WGU C254 Fraud Examination questions with
verified answers
______________ in the acid test ratio (QA ÷ CL) and Current Ratio (CA ÷ CL) with
____________ in the ratios Accounts Payable/Cost of Goods Sold (AP ÷ COGS) and
Accounts Payable/Inventory are most indicative of fraud. Ans✓✓✓ Increases ;
decreases
1099s or employees with no tax withholdings could represent an understatement
of _________________ Ans✓✓✓ Accrued Liabilities
According to FASB ASC 450: Contingencies, when do contingent liabilities need to
be included as a footnote? Ans✓✓✓ When the likelihood of loss or repayment
reasonably probable
According to FASB ASC 450: Contingencies, when do contingent liabilities need to
be recorded (versus simply disclosed or not even mentioned) on the financial
statements? Ans✓✓✓ When the likelihood of loss or repayment is probable
According to SARBOX, who can (and must) approve any non-audit services
provided by the auditor? Ans✓✓✓ The audit committee
According to the financial statement fraud detection framework, fraud is rarely
detected by which of the following? Ans✓✓✓ Analyzing the Financial Statements
Although inventory is an asset, the goal overstating of inventory is different from
the goal of overstating other assets in that inventory is typically overstated with
the goal to minimize______ and increase __________ Ans✓✓✓ COGS; net
income
, An entity is a VIE (Variable Interest Entity) if: Ans✓✓✓ 1)The equity in entity is
not sufficient to absorb "expected losses"
2)The investors of entity don't have ability to control activities of the entity
3)The investors of entity are not obligated to absorb loss/returns that occur
Analytical symptoms are typically not very useful in finding contingent liabilities.
Ans✓✓✓ True. Difficult to determine if there should be a contingent liability and
usually nothing to compare to past
Analytical symptoms of premature revenue recognition usually involves unearned
liability accounts that seems too _________ and revenue accounts that seem too
_________. Ans✓✓✓ low; high
Approximately 20 percent of U.S. public companies backdate stock options for
officers and directors. Which of the following best describes the ethical issue
involved with this practice? Ans✓✓✓ It violates accounting rules, tax laws, and
SEC disclosure rules.
Assets are typically overstated with the goal of improving _________________
strength. Ans✓✓✓ Balance sheet
Auditors should not establish good rapport with management because it could
cause a conflict of interest if they become too close. Ans✓✓✓ False. Research by
Leinicke, Ostrosky, Rexroad, Baker, and Beckman in 2005 showed that good
rapport encourages open and two-way communication and allows for the auditor
to identify specific behavior changes.
verified answers
______________ in the acid test ratio (QA ÷ CL) and Current Ratio (CA ÷ CL) with
____________ in the ratios Accounts Payable/Cost of Goods Sold (AP ÷ COGS) and
Accounts Payable/Inventory are most indicative of fraud. Ans✓✓✓ Increases ;
decreases
1099s or employees with no tax withholdings could represent an understatement
of _________________ Ans✓✓✓ Accrued Liabilities
According to FASB ASC 450: Contingencies, when do contingent liabilities need to
be included as a footnote? Ans✓✓✓ When the likelihood of loss or repayment
reasonably probable
According to FASB ASC 450: Contingencies, when do contingent liabilities need to
be recorded (versus simply disclosed or not even mentioned) on the financial
statements? Ans✓✓✓ When the likelihood of loss or repayment is probable
According to SARBOX, who can (and must) approve any non-audit services
provided by the auditor? Ans✓✓✓ The audit committee
According to the financial statement fraud detection framework, fraud is rarely
detected by which of the following? Ans✓✓✓ Analyzing the Financial Statements
Although inventory is an asset, the goal overstating of inventory is different from
the goal of overstating other assets in that inventory is typically overstated with
the goal to minimize______ and increase __________ Ans✓✓✓ COGS; net
income
, An entity is a VIE (Variable Interest Entity) if: Ans✓✓✓ 1)The equity in entity is
not sufficient to absorb "expected losses"
2)The investors of entity don't have ability to control activities of the entity
3)The investors of entity are not obligated to absorb loss/returns that occur
Analytical symptoms are typically not very useful in finding contingent liabilities.
Ans✓✓✓ True. Difficult to determine if there should be a contingent liability and
usually nothing to compare to past
Analytical symptoms of premature revenue recognition usually involves unearned
liability accounts that seems too _________ and revenue accounts that seem too
_________. Ans✓✓✓ low; high
Approximately 20 percent of U.S. public companies backdate stock options for
officers and directors. Which of the following best describes the ethical issue
involved with this practice? Ans✓✓✓ It violates accounting rules, tax laws, and
SEC disclosure rules.
Assets are typically overstated with the goal of improving _________________
strength. Ans✓✓✓ Balance sheet
Auditors should not establish good rapport with management because it could
cause a conflict of interest if they become too close. Ans✓✓✓ False. Research by
Leinicke, Ostrosky, Rexroad, Baker, and Beckman in 2005 showed that good
rapport encourages open and two-way communication and allows for the auditor
to identify specific behavior changes.
