Deck 1: Core Foundation Related to Fraud Examination and Financial Forensics

Question 1

Under generally accepted auditing standards GAAS auditors are not currently responsible for planning and performing auditing procedures to detect immaterial misstatements, regardless of whether they are caused by error or fraud.

Answer 1

True

Question 2

The Sarbanes-Oxley Act SOX of 2002 is aimed at accounting staffs, auditing firms, corporate governance, executive management CEOs and CFOs, officers, and directors.

Answer 2

False

Question 3

Forensic and Litigation Advisory Services FLAS professionals may either work to bolster if hired by the defendant or to undercut if hired by the plaintiff a case.

Answer 3

False

Question 4

Money and ego are the two most commonly observed motivations for fraud and abuse.

Question 5

Rationalization must occur before the act of abuse or fraud.

Question 6

All instances of misconduct in the workplace amount to fraud.

Question 7

The issues addressed by a forensic accountant during litigation must be central to the allegations made by the plaintiff's or defense attorneys.

Question 8

Fraud pressures can arise from financial problems, such as living within one's means, greed, high debt, medical bills, investment losses, or educational expenses.

Question 9

The fraud examiner or forensic accountant can easily identify the assumptions that he/she has made while "thinking out of the box."

Question 10

When discussing the costs of fraud and other litigations, by the time a formal investigation is launched and the allegations are addressed within the legal arena, the parties have already incurred substantial cost.

Question 11

The dichotomy of fraud is it cannot occur without trust, but commerce can occur without trust.

Question 12

The three legs of the fraud triangle are opportunity, perceived benefit, and rationalization.

Question 13

An immaterial false statement is a legal element of fraud.

Question 14

Since forensic accounting works with fact as documented by legal records the reports seldom add an adversarial nature to the engagements, and professionals can expect that their work will be accepted by the opposing side.

Question 15

Line employees are the principle perpetrators in approximately 39 percent of schemes, yielding company losses of approximately $150,000.

Question 16

The difference between abuse and fraud may be the difference in consequences - being reprimanded or being fired by the company and prosecuted by the justice system.

Question 17

When fraudsters collude, the losses to the victim organization increase more than fourfold.

Question 18

Financial forensics is the application of financial principles and theories to facts or hypotheses at issue in a legal dispute and consists of two primary functions.

Question 19

Fraud or a fraudulent act is one that causes its victim to suffer an economic loss only.

Question 20

One of the best ways to ruin an investigation, fail to gain a conviction, or lose a civil case is to base investigative conclusions on logic and conjecture.

Question 21

The interrelationship among auditing, fraud examination, and financial forensics is:

A) established and maintained by legal structures and justice processes.
B) constant even while social and cultural pressures are exerted on it.
C) based on the SOX Act and SAS 99.
D) dynamic and changes over time.

Question 22

Financial statement fraud is often attributed to pressures, such as all of the following except:

A) investment losses.
B) meeting analysts' expectations.
C) deadlines, and cutoffs.
D) qualifying for bonuses.

Question 23

An employee enters the work place on a day off and utilizes the leased plotter/printer for four hours to produce graphics for his child's school play. The lease payment is $80 per hour and his wages are $20 per hour. Select the correct statement from the choices below.

A) This is an abuse at the assumed value of $400.
B) This is an instance of fraud at the assumed value of $400.
C) This is an abuse at the assumed value of $320.
D) This is an instance of fraud at the assumed value of $320.

Question 24

Small businesses, such as those with less than one hundred employees, account for approximately what percentage of the cases in the 2006 and 2008 ACFE surveys?

A) 10%-14%
B) 35%-27%
C) 36%-38%
D) 50%-52%

Question 25

As compensation of the perpetrator increases the losses associated with the perpetrator rise most likely because:

A) the perpetrator has a greater appreciation of costly pleasures.
B) the perpetrator has greater access to company funds and assets.
C) the perpetrator has a higher cost of status and image.
D) the perpetrator can coerce others into the scheme.

Question 26

While a fraud examiner's objective is to determine whether fraud has occurred and who is likely responsible, the financial forensics investigator's objective is to:

A) calculate financial impact based on formulaic assumptions.
B) determine whether the allegations are reasonable based on the financial evidence and, if so, the financial impact of the allegations.
C) Gather the required financial and nonfinancial evidence to examine the allegations independently and determine their financial impact.
D) attempt to gather sufficient evidence to support or refute the allegation and related damages.

Question 27

The two primary functions of financial forensics are:

A) litigation advisory services and investigative services.
B) litigation advisory services and expert witness services.
C) post event auditing services and investigative services.
D) post event auditing services and expert witness services.

Question 28

Which of the following acts would not be considered an abuse or abusive?

