Multiple Choice Questions
1. Which step in computing inventory is most likely to lead to fraud?
a. Computing Beginning Inventory.
b. Computing Purchases.
c. Computing Cost of Goods Sold.
d. Computing Ending Inventory.

2. To which of the following does improper accounting treatment refer?
a. Misclassifying a capital asset as an expense.
b. Recording the purchase price of an asset at market price, not cost.
c. Neglecting to amortize an intangible asset.
d. Failing to disclose the results of a recent judgment against the company.
e. a, b, and d.
f. Only b and c.
g. All of the above.
h. None of the above.

3. A manager with an incentive-driven employment contract more is likely to do which of the following?
a. Inflate revenue.
b. Capitalize items rather than expense them.
c. Maximize dividends to the stockholders.
d. Expense stock options.
e. All of the above.

4. Which of the following can motivate a manager to commit fraud?
a. A debt covenant agreement that requires the company to maintain a certain percentage of assets as cash.
b. Compensation through a set salary.
c. An illegal agreement with a supplier.
d. a nd b.
e. a nd c.
f. All of the above.
g. None of the above.

5. Which of the following entities is not a primary focus of SOX in preventing financial statement fraud?
a. The board of directors.
b. The audit Committee.
c. The PCAOB.
d. The SEC.
e. External auditors.
f. Internal auditors.

6. Which of the following is best at catching an undetected financial statement fraud?
a. The CEO.
b. The CFO.
c. The audit committee.
d. The external auditor.
e. The PCAOB.
f. The stock market.