ACCT 4235 FINAL QUESTIONS & ANSWERS
Securities and Exchange Commission (SEC) - Answer -The independent government
entity responsible for protecting investors; maintaining fair, orderly, and efficient
markets; and facilitating capital formation.
Financial statement fraud - Answer -Manipulating the information on a financial
statement
Misstated financial statements or "Cooking the books" - Answer -Examples: Qwest,
Enron, Global Crossing, WorldCom, and Xerox. Some of the frauds involved 20 or more
people helping to create fictitious financial results.
Inappropriate executive loans and corporate looting - Answer -
Insider trading - Answer -an unethical activity in which insiders use private company
information to further their own fortunes or those of their family and friends
IPO - Answer -Initial public offering, a corporation's first offer to sell shares to the public
Backdating - Answer -practice where the effective dates on stock options are
deliberately changed for the purpose of securing extra compensation for management.
fraud triangle - Answer -opportunity, pressure, rationalization
What does "AAERs" Stand for - Answer -Accounting and Auditing Enforcement
Releases
Committee of Sponsoring Organizations (COSO) - Answer -A committee that provides
thought leadership related to enterprise risk management, internal control, and fraud
deterrence.
Treadway commission - Answer -The National Commission on Fraudulent Financial
Reporting that made recommendations related to financial statement fraud and other
matters in 1987.
SEC enforcement releases - Answer -official releases issues by the Securities and
Exchange Commission
Motivations for financial statement fraud - Answer -1. To support a high stock price or a
bond or stock offering.
2. To increase the company's stock price or for management to maximize a bonus.
Strategic reasoning - Answer -involves a mental process of anticipating a fraud
perpetrator's potential methods of engaging in and concealing a fraud
,zero-order reasoning - Answer -when an auditor and auditee consider only conditions
that directly affect themselves but not the other party
First-order reasoning - Answer -the auditor considers conditions that directly affect the
auditee
higher-order reasoning - Answer -the auditor considers additional layers of complexity,
including how management may anticipate the auditor's behavior
Fraud exposure rectangle - Answer -1) Management and Directors
2) Relationship with Others
3) Organization and Industry
4) Financial Results and Operating Characteristics
nonfinancial performance measures - Answer -measures that cannot be expressed in
monetary units
The three aspects of management that a fraud examiner needs to be aware of include
all of the following EXCEPT: - Answer -a) their backgrounds
b) their motivations
C) their religious convictions
d) their influence in making decisions for the organization
10-Ks - Answer -the corporate reports filed with the SEC. of companies the person has
been affiliated with, newspaper articles about the person and so forth.
10-Q - Answer -the quarterly report that publicly traded companies must file with the
SEC
Revenue-Related Fraud - Answer -
Premature revenue-recognition or improper cutoff - Answer -An organization inflates its
revenues by including revenues in current period that should not be recognized until the
following period.
topside journal entries - Answer -used to create revenues and receivables without
underlying documentation
Swapping AKA "Round-tripping" - Answer -the rights to use fiber-optic strands for no
legitimate business reason and immediately booking revenues to meet earnings
expectations.
splitting transactions - Answer -Selling equipment at twice normal price and then
discounting service contracts
, Dex shuffling - Answer -Changing the publication dates on telephone directories to
inflate revenue.
Related Party Transactions - Answer -transactions with owners, management, families
of owners or management, affiliated companies, and other parties that can significantly
influence or be influenced by the company
Sham Sales - Answer -phrase used for various types of fictitious sales
bill-and-hold sales - Answer -arrangements where customers agree to purchase goods,
but the seller retains physical possession until the customer requests shipments
side agreements - Answer -arrangements used to alter terms and conditions of
recorded sales in order to entice customers to accept delivery of goods
Consignment Sales - Answer -are transactions where one company holds and sells
goods that are owned by another company.
channel stuffing (trade loading) - Answer -a marketing practice that suppliers
sometimes use to boost sales by inducing distributors to buy substantially more
inventory than they can promptly resell
lapping or kiting - Answer -A practice where cash receipts are misapplied to hide
fictitious receivables
Redating or refreshing transactions - Answer -involve changing sale dates to more
current time periods to prevent them from being deemed uncollectible or bad debts.
Liberal return policies - Answer -Allow customers to return products and cancel sales in
future periods
Partial shipment - Answer -schemes involve recording the full amount of a sale when
only part of the sale was shipped
Improper cutoff - Answer -transactions are recorded in the wrong time period
round-tripping - Answer -Involves selling unused assets for a promise to buy them or
similar assets back at roughly the same price
Most fraud schemes result in - Answer -overstated revenues and overstated net
income
Fraud Symptoms - Answer -1. analytical symptoms
2.Accounting or documentary symptoms.
