One key element of skimming is that cash is taken:

One key element of skimming is that cash is taken: 

A. Directly from the cash register
B. When no one is watching
C. By someone who does not ordinarily have cash-handling responsibilities
D. Prior to its entry into an accounting system

Answer: D

"Putting someone on the payroll who does not actually work for the victim company" is an example of a(n):

"Putting someone on the payroll who does not actually work for the victim company" is an example of a(n): 

A. Expense scheme
B. Payroll scheme
C. Register disbursement scheme
D. Commission scheme

Answer: B

Which of the following is not one of the ACFE's types of fraudulent disbursement?

Which of the following is not one of the ACFE's types of fraudulent disbursement? 

A. Check-tampering schemes
B. Skimming disbursement schemes
C. Expense schemes
D. Register disbursement schemes

Answer: B

Which of the following is not true of billing schemes?

Which of the following is not true of billing schemes? 

A. The perpetrator takes physical possession of his/her employer's cash
B. The perpetrator often sets up a "dummy" company
C. It is one of the most commonly committed disbursement schemes
D. It usually involves dealing with the victim organization's purchasing department

Answer: A

Which of the following is not considered a misappropriation of assets?

Which of the following is not considered a misappropriation of assets? 

A. Payroll disbursement schemes
B. Kickbacks
C. Expense schemes
D. Skimming

Answer: B

Which of the following results in the highest loss per case?

Which of the following results in the highest loss per case? 

A. Expense tampering
B. Payroll schemes
C. Register disbursement schemes
D. Billing schemes

Answer: D

Which of the following types of disbursement fraud occurs least frequently?

Which of the following types of disbursement fraud occurs least frequently? 

A. Expense tampering
B. Payroll schemes
C. Register disbursement schemes
D. Billing schemes

Answer: C

Which of the following is a major difference between larceny and skimming?

Which of the following is a major difference between larceny and skimming? 

A. Larceny is committed before the cash is entered into the accounting system, while skimming is committed after the cash is entered into the system
B. Larceny is committed after the cash is entered into the accounting system, while skimming is committed before the cash is entered into the system
C. Larceny involves fraudulent disbursements of cash, while skimming involves fraudulent receipts of cash
D. Larceny involves fraudulent receipts of cash, while skimming involves fraudulent disbursements of cash

Answer: B

The most affected party in a workers' compensation fraud case is which of the following?

The most affected party in a workers' compensation fraud case is which of the following? 

A. Employer
B. Employer's insurance carrier
C. Other employees
D. Government

Answer: B

Which of the following is not one of the most common billing schemes?

Which of the following is not one of the most common billing schemes? 

A. Setting up dummy companies to submit invoices to the victim organization
B. Changing the quantity or price on an invoice to favor a customer
C. Altering or double-paying non accomplice vendor's statements
D. Making personal purchases with company funds

Answer: B

Out of all the types of frauds discussed in this chapter, which type is perpetrated least often?

Out of all the types of frauds discussed in this chapter, which type is perpetrated least often?

A. Skimming schemes
B. Larceny
C. Check schemes
D. Payroll

Answer: B

What are the three major classes of asset misappropriation?

What are the three major classes of asset misappropriation? 

A. Stealing receipts, purchasing fraud, and disbursement fraud
B. Stealing receipts, stealing money as it comes into a company, and purchasing fraud
C. Stealing receipts, disbursement fraud, and stealing assets on hand
D. Stealing receipts, stealing inventory, and stealing information.

Answer: C

Most frauds against organizations are perpetrated by:

Most frauds against organizations are perpetrated by: 

A. Employees
B. Owners
C. Vendors
D. A collusion of two of the above

Answer: A

Which of the following is a good place to look for inadequate disclosures?

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

Answer: E

When looking for accounting or documentary symptoms of fraud when merger occurs, one of the first steps should be to:

When looking for accounting or documentary symptoms of fraud when 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.

Answer: D

Which of the following is not a way to under record liabilities?

