C254 Fraud and Forensic Accounting Questions and Answers(A+ Solution guide)

Which action is potentially unethical because it understates COGS? A. Understating purchases B. Understating purchase returns C. Understating ending inventory D. Understating purchase discounts - Answer A Why is it unethical for a supervisor to ask an accountant to capitalize the marketing research program? A. this action overstates assets B. this action overstates expenses C. this action understates liabilities D. this action understates net income - Answer A How can financial statement fraud impact stakeholders? A. investors may experience lower interest rates B. fraud can be an embarrassment to the audit profession C. investors may be more willing to purchase new stock issues D. fraud can lead to stock options decreasingly being used for executive compensation - Answer B How do fraudulent financial statements impact stakeholders and the markets? A. financial statement fraud leads to embezzlement B. interest rates rise as a result of financial statement fraud C. financial statement fraud leads investors to lose confidence D. CEOs acquire additional company stock following financial statement fraud - Answer C What is a consequence of financial statement fraud? A. the organization shows losses due to embezzlementB. red flags prove that fraud occurred in the organization C. suppliers are able to take advantage of the organization D. the organization appears more profitable than it actually is - Answer D What are two potential consequences a company accused of financial statement fraud can face? A. the CEO might be indicted and convicted B. the SEC might relist and refinance the company C. company stock price might decline when news of fraud reaches the press D. the company may be required to issue new stock to provide needed funds - Answer A and C What is motivation behind committing fraud through backdating of stock options? A. giving bonuses to employees B. increasing executive compensation C. ensuring a successful stock issuance D. preventing a violation of debt covenants - Answer B What is a common motivator of financial statement fraud? A. greed B. intelligence C. health issues D. sense of entitlement - Answer A What is the most common method used to commit financial statement fraud, according to the COSO study? A. capitalizing expenses B. overstating existing assets C. improperly recognizing revenue D. failing to give complete disclosure - Answer C