camouflage suits. By engaging in financial shenanigans, Coated Sales moved to the top of its industry, but ultimately the good times turned into bad times, and the company declared bankruptcy. Which of the following was a red flag that a fraud was being perpetrated?

Accepted Answer

A)  A single check was used to pay off several different customer accounts. 
B)  The company experienced extremely rapid growth even while its competitors' growth was flat. 
C)  The company kept changing auditors every other year. 
D)  The bank account had been overdrawn on at least four occasions in one year. 
A)  A single check was used to pay off several different customer accounts. 
B)  The company experienced extremely rapid growth even while its competitors' growth was flat. 
C)  The company kept changing auditors every other year. 
D)  The bank account had been overdrawn on at least four occasions in one year.

Question 4

Bill Raymond is the CEO of the Drummond Group, a consulting group in the Carolinas. Sales have increased at least five percent every year for the past seven years. Unfortunately, the company has hit a slump this year, and revenue is far less than anticipated. However, in order to receive his performance bonus, Bill must show a sales increase of at least seven percent. When the financials are released, sales have increased by exactly seven percent. Which of the following ratio analyses would be most helpful in revealing that Bill included bogus sales in the company's financials?

Accepted Answer

A)  Inventory turnover 
B)  Receivable turnover 
C)  Debt-to-equity ratio 
D)  Quick ratio 
A)  Inventory turnover 
B)  Receivable turnover 
C)  Debt-to-equity ratio 
D)  Quick ratio

Question 5

GAAP strictly prohibits companies from engaging in all related-party transactions because, without an arm's-length business negotiation process, the company may suffer economic harm and ultimately injure unsuspecting shareholders.

Accepted Answer

A) True 
 B)False

Question 6

In one of the cases in the textbook, Michael Weinstein was the head of Coated Sales, Inc., a company that coated fabrics for use in producing things like parachutes, helmet liners, and camouflage suits. By engaging in financial shenanigans, Coated Sales moved to the top of its industry, but ultimately the good times turned into bad times, and the company declared bankruptcy. What happened to Weinstein?

Accepted Answer

A)  After the bankruptcy, he raised new capital and started another fabric coating company. 
B)  He was convicted, sentenced to prison, and ordered to make restitution. 
C)  He cooperated with the government and became an informant against his partners who had been siphoning cash off of government contracts. 
D)  He was placed on probation after reimbursing the shareholders with the profits he had made on investments in the stock market. 
A)  After the bankruptcy, he raised new capital and started another fabric coating company. 
B)  He was convicted, sentenced to prison, and ordered to make restitution. 
C)  He cooperated with the government and became an informant against his partners who had been siphoning cash off of government contracts. 
D)  He was placed on probation after reimbursing the shareholders with the profits he had made on investments in the stock market.

Question 7

According to SAS 99, the auditor should ask management about the risks of fraud and how they are addressed. Which of the following is not described as an issue that the auditor should ask management about?

Accepted Answer

A)  Whether management has knowledge of fraud or suspected fraud 
B)  Management's understanding of the risk of fraud 
C)  Whether and how management communicates the company's financial results to its employees 
D)  Programs that the entity has established to prevent, deter, or detect fraud 
A)  Whether management has knowledge of fraud or suspected fraud 
B)  Management's understanding of the risk of fraud 
C)  Whether and how management communicates the company's financial results to its employees 
D)  Programs that the entity has established to prevent, deter, or detect fraud

Question 8

Which of the following is an example of improper asset valuation?

Accepted Answer

A)  Fictitious accounts receivable 
B)  Understating assets 
C)  Misclassifying assets 
D)  All of the above 
A)  Fictitious accounts receivable 
B)  Understating assets 
C)  Misclassifying assets 
D)  All of the above

Question 9

An unusual change in the relationship between fixed assets and depreciation is a red flag associated with which type of financial statement fraud scheme?

Accepted Answer

A)  Timing differences 
B)  Improper asset valuation 
C)  Improper disclosure 
D)  All of the above 
A)  Timing differences 
B)  Improper asset valuation 
C)  Improper disclosure 
D)  All of the above

Question 10

While conducting the annual audit of Bluebird Company's financial statements, Elsie Finnegan, CFE, CPA, came across some fishy findings. The company recorded several large and unusual sales at the end of the fiscal year to customers Elsie had never heard of. Further, all of these sales occurred within the company's specialty division, which had previously been in danger of closing due to recurring losses. Based on these findings, what type of financial statement fraud is likely occurring?

