CHAPTER 1: CORE FOUNDATION RELATED TO FORENSIC
ACCOUNTING AND FRAUD EXAM INATION Questions with Correct
Solutions
Question:
1. Forensic accounting overview
Answer:
- Forensic accounting is simply defined as the intersection of accounting and the law
- Forensic accounting involves both the calculation of dollar amount damages and
non-financial issues, to then place a value on total damages caused.
Question:
2. What is Fraud?
Answer:
Fraud, sometimes referred to as the fraudulent act, is an intentional deception, whether by
omission or co-mission, that causes its victim to suffer an economic loss and/or the
perpetrator to realize a gain. A simple working definition of fraud is "theft by deception."
Question:
3. What are four essential elements of fraud?
Answer:
1. A material false statement
2. Knowledge that the statement was false when it was spoken
3. Reliance on the false statement by the victim
4. Damages resulting from the victim's reliance on the false statement
Question:
4. What are three ways of taking money from a victim illegally?
Answer:
There are three ways to relieve a victim of money illegally: by force, trickery, or larceny.
Those offenses that employ trickery are frauds.
Question:
5. What is the difference of a fraud offense that is criminal or civil?
Answer:
The legal definition of fraud is the same whether the offense is criminal or civil; the difference
is that criminal cases must meet a higher burden of proof.
,Question:
6. What is larceny? And what are the four elements of larceny?
Answer:
The legal term for stealing is larceny, which is defined as "felonious stealing, taking and
carrying, leading, riding, or driving away with another's personal property, with the intent to
convert it or to deprive the owner thereof." To prove that a person has committed larceny, we
would need to prove the following four elements:
1. There was a taking or carrying away
2. of the money or property of another
3. without the consent of the owner and
4. with the intent to deprive the owner of its use or possession.
Question:
7. What is conversion?
Answer:
Conversion, in the legal sense, is "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."5 A person commits a conversion when he or
she takes possession of property that does not belong to him or her and, thereby, deprives the
true owner of the property for any length of time.
Question:
8. What is to embezzle?
Answer:
To embezzle means willfully to take, or convert to one's own use, another's money or property
of which the wrongdoer acquired possession lawfully, by reason of some office or employment
or position of trust." The key words in that definition are "acquired possession lawfully." For
an embezzlement to occur, the person who stole the property must have been entitled to
possession of the property at the time of the theft. Remember, possession is not the same as
ownership.
Question:
9. What is Fiduciary?
Answer:
The term fiduciary, according to Black's Law Dictionary, means "a person holding a character
analogous to a trustee, in respect to the trust and confidence involved in it and the scrupulous
good faith and candor which it requires. A person is said to act in a 'fiduciary capacity' when
the business which he transacts, or the money or property which he handles, is not for his
own benefit, but for another person, as to whom he stands in a relation implying and
necessitating great confidence and trust on the one part and a high degree of good faith on
the other part." In short, a fiduciary is someone who acts for the benefit of another.
, Question:
10. What is Fiduciary duty?
Answer:
Fiduciaries have a duty to act in the best interests of the person whom they represent. When
they violate this duty, they can be liable under the tort of breach of fiduciary duty. The
elements of this cause of action vary among jurisdictions, but in general, they consist of the
following:
1. A fiduciary relationship existed between the plaintiff and the defendant
2. The defendant (fiduciary) breached his or her duty to the plaintiff
3. The breach resulted in either harm to the plaintiff or benefit to the fiduciary A fiduciary
duty is a very high standard of conduct that is not lightly imposed. The duty depends upon the
existence of a fiduciary relationship between the two parties. In an employment scenario, a
fiduciary relationship is usually found to exist only when the employee is "highly trusted" and
enjoys a confidential or special relationship with the employer. Practically speaking, the law
generally recognizes a fiduciary duty only for officers and directors of a company, not for
ordinary employees.
Question:
11. What is quasi-fiduciary duty?
Answer:
In some cases, a quasi-fiduciary duty may exist for employees who are in possession of trade
secrets; they have a duty not to disclose that confidential information.
Question:
12. What are the three major categories of Fraud?
Answer:
- Asset Misappropriation
- corruption
- financial statement fraud and other fraudulent statements
Question:
13. Asset Misappropriation
Answer:
involve the theft or misuse of an organization's assets. (Common examples include skimming
cash and checks, stealing inventory, and payroll fraud.)
