Forensic Accounting Midterm Exam Questions and Accurate Answers

Forensic Accounting Midterm Exam
Questions and Accurate Answers
Forensic Accounting - ✔✔Use of accounting knowledge or skill for courtroom purposes. Can
therefore involve not only fraud, but also bankruptcy, business valuation, disputes, divorce, and
other litigation.



Fraud Examination - ✔✔Involves obtaining documentary evidence, interviewing witnesses and
potential subjects, writing investigative reports, testifying to findings, and assisting in the
general detection and prevention of fraud



Fraud (Black's Law Dictionary) - ✔✔Intentional perversion of truth for the purpose of inducing
another, in reliance upon perversion of truth, to part with some valuable thing belonging to him
or to surrender a legal right



Occupational Fraud and Abuse - ✔✔Use of occupation for personal enrichment (even just $1)
through deliberate misuse or misapplication of employer's resources/assets


1. Material false statement
2. Knowledge that statement was false
3. Reliance on the statement by the victim

4. Damages - ✔✔Four Elements of Fraud



Edwin H. Sutherland's definition of "white-collar crime" - ✔✔Criminal acts of corporations,
individuals in corporate capacity



Edwin H. Sutherland's Theory of Differential Association - ✔✔Crime is learned from intimate
personal groups, not genetic

,Donald R. Cressey - ✔✔- Was Edwin Sutherland's student

- Studied embezzlers (why people become 'trust violators')
- Developed the Fraud Triangle



Pressure, perceived opportunity, and rationalization - ✔✔Fraud Triangle


Pressure, perceived opportunity, rationalization, and capability (being able to live with the guilt)
- ✔✔Fraud Diamond


1. Living beyond means
2. Overwhelming desire for personal gain
3. High personal debt
4. Close association with customers --> collusion?
5. Pay not commensurate with job
6. Wheeler-dealer
7. Strong challenge to beat system
8. Excessive gambling

9. Family/peer pressure - ✔✔Steve Albrecht's Nine Motivators of Fraud



Fraud Scale (?) - ✔✔Situational pressures, opportunity to commit, personal interity


1. Tip (39.1%)
2. Internal audit (16.5%)
3. Management review (13.4%)
4. Accident (5.6%)

5. External audit (3.8%) - ✔✔Highest Detection to Lowest

, 1. Employees (40.9%)
2. Managers (36.8%)

3. Owners (18.9%) - ✔✔ALL Fraud (not just f/s) rates (by management at the firm):



Corruption --> Bribery, conflicts of interest, illegal gratuities, and extortion - ✔✔Corruption part
of the fraud tree


Asset Misappropriation --> Cash, inventory



Cash --> Larceny, skimming, fraudulent disbursements - ✔✔Asset misappropriation part of the
fraud tree



Fraudulent statements --> Financial, non-financial - ✔✔Fraudulent statements part of the fraud
tree


1. Asset misappropriation
2. Corruption

3. Fraudulent statements - ✔✔Most common fraud schemes


1. Fraudulent statements
2. Corruption

3. Asset misappropriation - ✔✔Most expensive fraud schemes (median loss)



Asset Misappropriation - ✔✔Misuse of a company asset for personal gain; includes more than
theft or embezzlement (use of company computer to surf internet, company car for personal
trips, stealing cash, false invoicing, etc)


- False debits to expenses (most common)