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