WGU C254 Fraud and Forensic Accounting Pre-
assessment Questions with verified answers
According to SAS 99, why is brainstorming important to auditors?
A. to close the expectation gap of financial statements reporting
B. to avoid overreacting to the red flags that occur in the audit
C. to comprehend the registration process of public accounting firms
D. to document findings among auditors to increase the likelihood of detecting
fraud Ans✓✓✓ B
As part of being a good ethical corporate citizen, what does Federal Executive
Order 11246 require of organizations working under a government contract?
A. affirmative action programs in place
B. minimize the risk of unethical practices
C. documentary proof of compliance with GAAP
D. policies to rehire workers wrongfully fired for whistle-blowing Ans✓✓✓ 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 Ans✓✓✓ 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
Ans✓✓✓ C
How often must the lead audit partner and audit review partner be rotated under
the Sarbanes-Oxley Act?
A. every year
B. every five years
C. every two years
D. every seven years Ans✓✓✓ B
Prior to the Sarbanes-Oxley regulations and according to SAS 16, under what
circumstances can auditors rely upon the truthfulness of records obtained from
the client?
A. until there is evidence to suggest otherwise
B. after a thorough internal control investigation
C. after management has taken polygraph examinations
D. once substantial testing on the reliability of records has been conducted
Ans✓✓✓ A
Under the Sarbanes-Oxley Act, which statement is true regarding the PCAOB?
A. it cannot sue or be sued in any U.S. court
B. it can sue and be sued in any U.S. court with the approval of the SEC
C. it cannot sue, but it can be sued in any U.S. court with the approval of the SEC
, D. it can sue with the approval of the SEC, but it cannot be sued in any U.S. court
Ans✓✓✓ B
What are two examples of asset overstatement fraud?
A. unauthorized asset-related transactions are recorded
B. amounts recorded for assets between unrelated parties are inflated
C. assets are overstated by capitalizing instead of expensing start-up costs
D. assets through mergers are recorded at book value instead of market value
Ans✓✓✓ A and C
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
Ans✓✓✓ A and C
What can indicate potential fraud related to an overstatement of inventory?
A. documented cutoff procedures
B. purchase returns that are too low
C. vendors not listed in telephone directory
D. cost of goods sold being the same for both book and tax Ans✓✓✓ C
What is a common motivator of financial statement fraud?
A. greed
assessment Questions with verified answers
According to SAS 99, why is brainstorming important to auditors?
A. to close the expectation gap of financial statements reporting
B. to avoid overreacting to the red flags that occur in the audit
C. to comprehend the registration process of public accounting firms
D. to document findings among auditors to increase the likelihood of detecting
fraud Ans✓✓✓ B
As part of being a good ethical corporate citizen, what does Federal Executive
Order 11246 require of organizations working under a government contract?
A. affirmative action programs in place
B. minimize the risk of unethical practices
C. documentary proof of compliance with GAAP
D. policies to rehire workers wrongfully fired for whistle-blowing Ans✓✓✓ 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 Ans✓✓✓ 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
Ans✓✓✓ C
How often must the lead audit partner and audit review partner be rotated under
the Sarbanes-Oxley Act?
A. every year
B. every five years
C. every two years
D. every seven years Ans✓✓✓ B
Prior to the Sarbanes-Oxley regulations and according to SAS 16, under what
circumstances can auditors rely upon the truthfulness of records obtained from
the client?
A. until there is evidence to suggest otherwise
B. after a thorough internal control investigation
C. after management has taken polygraph examinations
D. once substantial testing on the reliability of records has been conducted
Ans✓✓✓ A
Under the Sarbanes-Oxley Act, which statement is true regarding the PCAOB?
A. it cannot sue or be sued in any U.S. court
B. it can sue and be sued in any U.S. court with the approval of the SEC
C. it cannot sue, but it can be sued in any U.S. court with the approval of the SEC
, D. it can sue with the approval of the SEC, but it cannot be sued in any U.S. court
Ans✓✓✓ B
What are two examples of asset overstatement fraud?
A. unauthorized asset-related transactions are recorded
B. amounts recorded for assets between unrelated parties are inflated
C. assets are overstated by capitalizing instead of expensing start-up costs
D. assets through mergers are recorded at book value instead of market value
Ans✓✓✓ A and C
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
Ans✓✓✓ A and C
What can indicate potential fraud related to an overstatement of inventory?
A. documented cutoff procedures
B. purchase returns that are too low
C. vendors not listed in telephone directory
D. cost of goods sold being the same for both book and tax Ans✓✓✓ C
What is a common motivator of financial statement fraud?
A. greed