Question:
14. Corruption
ACCOUNTING AND FRAUD EXAM INATION Questions with Correct
Solutions
Question:
1. Forensic accounting overview
Answer:
- Forensic accounting is simply defined as the intersection of accounting and the law
- Forensic accounting involves both the calculation of dollar amount damages and
non-financial issues, to then place a value on total damages caused.
Question:
2. What is Fraud?
Answer:
Fraud, sometimes referred to as the fraudulent act, is an intentional deception, whether by
omission or co-mission, that causes its victim to suffer an economic loss and/or the
perpetrator to realize a gain. A simple working definition of fraud is "theft by deception."
Question:
3. What are four essential elements of fraud?
Answer:
1. A material false statement
2. Knowledge that the statement was false when it was spoken
3. Reliance on the false statement by the victim
4. Damages resulting from the victim's reliance on the false statement
Question:
4. What are three ways of taking money from a victim illegally?
Answer:
There are three ways to relieve a victim of money illegally: by force, trickery, or larceny.
Those offenses that employ trickery are frauds.
Question:
5. What is the difference of a fraud offense that is criminal or civil?
Answer:
The legal definition of fraud is the same whether the offense is criminal or civil; the difference
is that criminal cases must meet a higher burden of proof.
,Question:
6. What is larceny? And what are the four elements of larceny?
Answer:
The legal term for stealing is larceny, which is defined as "felonious stealing, taking and
carrying, leading, riding, or driving away with another's personal property, with the intent to
convert it or to deprive the owner thereof." To prove that a person has committed larceny, we
would need to prove the following four elements:
1. There was a taking or carrying away
2. of the money or property of another
3. without the consent of the owner and
4. with the intent to deprive the owner of its use or possession.
Question:
7. What is conversion?
Answer:
Conversion, in the legal sense, is "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."5 A person commits a conversion when he or
she takes possession of property that does not belong to him or her and, thereby, deprives the
true owner of the property for any length of time.
Question:
8. What is to embezzle?
Answer:
To embezzle means willfully to take, or convert to one's own use, another's money or property
of which the wrongdoer acquired possession lawfully, by reason of some office or employment
or position of trust." The key words in that definition are "acquired possession lawfully." For
an embezzlement to occur, the person who stole the property must have been entitled to
possession of the property at the time of the theft. Remember, possession is not the same as
ownership.
Question:
9. What is Fiduciary?
Answer:
The term fiduciary, according to Black's Law Dictionary, means "a person holding a character
analogous to a trustee, in respect to the trust and confidence involved in it and the scrupulous
good faith and candor which it requires. A person is said to act in a 'fiduciary capacity' when
the business which he transacts, or the money or property which he handles, is not for his
own benefit, but for another person, as to whom he stands in a relation implying and
necessitating great confidence and trust on the one part and a high degree of good faith on
the other part." In short, a fiduciary is someone who acts for the benefit of another.
, Question:
10. What is Fiduciary duty?
Answer:
Fiduciaries have a duty to act in the best interests of the person whom they represent. When
they violate this duty, they can be liable under the tort of breach of fiduciary duty. The
elements of this cause of action vary among jurisdictions, but in general, they consist of the
following:
1. A fiduciary relationship existed between the plaintiff and the defendant
2. The defendant (fiduciary) breached his or her duty to the plaintiff
3. The breach resulted in either harm to the plaintiff or benefit to the fiduciary A fiduciary
duty is a very high standard of conduct that is not lightly imposed. The duty depends upon the
existence of a fiduciary relationship between the two parties. In an employment scenario, a
fiduciary relationship is usually found to exist only when the employee is "highly trusted" and
enjoys a confidential or special relationship with the employer. Practically speaking, the law
generally recognizes a fiduciary duty only for officers and directors of a company, not for
ordinary employees.
Question:
11. What is quasi-fiduciary duty?
Answer:
In some cases, a quasi-fiduciary duty may exist for employees who are in possession of trade
secrets; they have a duty not to disclose that confidential information.
Question:
12. What are the three major categories of Fraud?
Answer:
- Asset Misappropriation
- corruption
- financial statement fraud and other fraudulent statements
Question:
13. Asset Misappropriation
Answer:
involve the theft or misuse of an organization's assets. (Common examples include skimming
cash and checks, stealing inventory, and payroll fraud.)
Question:
14. Corruption
