Business Law and Ethics Study Guide Questions
Course Introduction
Business Law and Ethics introduces students to the key legal principles and ethical issues that shape decision-making in the business world. The course examines foundational aspects of contract law, torts, agency, and corporate governance, exploring how legal frameworks regulate commercial relationships and activities. Alongside the study of laws affecting businesses, the course addresses ethical theories and their application to real-world dilemmas, emphasizing corporate social responsibility and the importance of ethical leadership. Students develop analytical skills to identify legal risks and ethical challenges, enabling them to make informed and principled choices within the complex landscape of modern business.
Recommended Textbook Fraud Examination 5th Edition by W. Steve Albrecht
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Chapter 1: The Nature of Fraud
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Q1) Employee embezzlement can be direct or indirect.Indirect fraud occurs when:
A)an employee uses company assets to run his/her private business.
B)employees establish dummy companies and have their employers pay for goods that are not actually delivered.
C)an employee receives a kickback from a vendor.
D)an employee steals company cash, inventory, tools, or other assets.
Answer: C
Q2) Which of the following is NOT a primary reason for increased size and number of frauds?
A)The advent of computers
B)Complex accounting systems
C)Increased centralization of businesses
D)The Internet
Answer: C
Q3) Which of the following is NOT an example of a fraud-fighting career?
A)Working for the criminal investigation division of the IRS.
B)Serving as an expert witness.
C)Maintaining the security of public records.
D)Defending an organization being sued in a civil case.
Answer: C
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Chapter 2: Who Commits Fraud and Why
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Q1) Which of the following is NOT a common rationalization of fraud perpetrators?
A)The organization owes me
B)I'm only borrowing the money
C)No one will get hurt
D)No one will care
Answer: D
Q2) Which of the following people is most likely to have opportunities to commit fraud?
A)Rob is a convicted bank robber who has been out of jail for 7 years and is working for a small firm whose manager knows about Rob's criminal background.
B)Jane is a recent high school graduate who loves shopping.She is on the look out for a job.
C)Steve was just hired by his company but he is always acting suspicious
D)62 year old Dave has loyally worked up his company's corporate ladder for the past 24 years
Answer: D
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4
Chapter 3: Fighting Fraud: an Overview
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Q1) When perceived pressures and(or)opportunities are low,a person needs more ________ to commit fraud.
A)support from people at workplace
B)rationalization
C)courage
D)motivation
Answer: B
Q2) Which one of the following was NOT discussed as a way to create a culture of honesty and integrity?
A)Offer rewards for honest behavior
B)Communicate expectations throughout the organization
C)Hire the right kinds of employees
D)Create a positive work environment
Answer: A
Q3) Research has shown that ______ detect most frauds.
A)Auditors
B)Customers
C)Vendors
D)Employees
Answer: D
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Chapter 4: Preventing Fraud
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Q1) An organization has a policy requiring the dual counting of all incoming cash receipts.Which control activity is being used here?
A)Segregation of duties
B)Proper authorizations
C)Physical safeguards
D)Documents and records
Q2) An employee recently bought three new cars and remodeled his/her home.These facts would be considered as a:
A)lifestyle symptom.
B)spending addiction symptom.
C)extravagant behavior symptom.
D)financial symptom.
Q3) What is the most likely outcome when a company demotes the perpetrator but allows him or her to go unprosecuted?
A)The company will avoid bad publicity.
B)The perpetrator may commit another fraud in the future.
C)The perpetrator will be saved from pain and embarrassment.
D)Management will send a signal that fraud will not be tolerated.
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Chapter 5: Recognizing the Symptoms of Fraud
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Q1) Which of the following scenarios is least conducive to fraud?
A)Outstanding bills at home
B)Mandatory vacation time
C)Economic downturns
D)Moral decay in upper management
Q2) ______ fraud symptoms are procedures or relationships that are unusual or that do not make sense.
A)Analytical
B)Accounting
C)Internal control
D)Environmental
Q3) In which stage do auditors have a good chance of detecting fraud,if the audit samples include altered documents and miscounts?
A)Theft act
B)Concealment
C)Conversion
D)Layering
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Chapter 6: Data-Driven Fraud Detection
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Q1) According to Benford's law,the first digit of random data sets will most often begin with which number?
A)7
B)1
C)3
D)4
Q2) Which of the following is true?
A)Stratification is the splitting of data into case-specific tables.
B)Stratification is an extension of summarization.
C)Summarization provides detail for each grouping into tables.
D)Stratification is utilized to create a z-score across data sets.
