(Multiple Choice)
1. In liability fraud, liabilities are most often:
a. Understated.
b. Overstated.
c. Recorded as assets.
d. Recorded as expenses.

2. Which of the following is usually the hardest fraud to detect?
a. Liability fraud.
b. Revenue fraud.
c. Asset fraud.
d. Disclosure fraud.

3. You observe that a company's current ratio is dramatically increasing. This may indicate fraud in that:
a. Probable contingent liabilities that will settle in the next year for an amount that can be estimated are not recorded.
b. Accounts payable are understated.
c. Expenses have been inappropriately capitalized as fixed assets.
d. Fixed assets are overstated.
e. Two of the above are true.

4. Of the following, the most difficult account for management to intentionally misstate is:
a. Income Taxes Payable.
b. Cash.
c. Securities.
d. Prepaid Expenses.

5. 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 the above are ways to underrecord liabilities.

6. When looking for accounting or documentary symptoms of fraud when a merger occurs, one of the first steps should be to:
a. Make sure that the purchasing company got a fair deal.
b. Make sure that the selling company properly disclosed its financial troubles.
c. Make sure that both the buyer and the seller were content with the deal.
d. Make sure that the accounting methods used were appropriate and consistent with accounting standards.

7. Which of the following is a good place to look for inadequate disclosures?
a. Board of directors' minutes.
b. Correspondence and invoices from attorneys.
c. Confirmations with banks and others.
d. Loan agreements.
e. All of the above are good places to look for inadequate disclosure.