Which of the following is not a way to under record 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 under record liabilities

Answer: D

Of the following, the most difficult account for management to intentionally misstate is:

Of the following, the most difficult account for management to intentionally misstate is: 

A. Income Taxes Payable
B. Cash
C. Securities
D. Prepaid Expenses

Answer: B

You observe that a company's current ratio is dramatically increasing. This may indicate fraud in that:

You observe that a company's current ratio is dramatically increasing. This may indicate fraud in that: 

A. Contingent liabilities are not recorded
B. Accounts payable is understated
C. Expenses have been inappropriately capitalized as assets
D. Fixed assets are overstated
E. Two of the above are true

Answer: B

Which of the following is usually the hardest fraud to detect?

Which of the following is usually the hardest fraud to detect?

A. Liability fraud
B. Revenue fraud
C. Asset fraud
D. Disclosure fraud

Answer: D

In liability fraud, liabilities are most often:

In liability fraud, liabilities are most often: 

A. Understated
B. Overstated
C. Recorded as assets
D. Recorded as expenses

Answer: A

A form 1099 with missing withholdings (where they should be reported) may be a fraud symptom for which liability account?

A form 1099 with missing withholdings (where they should be reported) may be a fraud symptom for which liability account? 

A. Accounts Payable
B. Unearned Revenues
C. Contingent Liabilities
D. Accrued Liabilities

Answer: D

Which of the following factors does not make fraud more difficult to detect?

Which of the following factors does not make fraud more difficult to detect? 

A. Collusion with outsiders
B. Forgery, which GAAS auditors are not routinely trained to detect
C. Off-book frauds in which no records on the company's books are fraudulent
D. All of the above make fraud more difficult to detect

Answer: D

Each of the following assets is correctly linked with how it can be overstated except:

Each of the following assets is correctly linked with how it can be overstated except: 

A. Inventory can be overstated by improperly capitalizing these assets.
B. Marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities.
C. Fixed assets can be overstated by leaving expired assets on the books.
D. Assets can be inflated in mergers, acquisitions, and restructuring by having the wrong entity act as the acquirer.

Answer: A

Each of the following is a symptom relating to understatement of liability frauds except:

Each of the following is a symptom relating to understatement of liability frauds except: 

A. Original purchase-related records where copies could exist.
B. Denied access to records, facilities, certain employees, customers, vendors, or others from whom audit evidence might be sought.
C. Last-minute adjustments by the entity that significantly affect financial results.
D. Missing documents
E. All of the above are documentary symptoms of understatement of liability fraud.

Answer: A

When examining whether a company has under recorded accounts payable, each of the following ratios is helpful except:

When examining whether a company has under recorded accounts payable, each of the following ratios is helpful except: 

A. Acid-test ratio
B. Accounts Payable/Purchases
C. Accounts Payable/Cost of Goods Sold
D. Unearned revenue/Accounts Payable
E. Current Ratio

Answer: D

Inadequate disclosure fraud usually involves:

Inadequate disclosure fraud usually involves: 

A. Statements in the footnotes that are wrong but do not impact the financial statement.
B. Disclosures that should have been made in the footnotes but were not.
C. Both A and B
D. Neither A or B

Answer: C

Overstating cash is usually difficult because:

Overstating cash is usually difficult because: 

A. Cash balances can be easily confirmed with banks and other financial institutions.
B. Cash is hard to steal.
C. Cash is normally not a fraudulent account.

