CFE-Financial Transactions and Fraud
Schemes questions and answers 2024\2025
A+ Grade
Which of the following is a typical method used to make corrupt payments in bribery and corruption
schemes?
- correct 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?
- correct 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?
- correct 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?
- correct 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:
- correct 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?
- correct 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:
- correct 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.
- correct 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:
- correct answer Full disclosure.
How does vertical analysis differ from horizontal analysis?
- correct 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:
- correct 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?
- correct 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?
- correct 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.
- correct answer Corruption defined
At the end of each fiscal year, the accounts reflected on the income statement:
- correct answer are reduced to a zero balance.
Another term for unbundling is:
- correct answer Coding fragmentation.
Unbundling can be detected through:
- correct 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:
- correct answer Electronic Data Interchange
Effective internal controls designed to ensure that company operations adhere to the guidelines,
regulations, and law affecting the company.
- correct answer Compliance programs.
A system by which the bank verifies checks presented for payment against the list provided by the
company of approved checks written on the account.
- correct answer Positive pay
An insured falsely reports a vehicle as stolen to cash in on an insurance policy.
- correct answer Ditching
There are traditionally two methods of percentage analysis of financial statements. They are:
- correct answer Horizontal and vertical analysis
Julia is performing tests to look for potential asset misappropriation schemes at her company. One of
her routine tests is to compare the payroll records to the human resources files. What type of fraud
Schemes questions and answers 2024\2025
A+ Grade
Which of the following is a typical method used to make corrupt payments in bribery and corruption
schemes?
- correct 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?
- correct 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?
- correct 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?
- correct 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:
- correct 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?
- correct 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:
- correct 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.
- correct 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:
- correct answer Full disclosure.
How does vertical analysis differ from horizontal analysis?
- correct 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:
- correct 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?
- correct 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?
- correct 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.
- correct answer Corruption defined
At the end of each fiscal year, the accounts reflected on the income statement:
- correct answer are reduced to a zero balance.
Another term for unbundling is:
- correct answer Coding fragmentation.
Unbundling can be detected through:
- correct 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:
- correct answer Electronic Data Interchange
Effective internal controls designed to ensure that company operations adhere to the guidelines,
regulations, and law affecting the company.
- correct answer Compliance programs.
A system by which the bank verifies checks presented for payment against the list provided by the
company of approved checks written on the account.
- correct answer Positive pay
An insured falsely reports a vehicle as stolen to cash in on an insurance policy.
- correct answer Ditching
There are traditionally two methods of percentage analysis of financial statements. They are:
- correct answer Horizontal and vertical analysis
Julia is performing tests to look for potential asset misappropriation schemes at her company. One of
her routine tests is to compare the payroll records to the human resources files. What type of fraud