Q3) One of the most common errors investigators make when analyzing time trends is:
A)incorrect data preparation.
B)focusing only on one variable, time (the x-axis if graphed).
C)not monitoring the time taken.
D)not standardizing for time.
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Chapter 7: Investigating Theft Acts
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Q1) For fraud to occur,usually three elements are necessary: pressure,opportunity,and
A)excitement
B)guidance
C)rationalization
D)money
Q2) Which investigation technique relies on a person's senses,especially hearing and seeing?
A)Invigilation
B)Surveillance and covert operations
C)Electronic evidence
D)Obtaining physical evidence
Q3) Which of the following is important regarding invigilation?
A)Invigilation should include all areas of the business.
B)The time period for the invigilation should be at least one month.
C)Past records should be analyzed in order to establish an operating profile for the invigilation.
D)The investigator should make the decision regarding the temporary controls to be put in place for the invigilation.
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Page 9
Chapter 8: Investigating Concealment
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Q1) Which amendment provides the right of the people against unreasonable searches and seizures?
A)First
B)Second
C)Third
D)Fourth
Q2) Which of the following observations about discovery sampling is TRUE?
A)It is one of the more difficult statistical sampling variations to understand.
B)Auditors using this method can always be certain that fraud does not exist in a population of checks.
C)It allows an auditor to generalize and make inferences from the population to the sample.
D)Auditors can quantify both the risk and samples until they have sufficient evidence that fraud does not likely exist.
Q3) Which of the following observations is true about subpoenas?
A)Subpoenas are generally used only in criminal cases.
B)Subpoenas are orders issued by the Company Law Board to produce documents.
C)Failure to honor a subpoena is punishable by law.
D)Every subpoena must be signed by the plaintiff and the accused.
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Page 10
Chapter 9: Conversion Investigation Methods
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Q1) From the following,identify an item that does NOT go into current net worth calculations?
A)Preliminary expenses
B)Prior year's net worth
C)Funds from known sources
D)Assets
Q2) Which of the following statements is true?
A)Many fraud acts committed in the United States utilize the mail system.
B)The United States Postal Service is a governmental organization.
C)The United States Postal Inspection Service only shares its information with law enforcement agencies.
D)Postal inspectors are state-employed investigators.
Q3) Refer Data Set 9-1.The income from unknown sources for years 2 and 3 respectively are:
A)$255,200; $300,200
B)$171,200; $307,200
C)$73,800; $179,800
D)$65,800; $47,800
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Chapter 10: Inquiry Methods and Fraud Reports
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Q1) Interviewers who use pacing are employing a form of ____.
A)Kinetic communication.
B)Paralinguistic communication.
C)Chronemic communication.
D)Proxemic communication.
Q2) Which of the following refers to the use of interpersonal space to convey meaning?
A)Chronemic communication
B)Paralinguistic communication
C)Kinetic communication
D)Proxemic communication
Q3) The most common of all techniques used to investigate and resolve fraud is:
A)Interviewing
B)Auditing
C)Arbitration
D)Invigilation
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12
Chapter 11: Financial Statement Fraud
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Q1) According to study of financial statement frauds by the Committee of Sponsoring Organizations (COSO),the average fraud lasts for how many months?
A)12 months
B)18 months
C)24 months
D)30 months
Q2) Which types of questions should be asked about a company's relationship with financial institutions?
A)Is a significant part of the company's income or revenues derived from one or two large transactions?
B)Has management placed unreasonable demands on the auditor, including unreasonable time constraints?
C)Has significant "short selling" of the company's stock occurred? If so, for what reasons?
D)Is the organization highly leveraged through bank or other loans?
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13
Chapter 12: Revenue- and Inventory-Related Financial
Statement Frauds
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Q1) Overstating ending inventory has the following effect on cost of goods sold and net income respectively.
A)COGS - overstated and NI - overstated
B)COGS - understated and NI - overstated
C)COGS - overstated and NI - understated
D)COGS - No effect and NI - understated
Q2) Assume that the net sales for a company is $5,000,cost of goods sold is $3,000,and average inventory is $1,500.Calculate the number of days' sales in inventory.
A)145
B)274
C)110
D)183
Q3) Which of the following is a documentary symptom associated with revenue-related fraud?
A)Unusual delays by the entity in providing revenue-related, requested information.
B)Weaknesses in the cutoff processes or other key accounting processes.
C)Unsupported or unauthorized revenue-related balances or transactions.
D)Unusual relationships between two revenue related accounts.
