1. Which technique would be useful in detecting financial statement fraud? (Points : 2)

Compute industry ratios Examine lifestyles of management Compare cash flow with net income Calculate net worth

Question 2. 2. In your investigation of financial statements, you find that the current ratio has increased substantially from the previous year. Which type of fraud could this indicate? (Points : 2)

Contingent liabilities are unrecorded Inventory is understated Accounts payable is understated Equipment is overstated

Question 3. 3. Which is a red flag associated with timing differences in financial statement fraud? (Points : 2)

Unusual decline in the number of days sales in accounts receivable Large amount of cash flows in comparison to net income Unusual drop in number of days purchases in accounts payable Unusual decline in company growth

Question 4. 4. What is the impact of controls in preventing corruption? (Points : 2)

Implementing effective controls will prevent corruption Controls are partially effective in preventing corruption Controls are directly related to the prevention of corruption All controls are useful in preventing corruption

Question 5. 5. What is the result of financial statement fraud? (Points : 2)

It increases litigation costs It makes markets more efficient It increases tranparency in the financial statements It discourages regulatory intervention

Question 6. 6. Which is a red flag indicating improper disclosure? (Points : 2)

Limitation on scope of an audit Significant related-party transactions in the normal course of business Simplified organizational structure with few managers An effective audit committee

Question 7. 7. A comparison of financial statement data to physical items would be most effective in detecting fraud in which accounts? (Points : 2)

Accounts payable Inventory Accounts receivable Common stock

Question 8. 8. A sports franchise routinely receives payment for game tickets well in advance of the game dates. Management has instructed the accountant to record these receipts as revenue instead of liabilities. What effect will this have on the financial statements? (Points : 2)

Assets will be overstated. Expenses will be overstated Equity will be overstated Liabilities will be overstated

Question 9. 9. Which condition would increase the risk of financial statement fraud? (Points : 2)

Before equipment is fully depreciated, the equipment is sold at a loss. Several in-transit deposits exist on the current monthly bank reconciliation. A computer generated exception report has revealed several clerical errors. Confirmation of accounts receivable has revealed unusual discrepancies.

Question 10. 10. Which of the following will often occur when accounts payable liabilities are understated? (Points : 2)

Purchases are understated and inventory is understated Purchases are understated and inventory is overstated Purchases are overstated and inventory is overstated Purchases are overstated and inventory is understated

Question 11. 11. Which of the following is helpful when using analytical techniques to identify fraud? (Points : 2)

Comparing cash balances with those of similar companies Comparing interest expense with debt Analyzing contingent liabilities Comparing company ratio of fixed assets to sales to industry average

Question 12. 12. A recent start-up company produces wind turbines and wants to begin bidding on government contracts. The company has hired an employee who has connections to major suppliers in the industry. However, the CEO is a bit concerned because she seems to be very friendly with all of these vendors and the CEO wants to ensure that all bids are done according to regulations and governmental procedures without any favoritism. What process steps would you advise the CEO to enact at the company in this situation to prevent corruption? (Points : 2)

Maintain an updated vendor list Require all purchases to be approved by the Purchasing Manager Establish separation of duties between the purchasing and receiving functions Compare market prices to prices charged on invoices

Question 13. 13. A kickback corruption scheme involves which of the following? (Points : 2)

A fraudster with approval authority A company that purchases goods at discounted prices A vendor who is under economic pressure A contact in the victim company.

Question 14. 14. In order to maintain a sales level consistent with previous years, company management is under increased pressure to increase sales during the last quarter of the year. The marketing department recently implemented a discount program and has advertised heavily with customers. Management has also instructed the accounting department to record a sale every time a purchase order is received. What type of fraud may be occurring? (Points : 2)

Fictitious accounts receivable Sales with conditions Channel stuffing Bill and hold

Question 15. 15. Which proactive test would alert an investigator to a possible bid-rigging scheme? (Points : 2)

Review of contact change orders Review of competitive procurements Review focused on the solicitation phase Review similar bids

Question 16. 16. Which statement indicates an increased risk of fraud? (Points : 2)

The majority of the members of the board of directors are independent. In the last year, management turnover at the company has been low. Because of new FASB revisions regarding consistency, an explanatory paragraph is now included in the audit reports for the company and other firms in the industry. Management applies aggressive practices to minimize taxable earnings.

Question 17. 17. Which statement describes horizontal analysis? (Points : 2)

Compare company data to industry data Compare yearly changes in financial statements Compare two companies organizational structure Compare a companys book value to market value

Question 18. 18. Which is a deterrence against the occurence of corruption in a company? (Points : 2)

Scheduling regular audits Implementation of hidden controls A perception of detection A management style of micromanaging

Question 19. 19. Which condition would indicate an increased risk of financial statement fraud? (Points : 2)

Allowance for uncollectible accounts is based on industry standards Revenues include subjective estimates that are not easily verified Warranty liability has surpassed actual warranty expense Merchandise receiving reports near the end of the year have matching purchase orders

Question 20.20. Which is a pressure to increase company revenues? (Points : 2)

To meet customer expectations. To maintain an extravagant lifestyle To pay off debts To meet analysts' expectations