Fraud Examination sample questions

Question: Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers?

Answer Choices:
A. Understate allowance for doubtful accounts (thus overstating receivables)
\nB. Record bank transfers when cash is received from customers
\nC. Write off uncollectible receivables in a later period
\nD. Avoid recording returned goods from customers

Answer: D

Question: Why would a company want to understate net income?

Answer Choices:
A. To increase profits
\nB. To increase stock price
\nC. To gain consumer confidence
\nD. To pay less taxes

Answer: D

Question: Analytical symptoms of accounts payable fraud usually relate to reported accounts payable balances that appear

Answer Choices:
A. Too low
\nB. Too high
\nC. Too perfect
\nD. Unchanged

Answer: A

Question: FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is

Answer Choices:
A. Remote
\nB. Reasonably possible
\nC. Provable
\nD. Not determined

Answer: Probable (Note: The correct answer wasn’t among the options provided)

Question: Comparing recorded amounts in the financial statements with real-world assets they are supposed to represent would be most effective in detecting

Answer Choices:
A. Cash and inventory fraud
\nB. Accounts payable fraud
\nC. Revenue-related frauds
\nD. Accounts receivable fraud

Answer: A
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\nQuestions 41-50:

Question: Which of the following personnel and operating policies contributes to high-fraud environments?

Answer Choices:
A. Management by crisis
\nB. Rigid rules
\nC. High employee lifestyle expectations
\nD. Poor promotion opportunities
\nE. All of the above

Answer: E
\n
\nQuestions 51-60:

Question: What is an important question to ask when looking for inventory fraud?

Answer Choices:
A. What is the nature of inventory?
\nB. What is the age of inventory?
\nC. What is the salability of inventory?
\nD. All of these are important questions to ask

Answer: D

Question: Which of the following is usually the most effective tool in preventing and detecting fraud?

Answer Choices:
A. Discouraging collusion between employees and customers or vendors
\nB. Launching effective investigations of fraud symptoms
\nC. Having a good system of internal controls
\nD. Creating an expectation of punishment in the company

Answer: C

Question: The “tone at the top” is an important element in fighting fraud. This “tone at the top” involves

Answer Choices:
A. Doing a good job of integrity risk assessment
\nB. Having a positive organization where effective fraud teaching and training is conducted
\nC. Setting a proper example or modeling appropriate management behavior
\nD. Both B and C

Answer: D

Question: Which of the following is usually the hardest fraud to detect?

Answer Choices:
A. Liability fraud
\nB. Revenue fraud
\nC. Asset fraud
\nD. Disclosure fraud

Answer: D

Question: In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following EXCEPT

Answer Choices:
A. The types of accounts that should be included in the financial statements
\nB. The types of fraud the company is susceptible to
\nC. The nature of the company’s business and industry
\nD. The auditor should consider all of the above

Answer: D

Question: All of the following ratios are useful in detecting large revenue fraud EXCEPT

Answer Choices:
A. Gross profit margin
\nB. Current ratio
\nC. Working capital turnover
\nD. Accounts receivable turnover

Answer: B

Question: When focusing on changes, you should consider changes from period to period in

Answer Choices:
A. Recorded balances
\nB. Relationships between balances
\nC. Balances of other non-similar companies
\nD. Both A and B
\nE. All of the above

Answer: D

Question: Which of the following contributes to creating a corporate culture of honesty and openness?

Answer Choices:
A. Hiring honest people
\nB. Performing criminal background checks
\nC. Not having an open-door policy
\nD. Having a well-understood and respected code of ethics
\nE. Both A and D
\nF. All of the above

Answer: E

Question: Which financial ratio is NOT useful in detecting revenue-related fraud?

Answer Choices:
A. Gross profit margin ratio
\nB. Accounts receivable turnover ratio
\nC. Asset turnover ratio
\nD. All of the above are useful revenue-related fraud detection ratios

Answer: D

Question: When examining whether a company has under-recorded accounts payable, each of the following ratios is helpful except

Answer Choices:
A. Acid-test ratio
\nB. Accounts payable/purchases
\nC. Accounts payable/cost of goods sold
\nD. Unearned revenue/accounts payable

Answer: D

Question: Which of the following is an example of liability fraud?

Answer Choices:
A. Underrecording accounts payable
\nB. Improperly capitalizing costs
\nC. Overstating accounts receivable
\nD. Recording fictitious sales

Answer: A