A) Surf the Internet while at work.
B) Remove small amounts of cash from the cash register till.
C) Taking a long lunch or break.
D) Using sick leave to see a child's play at school.

Question 29

Auditing is responsible for:

A) litigation support and redemption.
B) risk assessment and internal controls.
C) risk assessment and calculation of damages.
D) business valuation and risk assessment.

Question 30

According to the ACFE, owners and executives are involved in only about:

A) 23 percent of frauds and steal approximately $834,000.
B) 40 percent of frauds and steal approximately $834,000.
C) 64 percent of frauds and steal approximately $834,000.
D) 93 percent of frauds and steal approximately $834,000.

Question 31

Practically speaking, the law generally recognizes a fiduciary duty:

A) for cashiers and accountants.
B) for ordinary employees handling cash and valuables.
C) for officers and directors of a company.
D) All of the above are recognized as having a fiduciary duty.

Question 32

Select the most correct statement from those below.

A) Timing - Recurring for auditing and fraud examination, nonrecurring for financial forensics.
B) Objectives - Opinion for auditing and financial forensics, affix blame for fraud examination.
C) Relationship - Nonadversarial for auditing, adversarial for fraud examination, and independent for financial forensics.
D) Methodology - Audit techniques for auditing and financial forensics, fraud examination techniques for fraud examination.

Question 33

When the losses caused by fraud are correlated to the levels of compensation of the perpetrator, the line is somewhat linear, with slow rise from low compensation to approximately:

A) $100,000 annually where the rate of loss skyrockets.
B) $300,000 annually where the rate of loss skyrockets.
C) $500,000 annually where the rate of loss skyrockets.
D) $750,000 annually where the rate of loss skyrockets.

Question 34

A person is said to act in a 'fiduciary capacity' when:

A) the business which he transacts, or the money or property which he handles, is not for his own benefit.
B) a relationship exists between the defendant and the plaintiff.
C) the action resulted in harm to the defendant.
D) he stands in a relation implying normal confidence, trust, and faith.

Question 35

The tort, known as conversion is correctly stated as:

A) the taking of property of another with the intent to deprive the owner of its use or possession.
B) an assumption and exercise of the right of ownership over goods or personal chattels belonging to another.
C) the carrying away of the property of another without the consent of the owner.
D) an unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of the owner's rights.

Question 36

The three legs of the fraud triangle are:

A) Opportunity, Perceived Pressure, and Rationalization.
B) Opportunity, Value, and Rationalization.
C) Opportunity, Perceived Pressure, and Benefit.
D) Timing, Value, and Benefit.

Question 37

From the list below, create the typical fraud perpetrator profile.

A) Male, high school education, young, general labor, and with the company for years.
B) Female, high school education, young, general labor, and relatively new to the company.
C) Male, post secondary education, middle aged, professional, and with the company for years.
D) Female, post secondary education, middle aged, professional, and relatively new to the company.

Question 38

The acronym "M.I.C.E." as typical motivations of fraud perpetrators stands for:

A) Money, Ideology, Coercion, and Environment.
B) Money, Ideology, Coercion, and Ego.
C) Motive, Ideology, Coercion, and Ego.
D) Money, Image, Capability, and Environment.

Question 39

Which statement below correctly states the four elements required to prove larceny?

A) There must be a taking or carrying away of the money of another without the consent of the owner and with the intent to deprive the owner of its use.
B) There was a taking or carrying away, of the money or property of another without the consent of the owner, and with the intent to deprive the owner of its use or possession.
C) There was a carrying away, of the property of another without the consent, and with the intent to deprive the owner of its possession.
D) There was a taking or carrying away, of the property of another with the intent to deprive the owner of its use or possession.

Question 40

M/C Fraud deterrence begins:

A) with the employer's internal controls.
B) in the employee's mind.
C) with the fraud examination.
D) with regulatory and legal actions such as PCAOB Auditing Standard No. 5, AICPA Statement on Auditing Standards SAS No. 99, and the Sarbanes-Oxley Act.

Question 41

Define "fraud" and define "abuse." In the process, identify differences between the two.

Question 42

Which of the following is not a symptom of one of the six common categories of fraud?

A) Unexplained accounting anomalies.
B) Exploited internal control weaknesses.
C) Where nonfinancial data correlates with financial data.
D) Anomalies communicated via tips and complaints.

Question 43

Some of the typical forensic and litigation advisory services are:

A) costs and lost profits resulting from business interruptions.
B) assets and business valuations.
C) anti-trust actions.
D) All of the above.

Question 44

At a minimum, professional skepticism:

A) is supportive of client's claim of fraud.
B) is a neutral but disciplined approach to detection and investigation.
C) assumes that the management is dishonest and therefore must "pull every loose thread" to find the evidence and fraud.
D) assumes unquestioned loyalty by newer and younger employees.

Question 45

From the statements below select the most correct.