Accepted Answer

A)  Expense omission 
B)  Unrecorded warranties 
C)  Fictitious revenues 
D)  All of the above 
A)  Expense omission 
B)  Unrecorded warranties 
C)  Fictitious revenues 
D)  All of the above

Question 11

In one of the cases in the textbook, Eddie Antar, the CEO of the Crazy Eddie electronic stores in the New Jersey area, took fraud to a higher level. The company started out as a small, family-owned business, but Eddie soon found that he could really clean up by taking his company public and making a fortune off the sale of stock. However, in order to sustain his financial success, he turned to cooking the books. Unfortunately for Eddie, his scheme eventually came to an end. What happened to Eddie Antar?

Accepted Answer

A)  He fled the country and is still at large. 
B)  He repaid the money and was placed on probation. 
C)  He was convicted of racketeering and sentenced to prison. 
D)  He became a witness for the SEC against his cousin, the CFO, in exchange for a reduced sentence. 
A)  He fled the country and is still at large. 
B)  He repaid the money and was placed on probation. 
C)  He was convicted of racketeering and sentenced to prison. 
D)  He became a witness for the SEC against his cousin, the CFO, in exchange for a reduced sentence.

Question 12

Which of the following is not an example of financial statement fraud?

Accepted Answer

A)  Falsification of material financial records, supporting documents, or business transactions 
B)  Unintentional misapplication of accounting principles 
C)  Deliberate omission of material disclosures 
D)  All of the above are examples of financial statement fraud 
A)  Falsification of material financial records, supporting documents, or business transactions 
B)  Unintentional misapplication of accounting principles 
C)  Deliberate omission of material disclosures 
D)  All of the above are examples of financial statement fraud

Question 13

In the vertical analysis of an income statement, _____________ is assigned 100 percent, with all other items expressed as a percentage thereof.

Accepted Answer

A)  Gross sales 
B)  Net sales 
C)  Net income 
D)  Gross margin 
A)  Gross sales 
B)  Net sales 
C)  Net income 
D)  Gross margin

Question 14

Recurring attempts by management to justify marginal or inappropriate accounting treatments on the basis of materiality is a red flag associated with which type of financial statement fraud?

Accepted Answer

A)  Improper disclosures 
B)  Fictitious revenues 
C)  Concealed liabilities 
D)  None of the above 
A)  Improper disclosures 
B)  Fictitious revenues 
C)  Concealed liabilities 
D)  None of the above

Question 15

Promoting strong values, based on integrity, throughout the organization can help reduce financial statement fraud by addressing which side of the fraud triangle?

Accepted Answer

A)  Non-sharable financial needs 
B)  Opportunity to commit fraud 
C)  Pressure to commit fraud 
D)  Rationalization of fraud 
A)  Non-sharable financial needs 
B)  Opportunity to commit fraud 
C)  Pressure to commit fraud 
D)  Rationalization of fraud

Question 16

In one of the cases in the textbook, Michael Weinstein was the head of Coated Sales, Inc., a company that coated fabrics for use in producing things like parachutes, helmet liners, and camouflage suits. By engaging in financial shenanigans, Coated Sales moved to the top of its industry, but ultimately the good times turned into bad times, and the company declared bankruptcy. What type of financial statement fraud was committed?

Accepted Answer

A)  Fictitious assets 
B)  Fictitious sales 
C)  Improper disclosures 
D)  Concealed expenses 
A)  Fictitious assets 
B)  Fictitious sales 
C)  Improper disclosures 
D)  Concealed expenses

Question 17

In one of the cases in the textbook, Eddie Antar, the CEO of the Crazy Eddie electronic stores in the New Jersey area, took fraud to a higher level. The company started out as a small, family-owned business, but Eddie soon found that he could really clean up by taking his company public and making a fortune off the sale of stock. However, in order to sustain his financial success, he turned to cooking the books. Unfortunately for Eddie, his scheme eventually came to an end. How was the fraud caught?

