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:

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. Backdrafting stock options
B. Backdating stock options
C. Stock option reversals
D. Stock option extensions

Answer: B

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?

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

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?

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

Answer: C

All of the following are indicators of financial statement fraud except:

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

Answer: D

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?

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

Answer: A

Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because:

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

In the Phar-Mor fraud case, several different methods were used for manipulating the financial statements. These included all of the following except:

In the Phar-Mor fraud case, several different methods were used for manipulating the financial statements. These included all of the following except: 

A. Funneling losses into unaudited subsidiaries.
B. Overstating inventory.
C. Recognizing revenue that should have been deferred.
D. Manipulating accounts.

Answer: A

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?

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. Missing documentation
B. A general ledger that is out of balance
C. Analytical relationships that don't make sense
D. A repeated pattern of similar fraudulent acts

Answer: D

Which of the following is least likely to be considered a financial reporting fraud symptom, or red flag?

Which of the following is least likely to be considered a financial reporting fraud symptom, or red flag? 

A. Grey directors
B. Family relationships between directors or officers
C. Large increases in accounts receivable with no increase in sales
D. Size of the firm

Answer: D

The three aspects of management that a fraud examiner needs to be aware of include all of the following except:

The three aspects of management that a fraud examiner needs to be aware of include all of the following except: 

A. Their backgrounds
B. Their motivations
C. Their religious convictions
D. Their influence in making decisions for the organization.

Answer: C

When looking for financial statement fraud, auditors should look for indicators of fraud by:

When looking for financial statement fraud, auditors should look for indicators of fraud by: 

A. Examining financial statements
B. Evaluating changes in financial statements
C. Examining relationships the company has with other parties
D. Examining operating characteristics of the company
E. All of the above
F. None of the above because auditors don't have a responsibility to find financial statement fraud

Answer: E

Which officer in a company is most likely to be the perpetrator of financial statement fraud?

Which officer in a company is most likely to be the perpetrator of financial statement fraud? 

A. Chief Financial Officer (CFO)
B. Controller
C. Chief Operating Officer (COO)
D. Chief Executive Officer (CEO)

Answer: D

Financial statement fraud is usually committed by:

Financial statement fraud is usually committed by:

A. Executives
B. Managers
C. Stockholders
D. Outsiders
E. Both A and B

Answer: E

Nonverbal clues of deception include all of the following except:

Nonverbal clues of deception include all of the following except: 

A. Repetition of the question
B. Manipulators
C. Fleeing positions
D. Crossing the arms

Answer: A

A signed statement should include all of the following except:

A signed statement should include all of the following except: 

A. A statement that the fraudster knew the conduct was wrong and intended to commit the act.
B. The date the fraudster was hired by the company
C. Approximate amount of losses
D. Approximate date of the offense

Answer: B

Which of the following is not a good thing to do during an interview?

Which of the following is not a good thing to do during an interview? 

A. Conduct the interview in private
B. Establish the purpose of the interview
C. Interview more than one person at once
D. Do not invade body space

Answer: C

Which of the following is something that an interviewee might do or feel while in the denial phase?

Which of the following is something that an interviewee might do or feel while in the denial phase? 

A. Insult, harm, or slander
B. Attempt to justify the act
C. Become sad, withdraw, or lose interest
D. Not comprehend what has been said

Answer: D

Each of the following is a clue that an interviewee is dishonest except:

Each of the following is a clue that an interviewee is dishonest except: 

A. Upon repeated accusations, a dishonest person's denials become more vehement.
B. In order to add credibility to false statements, liars request that the interviewer obtain character testimony from other people.
C. Liars often refuse to implicate possible suspects-or, in other words, honest people are more willing to name others involved in misdeeds.
D. Dishonest people frequently cover their mouths with their hands or fingers during deception.

Answer: C

Which of the following is a characteristic of a good interview?

Which of the following is a characteristic of a good interview? 

A. Make the interview as concise as possible.
B. The interviewer should announce his or her bias at the outset, because the interviewee will cooperate better when the interviewee knows the type of information the interviewer is seeking.
C. Friendly interviewees appear very helpful, but they may have hidden motives and may provide bad information.
D. It is important to schedule interviews ahead of time, especially if you are planning to interview a potentially hostile interviewee.

Answer: A

Which of the following reactions frequently involves appearing temporarily stunned, insisting there is some mistake, or not comprehending what has been said?

Which of the following reactions frequently involves appearing temporarily stunned, insisting there is some mistake, or not comprehending what has been said? 

A. Anger
B. Denial
C. Rationalization
D. Depression
E. Acceptance

Answer: B

Which of the following is the typical sequence of reactions to a crisis?

Which of the following is the typical sequence of reactions to a crisis? 

A. Anger, denial, rationalization, depression, acceptance
B. Rationalization, denial, anger, depression, acceptance
C. Denial, anger, rationalization, depression, acceptance
D. Depression, denial, anger, rationalization, acceptance
E. None of the above

Answer: C

Interviewing is:

Interviewing is: 

A. The systematic questioning of individuals who have knowledge of events, people, and evidence involved in a case under investigation.
B. The process of answering questions from an interviewer for the purpose of finding a job.
C. By far the most common technique used in investigating and resolving fraud.
D. Both A and C
E. None of the above

Answer: D

Which of the following traits do polygraphs not measure when testing for stress?

Which of the following traits do polygraphs not measure when testing for stress? 

A. Pulse rate
B. Blood pressure
C. Galvanic skin response
D. Respiration
E. All of the above are traits measured during a polygraph test.

Answer: E

Which of the following honesty testing techniques deals with the study of handwriting for the purpose of character analysis?

Which of the following honesty testing techniques deals with the study of handwriting for the purpose of character analysis? 

A. Polygraph
B. Graphology
C. Pencil-and-paper test
D. Voice stress
E. None of the above

Answer: B

Which of the following is not an inquiry technique that should be used by interviewers?

Which of the following is not an inquiry technique that should be used by interviewers? 

A. Use shot questions, confined to one topic
B. Maintain full control of the interview
C. Point out some, but not all, of the circumstantial evidence
D. All of the above are good inquiry techniques in an interview

Answer: D

Confrontational interviews should usually be conducted when:

Confrontational interviews should usually be conducted when:

A. Police decide that the suspect is guilty
B. The examiner is starting the investigation
C. All other investigative procedures have been completed
D. The investigation is taking too long

Answer: C

Planning for interviews should not involve:

Planning for interviews should not involve: 

A. Judging the guilt of the suspect based on available documents
B. Establishing a location and time for the interview
C. Ascertaining in advance as many facts as possible about the offense
D. Understanding the attitude of the interviewee

Answer: A

People in the rationalization stage of a reaction to a fraud:

People in the rationalization stage of a reaction to a fraud: 

A. Make great interviewees because they want to punish the suspect.
B. Want to give the suspect one more chance.
C. Believe without a doubt that the suspect is guilty.
D. Have no sympathy for the suspect.

Answer: B

Interviews should not be conducted with:

Interviews should not be conducted with: 

A. Suspects
B. Coworkers
C. Clients
D. Interviews can be conducted with all of the above

Answer: D

Which of the following is not a method of honesty testing?

Which of the following is not a method of honesty testing? 

A. Graphology
B. Voice stress analysis
C. Body language test
D. Pencil-and-Paper test

Answer: C