Question: What is the most common type of account manipulated when perpetrating financial statement fraud?
Answer Choices:
A. Expenses
\nB. Inventory
\nC. Revenue
\nD. Accounts Payable
Answer: C
Question: When accounts payable-related liabilities are understated, purchases and inventory are often __, or the financial statements don’t balance.
Answer Choices:
A. Overstated
\nB. Understated
\nC. Correctly stated
\nD. It is impossible to tell
Answer: B
Question: Which officer in a company is most likely to be the perpetrator of financial statement fraud?
Answer Choices:
A. Chief financial officer (CFO)
\nB. Controller
\nC. Chief operating officer (COO)
\nD. Chief executive officer (CEO)
Answer: D
Question: Adding fictitious receivables will usually result in a(n)
Answer Choices:
A. Sales return percentage that remains constant
\nB. Increased sales discount percentage
\nC. Increase in accounts receivable turnover
\nD. Increase in the number of days in receivables
Answer: D
Question: Adding fictitious receivables will usually result in a(n)
Answer Choices:
A. Sales return percentage that remains constant
\nB. Increased sales discount percentage
\nC. Increase in accounts receivable turnover
\nD. Increase in the number of days in receivables
Answer: D
Question: Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because
Answer Choices:
A. It is harder to implement good internal controls in a small organization
\nB. Small organizations do not have investors
\nC. Small organizations do not have investors
\nD. Management fraud is more difficult to commit when there is a more formal organizational structure of management
\nE. People in large organizations are more honest
Answer: A
Question: The most common way to overstate revenues is to
Answer Choices:
A. Record revenues prematurely
\nB. Abuse the cutoff line for recording revenues
\nC. Create fictitious revenues
\nD. None of the above
Answer: A
\nQuestions 11-20:
Question: Overstating of sales in the income statement leads to:
Answer Choices:
A. decrease in inventory turnover ratio
\nB. decrease in EPS
\nC. Increase in gross profit ratio
\nD. decrease in accounts receivable ratio
Answer: C
Question: Accounts that can be manipulated in revenue fraud include all the following EXCEPT
Answer Choices:
A. Accounts Receivable
\nB. Bad Debt Expense
\nC. Inventory
\nD. Sales Discounts
Answer: C
Question: Overstating cash is usually difficult because
Answer Choices:
A. Balances can be easily confirmed with banks and other financial institutions
\nB. Cash is hard to steal
\nC. Cash is normally not a fraudulent account
\nD. Cash is usually a small asset
Answer: A
Question: Which of the following is NOT a symptom of liability fraud?
Answer Choices:
A. A sudden decrease in accounts payable/inventory ratio
\nB. Inappropriately capitalizing costs that should be expensed
\nC. An unusual increase in current ratio
\nD. Record payments made in later periods as being paid in earlier periods
Answer: D
Question: Which of the following aspects of fraud usually results in the largest savings?
Answer Choices:
A. Fraud prevention
\nB. Fraud detection
\nC. Fraud investigation
\nD. It is impossible to tell
Answer: A
Question: The most common fraud involving car companies and the warranties they offer would likely be
Answer Choices:
A. Understating accrued liabilities
\nB. Recognizing unearned revenue
\nC. Under-recording or not recording future obligations
\nD. Under-recording or not recording various types of debt
Answer: C
Question: Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because
Answer Choices:
A. It is harder to implement good internal controls in a small organization
\nB. Small organizations do not have investors
\nC. Small organizations do not have investors
\nD. Management fraud is more difficult to commit when there is a more formal organizational structure of management
\nE. People in large organizations are more honest
Answer: A
Question: Which of the following are primary types of transactions that can create liabilities for a company?
Answer Choices:
A. Purchasing inventory
\nB. Borrowing money
\nC. Selling purchased goods
\nD. Leasing assets
\nE. All of the above
Answer: E
Question: Many indicators of fraud are circumstantial; that is, they can be caused by non-fraud factors. This fact can make convicting someone of fraud difficult. Which of the following types of evidence would be most helpful in proving that someone committed fraud?
Answer Choices:
A. Missing documentation
\nB. A general ledger that is out of balance
\nC. Analytic relationships that don’t make sense
\nD. A repeated pattern of similar fraudulent acts
Answer: D
Question: Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved EXCEPT
Answer Choices:
A. Recognizing revenues too early-Accounts Receivable, Revenue
\nB. Understating allowance for doubtful accounts-Bad Debt Expense, Allowance for Doubtful Accounts
\nC. Not writing off uncollectible receivables-Sales Returns, Sales Discounts
\nD. Not recording discounts given to customers- Cash, Sales Discounts, Accounts Receivable
\nE. Recording returned goods after the end of the period-Sales Returns, Accounts Receivable
Answer: C