LSU ACCT 4235 FINAL QUESTIONS & ANSWERS
Which of the following is not a way to underrecord liabilities?
a. Borrowing but not disclosing debt incurred on existing lines of credit.
b. Claiming that existing debt has been forgiven by creditors.
c. Not recording loans incurred.
d. All of these are ways to underrecord liabilities. - Answer -d. All of these are ways to
underrecord liabilities.
Horizontal analysis is a method that:
a. Examines financial statement numbers from period to period.
b. Examines percent changes in account balances from period to period.
c. Examines transactions from period to period.
d. None of these. - Answer -b. Examines percent changes in account balances from
period to period.
In order to analyze financial statements for fraud, an auditor or fraud examiner should
consider all of the following except:
a. The types of accounts that should be included in the financial statements.
b. The types of fraud to which the company is susceptible.
c. The nature of the company's business and industry.
d. The auditor should consider all of these. - Answer -d. The auditor should consider all
of these.
When accounts payable-related liabilities are understated, the financial statements
won't balance unless purchases and inventory are:
a. Understated.
b. Overstated.
c. It is impossible to tell.
d. Correctly stated. - Answer -a. Understated.
Which of the following is a common way to perform financial statement analysis while
searching for revenue-related analytical symptoms?
a. Look for unusual changes in revenue-related account balances from period to period
(trends).
b. Look for unusual changes in revenue-related relationships from period to period.
c. Look for unusual changes in the cost of goods sold account from period to period.
d. Both look for unusual changes in revenue-related account balances from period to
period (trends) and look for unusual changes in revenue-related relationships from
period to period are common ways to perform within-statement analysis while searching
for revenue-related analytical symptoms.
e. All of these are common ways to perform financial statement analysis while searching
for revenue-related analytical symptoms. - Answer -d. Both look for unusual changes in
revenue-related account balances from period to period (trends) and look for unusual
changes in revenue-related relationships from period to period are common ways to
,perform within-statement analysis while searching for revenue-related analytical
symptoms.
Why might a company want to understate net income?
a. To increase profits.
b. To gain consumer confidence.
c. To pay less taxes.
d. To increase stock price. - Answer -c. To pay less taxes.
Which financial ratio is not useful in detecting revenue-related fraud?
a. Gross profit margin ratio.
b. Accounts receivable turnover ratio.
c. Asset turnover ratio.
d. All of these are useful revenue-related fraud detection ratios. - Answer -d. All of
these are useful revenue-related fraud detection ratios.
When examining whether a company has underrecorded accounts payable, each of the
following ratios is helpful except:
a. Acid-test ratio.
b. Current ratio.
c. Accounts payable/Cost of goods sold.
d. Unearned revenue/Accounts payable.
e. Accounts payable/Purchases. - Answer -d. Unearned revenue/Accounts payable.
Recording fictitious receivables will usually result in a(n):
a. Sales return percentage that remains constant.
b. Increased sales discount percentage.
c. Increase in accounts receivable turnover.
d. Increase in the number of days in receivables. - Answer -d. Increase in the number
of days in receivables.
Most financial statement frauds occur in smaller organizations with simple management
structures, rather than in large, historically profitable organizations. This is because:
a. It is easier to implement good internal controls in a small organization.
b. Smaller organizations do not have investors.
c. Management fraud is more difficult to commit when there is a more formal
organizational structure of management.
d. People in large organizations are more honest. - Answer -c. Management fraud is
more difficult to commit when there is a more formal organizational structure of
management.
Generally accepted accounting practices require contingent liabilities to be recorded as
liabilities on the balance sheet if the likelihood of loss or payment is:
a. Reasonably possible.
b. Remote.
c. Probable.
, d. Not determinable. - Answer -c. Probable.
A form 1099 with missing withholdings (where they should be reported) may be a fraud
symptom for which liability account?
a. Contingent liabilities.
b. Unearned revenues.
c. Accrued liabilities.
d. Accounts payable. - Answer -c. Accrued liabilities.
Which officer in a company is most likely to be the perpetrator of financial statement
fraud?
a. Controller.
b. Chief financial officer (CFO).
c. Chief executive officer (CEO).
d. Chief operating officer (COO). - Answer -c. Chief executive officer (CEO).
In the context of strategic reasoning, if an auditor only follows the established audit plan
and does not consider other factors relating to the auditee, then this is an example of
which of the following?
a. Zero-order reasoning.
b. High-order reasoning.
c. First-order reasoning.
d. Fraudulent reasoning. - Answer -a. Zero-order reasoning.
Many indicators of fraud are circumstantial; that is, they can be caused by non-fraud
factors. This fact can make convicting someone of fraud difficult. Which of the following
types of evidence would be most helpful in proving that someone committed fraud?
a. A repeated pattern of similar fraudulent acts.
b. Missing documentation.
c. A general ledger that is out of balance.
d. Analytical relationships that don't make sense. - Answer -a. A repeated pattern of
similar fraudulent acts.
The asset turnover ratio measures:
a. The average useful life of capital assets.
b. Sales that are generated with each dollar of the assets.
c. The average time an asset is used by the company.
d. Assets that are purchased with each dollar of sales. - Answer -b. Sales that are
generated with each dollar of the assets.
The three aspects of management that a fraud examiner needs to be aware of include
all of the following except:
a. Their motivations.
b. Their religious convictions.
c. Their influence in making decisions for the organization.
d. Their backgrounds. - Answer -b. Their religious convictions.