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Chapter 13: Liability, asset, and Inadequate Disclosure
Frauds
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Q1) Which of the following statements is FALSE?
A)Liability understatements are easier to detect than other types of financial statement fraud.
B)Analytical symptoms related to accounts payable understatements usually relate to reported balances that appear too low.
C)A seasoned fraud examiner will look for unusual liability account changes to detect fraud.
D)Companies in trouble have a strong motivation to understate liabilities.
Q2) Which asset is probably the most difficult to overstate under normal audit procedures?
A)Fixed assets
B)Marketable securities
C)Cash
D)Accounts receivable
Q3) Which of the following applies to a "cookie jar?"
A)Understated accounts payable
B)Overstated current assets
C)Overstated reserves
D)Recording fictitious revenues
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Chapter 14: Fraud Against Organizations
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Q1) Which of the following statements with reference to extortion is true?
A)It is a crime even if the extortion message is only sent but not received.
B)The words "pay up or else" are insufficient to constitute extortion.
C)It is a crime even if the extortion message is sent either unwillingly or without the knowledge of the sender.
D)An extortionate threat made to another in jest is not extortion.
Q2) Which of the following is the most likely reason fraud within a company is detected?
A)Internal audits are conducted both routinely and unexpectedly.
B)External auditors have become more knowledgeable in how to look for fraud.
C)Internal controls have become more sophisticated.
D)Employees who have suspicions about possible fraud report them.
Q3) The 2010 ACFE Report to the Nation on Occupational Fraud & Abuse covers three types of fraud against organizations: Which of the following is one of them?
A)Corruption
B)Bid-rigging
C)Check tampering
D)Lapping
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Chapter 15: Consumer Fraud
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Q1) Which of the following identity theft actions listed is considered to be part of the first dimensional actions?
A)efforts to gain victim's personal information.
B)larger thefts, often involving personal interaction, without much chance of getting caught.
C)largest thefts committed after perpetrators have confidence that their schemes are working.
D)small thefts to test the stolen information.
Q2) According to the text,which of the following is the best defense against becoming a victim of consumer fraud?
A)Avoid internet offers.
B)Register on the do-not call list.
C)Check companies named in all print ads through the Better Business Bureau.
D)Education.
Q3) A Nigerian money offer email is a form of which of the following scams?
A)foreign advance-fee scam.
B)purchase of real estate scam.
C)clearing house scam.
D)multilevel marketing scam.
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Page 17
Chapter 16: Bankruptcy, divorce, and Tax Fraud
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Q1) Which type of bankruptcy is a reorganization that can be used by individuals who meet certain requirements,such as having regular income and debts of $1 million or less?
A)Chapter 3
B)Chapter 5
C)Chapter 7
D)Chapter 11
E)Chapter 13
Q2) Whic of the following is often the riskiest step in the money laundering process?
A)integration
B)layering
C)placement
D)transferring
Q3) Which of the following organizations sets the international standards for combating money laundering?
A)The United Nations Monetary Fund Task Force
B)The International Monetary Fund Task Force
C)The World Bank Action Task Force
D)The Financial Action Task Force
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Page 18
Chapter 17: E-Commerce Fraud
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Q1) Which of the following human features is generally used in biometrics?
A)Height
B)Fingerprints
C)Complexion
D)Weight
Q2) Which of the following examples illustrates sniffing?
A)A fraudster impersonating a customer and buying equipment on the customer's account.
B)A fraudster viewing design data of a special project that is being transferred over a network.
C)A fraudster using another employee's passwords to access sensitive information.
D)An Internet site mimicking another site by using .org instead of .com.
Q3) What is spoofing?
A)Using a subtly different Internet host name to mimic another business.
B)Changing the information in e-mail headers or IP addresses.
C)Extracting personal or corporate computer information from employees.
D)Viewing the information that passes along a network line.
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19
Chapter 18: Legal Follow-Up
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Q1) Which of the following is the term for testimony taken before the trial begins?
A)subpoena
B)motion
C)deposition
D)settlement
Q2) Which of the following observations is true concerning discovery?
A)It is the last stage of the civil litigation process.
B)It is one of the stages in a civil litigation but not in a criminal litigation.
C)It is often the most challenging part of civil litigation because discovery can be?time-consuming and expensive.
D)It is a series of written questions that specifically identify information needed from the?opposing party.
Q3) Which of the following are part of the organization of federal courts?
A)Probate courts
B)Bankruptcy courts
C)Criminal courts
D)Traffic courts
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