CFE-FINANCIAL TRANSACTIONS AND FRAUD SCHEMES
| 170 ACTUAL QUESTIONS AND ANSWERS | 2026
UPDATE | WITH COMPLETE SOLUTION
Which of the following is a typical method used to make corrupt payments in
bribery and corruption schemes? Answer - Payment of credit card bills, gifts,
travel, entertainment, checks, and other financial interests.
Laura, the sales manager of Sam Corp., is afraid sales revenue for the period is
not going to meet company goals. To make up for the shortfall, she decides to
mail invoices to fake customers and credit (increase) revenue on the books for
these sales. What account will she most likely debit to balance these fictitious
revenue entries and conceal her scheme? Answer - Accounts receivable.
James runs an electronics store. One of the main challenges in his business is
keeping up with technological advances. Because of this, his auditors want to
ensure inventory is not fraudulently overstated on the store's balance sheet.
Which of the following actions should the auditors take to ensure inventory is
not overstated? Answer - View the inventory and conduct a physical count,
make sure obsolete inventory has been written off, and ensure that inventory is
recorded at the lower of cost or market value.
Which of the following statements is true regarding the statement of cash
flows? Answer - The statement of cash flows does NOT shows a company's
financial position at a specific point in time.
,The means of measuring the relationship between two different financial
statement amounts: Answer - Ratio analysis
A CFE has received a tip that an employee in the claims department is
processing claims for his own benefit during non-working hours. To gather
information about the validity of this tip, the CFE should look at which of the
following reports? Answer - Address similarity report, exception report, and
manual override report.
In a financial statement fraud scheme in which capital expenditures are
recorded as expenses rather than assets, the transactions will have the
following effect on the organization's financial statements: Answer - Total
assets will be understated.
In order to understate net income, therefore lowering income tax liability, an
accountant could fraudulently expense costs rather than properly capitalizing
them to an asset account. Answer - True.
A company's financial statements must include information on changes in
accounting methods, contingent liabilities, significant subsequent events, and
all other information necessary for users to make valid, informed decisions.
This is the concept of: Answer - Full disclosure.
How does vertical analysis differ from horizontal analysis? Answer - Vertical
analysis expresses the percentage of component items to a specific base item,
while horizontal analysis analyzes the percentage change in individual financial
statement items from one year to the next.
The statement of cash flows is often used: Answer - in tandem with the income
statement to determine a company's true financial performance.
, Julia runs a printing company and has an antique printing press that she uses in
her business. She purchased the press ten years ago for $5,000. Similar presses
are selling on the market today for about $8,000. Julia mentioned she's
thinking about retiring and her friend offered to give Julia $9,000 for the press.
According to GAAP, how much should the printing press be listed for on Julia's
books? Answer - $5,000.00
ABC Company purchases a material amount of products from another entity
whose operating policies can be controlled by ABC Company's management,
but it does not disclose this situation on its financial statements. Which type of
improper disclosure scheme has ABC Company engaged in? Answer - Related
party transaction.
The wrongful use of influence to procure a benefit for the actor or another
person, contrary to the duty or the rights of others. Answer - Corruption
defined
At the end of each fiscal year, the accounts reflected on the income statement:
Answer - are reduced to a zero balance.
Another term for unbundling is: Answer - Coding fragmentation.
Unbundling can be detected through: Answer - A computer program that
determines whether each code submitted is a component of one or more
comprehensive codes.
The exchange of electronic data between computers where there is no human
reaction: Answer - Electronic Data Interchange
| 170 ACTUAL QUESTIONS AND ANSWERS | 2026
UPDATE | WITH COMPLETE SOLUTION
Which of the following is a typical method used to make corrupt payments in
bribery and corruption schemes? Answer - Payment of credit card bills, gifts,
travel, entertainment, checks, and other financial interests.
Laura, the sales manager of Sam Corp., is afraid sales revenue for the period is
not going to meet company goals. To make up for the shortfall, she decides to
mail invoices to fake customers and credit (increase) revenue on the books for
these sales. What account will she most likely debit to balance these fictitious
revenue entries and conceal her scheme? Answer - Accounts receivable.
James runs an electronics store. One of the main challenges in his business is
keeping up with technological advances. Because of this, his auditors want to
ensure inventory is not fraudulently overstated on the store's balance sheet.
Which of the following actions should the auditors take to ensure inventory is
not overstated? Answer - View the inventory and conduct a physical count,
make sure obsolete inventory has been written off, and ensure that inventory is
recorded at the lower of cost or market value.
Which of the following statements is true regarding the statement of cash
flows? Answer - The statement of cash flows does NOT shows a company's
financial position at a specific point in time.
,The means of measuring the relationship between two different financial
statement amounts: Answer - Ratio analysis
A CFE has received a tip that an employee in the claims department is
processing claims for his own benefit during non-working hours. To gather
information about the validity of this tip, the CFE should look at which of the
following reports? Answer - Address similarity report, exception report, and
manual override report.
In a financial statement fraud scheme in which capital expenditures are
recorded as expenses rather than assets, the transactions will have the
following effect on the organization's financial statements: Answer - Total
assets will be understated.
In order to understate net income, therefore lowering income tax liability, an
accountant could fraudulently expense costs rather than properly capitalizing
them to an asset account. Answer - True.
A company's financial statements must include information on changes in
accounting methods, contingent liabilities, significant subsequent events, and
all other information necessary for users to make valid, informed decisions.
This is the concept of: Answer - Full disclosure.
How does vertical analysis differ from horizontal analysis? Answer - Vertical
analysis expresses the percentage of component items to a specific base item,
while horizontal analysis analyzes the percentage change in individual financial
statement items from one year to the next.
The statement of cash flows is often used: Answer - in tandem with the income
statement to determine a company's true financial performance.
, Julia runs a printing company and has an antique printing press that she uses in
her business. She purchased the press ten years ago for $5,000. Similar presses
are selling on the market today for about $8,000. Julia mentioned she's
thinking about retiring and her friend offered to give Julia $9,000 for the press.
According to GAAP, how much should the printing press be listed for on Julia's
books? Answer - $5,000.00
ABC Company purchases a material amount of products from another entity
whose operating policies can be controlled by ABC Company's management,
but it does not disclose this situation on its financial statements. Which type of
improper disclosure scheme has ABC Company engaged in? Answer - Related
party transaction.
The wrongful use of influence to procure a benefit for the actor or another
person, contrary to the duty or the rights of others. Answer - Corruption
defined
At the end of each fiscal year, the accounts reflected on the income statement:
Answer - are reduced to a zero balance.
Another term for unbundling is: Answer - Coding fragmentation.
Unbundling can be detected through: Answer - A computer program that
determines whether each code submitted is a component of one or more
comprehensive codes.
The exchange of electronic data between computers where there is no human
reaction: Answer - Electronic Data Interchange
