(Multiple Choice)
1. 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.

2. Management fraud is usually committed on behalf of the organization rather than against it. Which of the following would not be a motivation of fraud on behalf of an organization?
a. CEO needs a new car.
b. A highly competitive industry.
c. Pressure to meet expected earnings.
d. Restructure debt covenants that can't be met.

3. All of the following are indicators of financial statement fraud except:
a. Unusually rapid growth of profitability.
b. Threat of a hostile takeover.
c. Dependence on one or two products.
d. Large amounts of available cash.

4. During an audit, an auditor considers the conditions of the auditee and plans the audit accordingly.
This is an example of which of the following?
a. Zero-order reasoning.
b. High-order reasoning.
c. First-order reasoning.
d. Fraudulent reasoning.

5. 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. Higher-order reasoning.
c. First-order reasoning.
d. Fraudulent reasoning.

6. In recent years, many SEC investigations have taken place on the improper issuance of stock options to corporate executives. These practices increase executive compensation at the expense of shareholders. This practice is known as:
a. Back drafting stock options.
b. Backdating stock options.
c. Stock option reversals.
d. Stock option extensions.