Which of the following is not a way to underrecord liabilities?
a. Borrowing but not disclosing debt incurred on existing lines of credit.
b. Claiming that existing debt has been forgiven by creditors.
c. Not recording loans incurred.
d. All of these are ways to underrecord liabilities. - Answer -d. All of these are ways to
underrecord liabilities.
Horizontal analysis is a method that:
a. Examines financial statement numbers from period to period.
b. Examines percent changes in account balances from period to period.
c. Examines transactions from period to period.
d. None of these. - Answer -b. Examines percent changes in account balances from
period to period.
In order to analyze financial statements for fraud, an auditor or fraud examiner should
consider all of the following except:
a. The types of accounts that should be included in the financial statements.
b. The types of fraud to which the company is susceptible.
c. The nature of the company's business and industry.
d. The auditor should consider all of these. - Answer -d. The auditor should consider all
of these.
When accounts payable-related liabilities are understated, the financial statements
won't balance unless purchases and inventory are:
a. Understated.
b. Overstated.
c. It is impossible to tell.
d. Correctly stated. - Answer -a. Understated.
Which of the following is a common way to perform financial statement analysis while
searching for revenue-related analytical symptoms?
a. Look for unusual changes in revenue-related account balances from period to period
(trends).
b. Look for unusual changes in revenue-related relationships from period to period.
c. Look for unusual changes in the cost of goods sold account from period to period.
d. Both look for unusual changes in revenue-related account balances from period to
period (trends) and look for unusual changes in revenue-related relationships from
period to period are common ways to perform within-statement analysis while searching
for revenue-related analytical symptoms.
e. All of these are common ways to perform financial statement analysis while searching
for revenue-related analytical symptoms. - Answer -d. Both look for unusual changes in
revenue-related account balances from period to period (trends) and look for unusual
changes in revenue-related relationships from period to period are common ways to
,perform within-statement analysis while searching for revenue-related analytical
symptoms.
Why might a company want to understate net income?
a. To increase profits.
b. To gain consumer confidence.
c. To pay less taxes.
d. To increase stock price. - Answer -c. To pay less taxes.
Which financial ratio is not useful in detecting revenue-related fraud?
a. Gross profit margin ratio.
b. Accounts receivable turnover ratio.
c. Asset turnover ratio.
d. All of these are useful revenue-related fraud detection ratios. - Answer -d. All of
these are useful revenue-related fraud detection ratios.
When examining whether a company has underrecorded accounts payable, each of the
following ratios is helpful except:
a. Acid-test ratio.
b. Current ratio.
c. Accounts payable/Cost of goods sold.
d. Unearned revenue/Accounts payable.
e. Accounts payable/Purchases. - Answer -d. Unearned revenue/Accounts payable.
Recording fictitious receivables will usually result in a(n):
a. Sales return percentage that remains constant.
b. Increased sales discount percentage.
c. Increase in accounts receivable turnover.
d. Increase in the number of days in receivables. - Answer -d. Increase in the number
of days in receivables.
Most financial statement frauds occur in smaller organizations with simple management
structures, rather than in large, historically profitable organizations. This is because:
a. It is easier to implement good internal controls in a small organization.
b. Smaller organizations do not have investors.
c. Management fraud is more difficult to commit when there is a more formal
organizational structure of management.
d. People in large organizations are more honest. - Answer -c. Management fraud is
more difficult to commit when there is a more formal organizational structure of
management.
Generally accepted accounting practices require contingent liabilities to be recorded as
liabilities on the balance sheet if the likelihood of loss or payment is:
a. Reasonably possible.
b. Remote.
c. Probable.
, d. Not determinable. - Answer -c. Probable.
A form 1099 with missing withholdings (where they should be reported) may be a fraud
symptom for which liability account?
a. Contingent liabilities.
b. Unearned revenues.
c. Accrued liabilities.
d. Accounts payable. - Answer -c. Accrued liabilities.
Which officer in a company is most likely to be the perpetrator of financial statement
fraud?
a. Controller.
b. Chief financial officer (CFO).
c. Chief executive officer (CEO).
d. Chief operating officer (COO). - Answer -c. Chief executive officer (CEO).
In the context of strategic reasoning, if an auditor only follows the established audit plan
and does not consider other factors relating to the auditee, then this is an example of
which of the following?
a. Zero-order reasoning.
b. High-order reasoning.
c. First-order reasoning.
d. Fraudulent reasoning. - Answer -a. Zero-order reasoning.
Many indicators of fraud are circumstantial; that is, they can be caused by non-fraud
factors. This fact can make convicting someone of fraud difficult. Which of the following
types of evidence would be most helpful in proving that someone committed fraud?
a. A repeated pattern of similar fraudulent acts.
b. Missing documentation.
c. A general ledger that is out of balance.
d. Analytical relationships that don't make sense. - Answer -a. A repeated pattern of
similar fraudulent acts.
The asset turnover ratio measures:
a. The average useful life of capital assets.
b. Sales that are generated with each dollar of the assets.
c. The average time an asset is used by the company.
d. Assets that are purchased with each dollar of sales. - Answer -b. Sales that are
generated with each dollar of the assets.
The three aspects of management that a fraud examiner needs to be aware of include
all of the following except:
a. Their motivations.
b. Their religious convictions.
c. Their influence in making decisions for the organization.
d. Their backgrounds. - Answer -b. Their religious convictions.