Answer: A

When focusing on changes, you should consider changes from period to period in:

When focusing on changes, you should consider changes from period to period in: 

A. Recorded balances
B. Relationships between balances
C. Balances of other non similar companies
D. Both A and B
E. All of the above

Answer: D

Proactively searching for analytical symptoms related to financial statement fraud means that we are looking for accounts that appear:

Proactively searching for analytical symptoms related to financial statement fraud means that we are looking for accounts that appear: 

A. Too low
B. Too high
C. Unusual
D. All of the above

Answer: D

Analytical symptoms of accounts payable fraud most often relate to reported "accounts payable" balances that appear:

Analytical symptoms of accounts payable fraud most often relate to reported "accounts payable" balances that appear: 

A. Too low
B. Too high
C. Too perfect
D. Unchanged

Answer: A

FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is:

FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is: 

A. Remote
B. Reasonably possible
C. Probable
D. Not determinable

Answer: C

The most common fraud involving car companies and the warranties they offer would most likely be:

The most common fraud involving car companies and the warranties they offer would most likely be: 

A. Understating accrued liabilities
B. Recognizing unearned revenue
C. Not recording or under recording future obligations
D. Not recording or under recording various types of debt

Answer: C

Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because:

Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because: 

A. It understates liabilities
B. It overstates revenues
C. It overstates net income
D. It overstates assets
E. All of the above
F. A, B, and C are correct

Answer: F

When accounts payable-related liabilities are understated, purchases and inventory are often ______, or the financial statements don't balance.

When accounts payable-related liabilities are understated, purchases and inventory are often ______, or the financial statements don't balance.

A. Overstated
B. Understated
C. Correctly stated
D. It is impossible to tell

Answer: B

Which of the following is a primary type of transaction that can create liabilities for a company?

Which of the following is a primary type of transaction that can create liabilities for a company? 

A. Purchasing inventory
B. Borrowing money
C. Selling purchased goods
D. Leasing assets
E. All of the above

Answer: E

Primarily occurring at the end of the year in an attempt to inflate sales, the practice of shipping more items to distributors than they can sell in a reasonable time period is known as:

Primarily occurring at the end of the year in an attempt to inflate sales, the practice of shipping more items to distributors than they can sell in a reasonable time period is known as: 

A. Lapping
B. Channel stuffing
C. Bill and hold transactions
D. Consignment sales

Answer: B

Which of the following is a common way to perform financial-statement analysis while searching for revenue-related analytical symptoms?

Which of the following is a common way to perform financial-statement analysis while searching for revenue-related analytical symptoms? 

A. Look for unusual changes in revenue-related account balances from period to period (trends)
B. Look for unusual changes in revenue-related relationships from period to period.
C. Look for unusual changes in the cost of goods sold account from period to period.
D. Both A and B are common ways to perform within-statement analysis while searching for revenue-related analytical symptoms
E. All of the above are common ways to perform financial-statement analysis while searching for revenue-related analytical symptoms.

Answer: D

Identify which ratio is correctly linked to the information it could reveal about the company's potential for revenue fraud.

Identify which ratio is correctly linked to the information it could reveal about the company's potential for revenue fraud. 

A. Gross profit margin--this ratio will increase if management overstates inventory
B. Sales return percentage--a sudden decrease in this ratio can mean that customer discounts are not being recorded in the accounting records
C. Allowance for uncollectible accounts as a percent of receivables--when a company records fictitious receivables, this ratio increases
D. Operating profit margin--a dramatic decrease in this ratio could indicate fraud.

Answer: A

Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except:

Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except: 

A. Recognizing revenues too early-Accounts Receivable, Revenue
B. Understate allowance for doubtful accounts-Bad Debt Expense, Allowance for Doubtful Accounts
C. Don't write off uncollectible receivables-Sales Returns, Sales Discounts
D. Don't record discounts given to customers-Cash, Sales Discounts, Accounts Receivable
E. Record returned goods after the end of the period-Sales Returns, Accounts Receivable.

Answer: C

All of the following ratios are useful in detecting large revenue frauds except:

All of the following ratios are useful in detecting large revenue frauds except: 

A. Gross profit margin.
B. Current ratio.
C. Working capital turnover
D. Accounts receivable turnover.

Answer: B

Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers?

Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers? 

A. Understate allowance for doubtful accounts (thus overstating receivables)
B. Record bank transfers when cash is received from customers
C. Write off uncollectible receivables in a later period.
D. Avoid recording of returned goods from customers

Answer: C

The most common way to overstate revenues is to:

The most common way to overstate revenues is to: 

A. Record revenues prematurely.
B. Abuse the cutoff line for recording revenues.
C. Create fictitious revenues
D. None of the above.