Accepted Answer

A)  His ex-wife contacted the SEC. 
B)  Eddie lost a proxy battle for ownership, and the company's new owners quickly discovered the fraud as they reviewed the books. 
C)  The audit committee received an anonymous tip which led them to the fraud. 
D)  The auditors found that the inventory count had been changed. 
A)  His ex-wife contacted the SEC. 
B)  Eddie lost a proxy battle for ownership, and the company's new owners quickly discovered the fraud as they reviewed the books. 
C)  The audit committee received an anonymous tip which led them to the fraud. 
D)  The auditors found that the inventory count had been changed.

Question 18

SAS 99 requires auditors to document:

Accepted Answer

A)  Any specific risks of material misstatement due to fraud that were identified 
B)  The discussion among engagement personnel regarding the susceptibility of the entity's financial statements to material misstatement due to fraud 
C)  The reasons supporting the auditor's conclusion if the auditor has not identified improper revenue recognition as a risk 
D)  All of the above 
A)  Any specific risks of material misstatement due to fraud that were identified 
B)  The discussion among engagement personnel regarding the susceptibility of the entity's financial statements to material misstatement due to fraud 
C)  The reasons supporting the auditor's conclusion if the auditor has not identified improper revenue recognition as a risk 
D)  All of the above

Management has an obligation to disclose to the shareholders any fraud that is committed by the company's employees or vendors.

Which of the following is a red flag associated with fictitious revenues?

GAAP strictly prohibits companies from engaging in all related-party transactions because, without an arm's-length business negotiation process, the company may suffer economic harm and ultimately injure unsuspecting shareholders.

According to SAS 99, the auditor should ask management about the risks of fraud and how they are addressed. Which of the following is not described as an issue that the auditor should ask management about?

Which of the following is an example of improper asset valuation?

An unusual change in the relationship between fixed assets and depreciation is a red flag associated with which type of financial statement fraud scheme?

Which of the following is not an example of financial statement fraud?

In the vertical analysis of an income statement, _____________ is assigned 100 percent, with all other items expressed as a percentage thereof.

Recurring attempts by management to justify marginal or inappropriate accounting treatments on the basis of materiality is a red flag associated with which type of financial statement fraud?

Promoting strong values, based on integrity, throughout the organization can help reduce financial statement fraud by addressing which side of the fraud triangle?

SAS 99 requires auditors to document:

Introduction

Skimming

Cash Larceny Schemes

Billing Schemes

Check Tampering

Payroll Schemes

Expense Reimbursement Schemes

Register Disbursement Schemes

Non-Cash Assets

Corruption

Accounting Principles and Fraud

Fraud Risk Assessment

Conducting Investigations and Report Writing

Interviewing Witnesses

Occupational Fraud and Abuse: the Big Picture

Filters

Exam 12: Fraudulent Financial Statement Schemes

Management has an obligation to disclose to the shareholders any fraud that is committed by the company's employees or vendors.

Which of the following is a red flag associated with fictitious revenues?

GAAP strictly prohibits companies from engaging in all related-party transactions because, without an arm's-length business negotiation process, the company may suffer economic harm and ultimately injure unsuspecting shareholders.

According to SAS 99, the auditor should ask management about the risks of fraud and how they are addressed. Which of the following is not described as an issue that the auditor should ask management about?

Which of the following is an example of improper asset valuation?

An unusual change in the relationship between fixed assets and depreciation is a red flag associated with which type of financial statement fraud scheme?

Which of the following is not an example of financial statement fraud?

In the vertical analysis of an income statement, _____________ is assigned 100 percent, with all other items expressed as a percentage thereof.

Recurring attempts by management to justify marginal or inappropriate accounting treatments on the basis of materiality is a red flag associated with which type of financial statement fraud?

Promoting strong values, based on integrity, throughout the organization can help reduce financial statement fraud by addressing which side of the fraud triangle?

SAS 99 requires auditors to document:

Introduction

Skimming

Cash Larceny Schemes

Billing Schemes

Check Tampering

Payroll Schemes

Expense Reimbursement Schemes

Register Disbursement Schemes

Non-Cash Assets

Corruption

Accounting Principles and Fraud

Fraud Risk Assessment

Conducting Investigations and Report Writing

Interviewing Witnesses

Occupational Fraud and Abuse: the Big Picture

Filters