C254 Pre assessment Fraud and Forensic Accounting with Answers
Which action is potentially unethical because it understates COGS?
A. Understating purchases
B. Understating purchase returns
C. Understating ending inventory
D. Understating purchase discounts -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 -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 -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 -C
What is a consequence of financial statement fraud?
A. the organization shows losses due to embezzlement
B. 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 -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 -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 -B
What is a common motivator of financial statement fraud? A. greed
B. intelligence
C. health issues
D. sense of entitlement -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 -C
What was the auditor's responsibility to detect fraud under SAP 30?
A. to thoroughly interview key employees
B. to conduct statistical regression models
C. to be aware of the possibility that irregularities may exist
D. to determine if management was giving false statements -C
What were auditors required to do under SAP 30?
A. test for fraud until it is found
B. design tests to detect fraud
C. maintain a high level of mistrust in management
D. assume increased responsibility to detect fraud -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 -A
What level of assurance must an auditor provide regarding the absence of fraud after the issuance of SAS 53?
A. minimal assurance
B. absolute assurance
C. plausible assurance
D. reasonable assurance -D
Which action is potentially unethical because it understates COGS?
A. Understating purchases
B. Understating purchase returns
C. Understating ending inventory
D. Understating purchase discounts -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 -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 -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 -C
What is a consequence of financial statement fraud?
A. the organization shows losses due to embezzlement
B. 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 -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 -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 -B
What is a common motivator of financial statement fraud? A. greed
B. intelligence
C. health issues
D. sense of entitlement -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 -C
What was the auditor's responsibility to detect fraud under SAP 30?
A. to thoroughly interview key employees
B. to conduct statistical regression models
C. to be aware of the possibility that irregularities may exist
D. to determine if management was giving false statements -C
What were auditors required to do under SAP 30?
A. test for fraud until it is found
B. design tests to detect fraud
C. maintain a high level of mistrust in management
D. assume increased responsibility to detect fraud -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 -A
What level of assurance must an auditor provide regarding the absence of fraud after the issuance of SAS 53?
A. minimal assurance
B. absolute assurance
C. plausible assurance
D. reasonable assurance -D