3.Lifestyle symptoms
4. Control symptoms
Securities and Exchange Commission (SEC) - Answer -The independent government
entity responsible for protecting investors; maintaining fair, orderly, and efficient
markets; and facilitating capital formation.
Financial statement fraud - Answer -Manipulating the information on a financial
statement
Misstated financial statements or "Cooking the books" - Answer -Examples: Qwest,
Enron, Global Crossing, WorldCom, and Xerox. Some of the frauds involved 20 or more
people helping to create fictitious financial results.
Inappropriate executive loans and corporate looting - Answer -
Insider trading - Answer -an unethical activity in which insiders use private company
information to further their own fortunes or those of their family and friends
IPO - Answer -Initial public offering, a corporation's first offer to sell shares to the public
Backdating - Answer -practice where the effective dates on stock options are
deliberately changed for the purpose of securing extra compensation for management.
fraud triangle - Answer -opportunity, pressure, rationalization
What does "AAERs" Stand for - Answer -Accounting and Auditing Enforcement
Releases
Committee of Sponsoring Organizations (COSO) - Answer -A committee that provides
thought leadership related to enterprise risk management, internal control, and fraud
deterrence.
Treadway commission - Answer -The National Commission on Fraudulent Financial
Reporting that made recommendations related to financial statement fraud and other
matters in 1987.
SEC enforcement releases - Answer -official releases issues by the Securities and
Exchange Commission
Motivations for financial statement fraud - Answer -1. To support a high stock price or a
bond or stock offering.
2. To increase the company's stock price or for management to maximize a bonus.
Strategic reasoning - Answer -involves a mental process of anticipating a fraud
perpetrator's potential methods of engaging in and concealing a fraud
,zero-order reasoning - Answer -when an auditor and auditee consider only conditions
that directly affect themselves but not the other party
First-order reasoning - Answer -the auditor considers conditions that directly affect the
auditee
higher-order reasoning - Answer -the auditor considers additional layers of complexity,
including how management may anticipate the auditor's behavior
Fraud exposure rectangle - Answer -1) Management and Directors
2) Relationship with Others
3) Organization and Industry
4) Financial Results and Operating Characteristics
nonfinancial performance measures - Answer -measures that cannot be expressed in
monetary units
The three aspects of management that a fraud examiner needs to be aware of include
all of the following EXCEPT: - Answer -a) their backgrounds
b) their motivations
C) their religious convictions
d) their influence in making decisions for the organization
10-Ks - Answer -the corporate reports filed with the SEC. of companies the person has
been affiliated with, newspaper articles about the person and so forth.
10-Q - Answer -the quarterly report that publicly traded companies must file with the
SEC
Revenue-Related Fraud - Answer -
Premature revenue-recognition or improper cutoff - Answer -An organization inflates its
revenues by including revenues in current period that should not be recognized until the
following period.
topside journal entries - Answer -used to create revenues and receivables without
underlying documentation
Swapping AKA "Round-tripping" - Answer -the rights to use fiber-optic strands for no
legitimate business reason and immediately booking revenues to meet earnings
expectations.
splitting transactions - Answer -Selling equipment at twice normal price and then
discounting service contracts
, Dex shuffling - Answer -Changing the publication dates on telephone directories to
inflate revenue.
Related Party Transactions - Answer -transactions with owners, management, families
of owners or management, affiliated companies, and other parties that can significantly
influence or be influenced by the company
Sham Sales - Answer -phrase used for various types of fictitious sales
bill-and-hold sales - Answer -arrangements where customers agree to purchase goods,
but the seller retains physical possession until the customer requests shipments
side agreements - Answer -arrangements used to alter terms and conditions of
recorded sales in order to entice customers to accept delivery of goods
Consignment Sales - Answer -are transactions where one company holds and sells
goods that are owned by another company.
channel stuffing (trade loading) - Answer -a marketing practice that suppliers
sometimes use to boost sales by inducing distributors to buy substantially more
inventory than they can promptly resell
lapping or kiting - Answer -A practice where cash receipts are misapplied to hide
fictitious receivables
Redating or refreshing transactions - Answer -involve changing sale dates to more
current time periods to prevent them from being deemed uncollectible or bad debts.
Liberal return policies - Answer -Allow customers to return products and cancel sales in
future periods
Partial shipment - Answer -schemes involve recording the full amount of a sale when
only part of the sale was shipped
Improper cutoff - Answer -transactions are recorded in the wrong time period
round-tripping - Answer -Involves selling unused assets for a promise to buy them or
similar assets back at roughly the same price
Most fraud schemes result in - Answer -overstated revenues and overstated net
income
Fraud Symptoms - Answer -1. analytical symptoms
2.Accounting or documentary symptoms.
3.Lifestyle symptoms
4. Control symptoms