A) Prevention and deterrence are typically more costly than attempting to remediate a fraud that has already occurred.
B) Fraud deterrence refers to creating environments in which people are prohibited from committing fraud.
C) Fraud detection refers to the process of preventing and discovering the presence of fraud.
D) Prevention and deterrence are typically more cost beneficial than attempting to remediate a fraud that has already occurred.

Question 46

Explain the "fraud triangle" and "M.I.C.E." and compare the two in your explanation.

Question 47

Which of the follow is not a reason why small businesses have high losses to fraud?

A) Smaller businesses have fewer personnel doing more jobs.
B) Small businesses frequently have external fraud detection units.
C) Small businesses frequently have higher degrees of trust between personnel.
D) All of the above are reasons why small businesses have higher fraud losses.

Question 48

Intent is a significant problem in fraud investigations and prosecutions. Discuss the issue of intent and explain some of the common problems associated with proving intent.

Question 49

Fraud professionals and forensic accountants use the term red flag to indicate:

A) that they are looking for symptoms and badges of fraud.
B) that all personnel will be investigated.
C) that evidence of fraud or abuse have been located and identified.
D) that a person or group of people have been identified as possible fraudsters or abuser.

Question 50

Which of the following is not one of the three-pronged processes of remediation?

A) The prevention and detection of a fraud that has already occurred.
B) The recovery of losses through insurance, the legal system, or other means.
C) Support for the legal process as it tries to resolve the matter in the legal environment.
D) The modification of operational processes, procedures, and internal controls to minimize the chances of a similar fraud recurring.

Question 51

Which of the following is not a fraud risk factor?

A) Is there adequate reward for fraud?
B) Is there ample opportunity for fraud?
C) Is there a company culture for a high tolerance of risk?
D) Is management focused on short-term results or personal gain?

Question 52

Explain what is meant by the term "financial forensics."

Question 53

What is a "fiduciary duty" and give examples.

Question 54

The most common anti-fraud measure used by respondents to the ACFE's National Fraud Survey was:

A) the external audit of financial statements.
B) a formal code of conduct.
C) surprise audits.
D) job rotation/mandatory vacation policies.

Question 55

The fraud theory approach involves the following steps, in the order of their occurrence is:

A) create hypotheses, analyze available data, test the hypotheses, refine and amend the hypothesis, and draw conclusions.
B) analyze available data, create hypotheses, test the hypotheses, refine and amend the hypothesis, and draw conclusions.
C) create hypotheses, test the hypotheses, analyze available data, refine and amend the hypothesis, and draw conclusions.
D) None of the above are in proper order.

Question 56

In fraud cases where no legal action was taken, the most significant reason for the lack of prosecution was cited as:

A) that internal discipline was sufficient.
B) the fear of bad publicity.
C) private settlement was attained.
D) the dollar value of the loss was insufficient.

Question 57

Evidence can best be defined as:

A) only tangible objects legally presented at a trial.
B) anything perceivable by the five senses and legally presented at trial.
C) only records, documents, facts, data, or tangible objects legally presented at trial.
D) only witness testimony accepted by both the plaintiff and defendant.

Question 58

The most frequently reported method of uncovering occupational fraud was:

A) by accident.
B) through internal audits.
C) tips.
D) through internal controls.

Question 59

Which of the following is not part of or one of the three elements of professional skepticism for a fraud investigation?

A) An attitude that includes a questioning mind and a critical assessment of the evidence.
B) A commitment to persuasive evidence.
C) That the plaintiff and/or the defendant may be masking the true underlying story.
D) The investigation must reveal a benefit to the plaintiff.

Question 60

A common complaint among those who investigate fraud is that:

A) the adversarial relationship between plaintiffs and fraud examiners resulted in weak cases.
B) job rotation policies often result in perpetrators being moved to new positions of responsibility before being exposed.
C) companies often conceal the cost of fraud as other business expenses.
D) organizations and law enforcement do not do enough to punish fraud and other white-collar offenses.

Question 61

Explain the theory of the fraud triangle.

Question 62

Define fraud and identify a potentially fraudulent situation.

Question 63

Explain fraud examination.

Question 64

Explain the differences between an audit, fraud examination, and forensic accounting engagement.

Question 65

Anthony and Cleopatra are lying dead on the floor in a villa. Nearby on the floor is a broken bowl. There is no mark on either of their bodies, and they were not poisoned. With this information, determine how they died.

Question 66

Differentiate between fraud and abuse.

Question 67

List the legal elements of fraud.

Question 68

Identify common fraud schemes.

Question 69

Describe the services that a forensic accountant might provide related to a marital dispute.

Question 70

Give examples of nonfraud forensic and litigation advisory engagements.

Question 71

Describe the fraud examiner/forensic accountant's approach to investigations.