Answer: C

The asset turnover ratio measures:

The asset turnover ratio measures: 

A. The average time an asset is used by the company.
B. The average useful life of capital assets.
C. Sales that are generated with each dollar of the assets.
D. Assets that are purchased with each dollar of sales.

Answer: D

Which financial ratio is not useful in detecting revenue-related fraud?

Which financial ratio is not useful in detecting revenue-related fraud? 

A. Gross profit margin ratio
B. Account receivable turnover ratio
C. Asset turnover ratio
D. All of the above are useful revenue-related fraud detection ratios

Answer: D

Accounts that can be manipulated in revenue fraud include all of the following except:

Accounts that can be manipulated in revenue fraud include all of the following except: 

A. Accounts Receivable.
B. Bad Debt Expense.
C. Inventory
D. Sales Discounts.

Answer: C

Last-minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of:

Last-minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of: 

A. Analytical symptoms
B. Documentary symptoms
C. Control symptoms
D. Perceptional symptoms

Answer: A

In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except:

In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except: 

A. The types of accounts that should be included in the financial statements.
B. The types of fraud to which the company is susceptible.
C. The nature of the company's business and industry.
D. The auditor should consider all of the above.

Answer: D

Which of the following ratios would not generally be used to look for inventory and cost of goods sold related frauds?

Which of the following ratios would not generally be used to look for inventory and cost of goods sold related frauds? 

A. Accounts payable turnover
B. Gross profit margin
C. Inventory turnover
D. Number of days' sales in inventory

Answer: A

When looking for inventory fraud, an important question to ask is:

When looking for inventory fraud, an important question to ask is: 

A. What is the nature of inventory?
B. What is the age of inventory?
C. What is the salability of inventory?
D. All are important questions to ask.

Answer: D

Which of the following is not an inventory-related documentary symptom?

Which of the following is not an inventory-related documentary symptom? 

A. Duplicate purchase orders
B. Missing inventory during inventory counts
C. Unsupported inventory sales transactions
D. All of the above are inventory-related documentary symptoms

Answer: D

Lifestyle symptoms are most effective with:

Lifestyle symptoms are most effective with: 

A. Revenue-related financial statement frauds.
B. Inventory-related financial statement frauds.
C. Employee frauds.
D. Accounts payable financial statement fraud.

Answer: C

Comparing recorded amounts in the financial statements with the real-world assets they are supposed to represent would be most effective in detecting:

Comparing recorded amounts in the financial statements with the real-world assets they are supposed to represent would be most effective in detecting: 

A. Cash and inventory fraud
B. Accounts payable fraud
C. Revenue related frauds
D. Accounts receivable fraud

Answer: A

Adding fictitious receivables will usually result in a(n):

Adding fictitious receivables will usually result in a(n): 

A. Sales return percentage that remains constant
B. Increased sales discount percentage
C. Increase in accounts receivable turnover
D. Increase in the number of days in receivables

Answer: D

Horizontal analysis is a method that:

Horizontal analysis is a method that: 

A. Examines financial statement numbers from period to period.
B. Examines percent changes in account balances from period to period.
C. Examines transactions from period to period.
D. None of the above.

Answer: B

Reported revenue and sales account balances that appear too high are examples of:

Reported revenue and sales account balances that appear too high are examples of:

A. Analytical symptoms
B. Documentary symptoms
C. Lifestyles symptoms
D. Verbal symptoms

Answer: A

Why might a company want to understate net income?

Why might a company want to understate net income? 

A. To increase profits
B. To increase stock price
C. To gain consumer confidence
D. To pay less taxes

Answer: A

The most common account(s) manipulated when perpetrating financial statement fraud are:

The most common account(s) manipulated when perpetrating financial statement fraud are: 

A. Expenses
B. Inventory
C. Revenues
D. Accounts Payable

Answer: C