Ethics in Accounting Exam Preparation Guide
Course Introduction
Ethics in Accounting explores the fundamental principles and ethical standards governing the accounting profession. This course examines the importance of integrity, objectivity, and professional behavior in financial reporting and decision-making. Students will analyze real-world cases involving ethical dilemmas, conflicts of interest, fraudulent activities, and regulatory compliance. Emphasis is placed on the role of professional codes of conduct, such as those established by the International Federation of Accountants (IFAC) and the American Institute of Certified Public Accountants (AICPA), in guiding ethical behavior. By the end of the course, students will be equipped with the tools to recognize and address ethical issues, fostering public trust and credibility within the accounting field.
Recommended Textbook Fraud Examination 3rd Edition by W. Steve Albrecht
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Chapter 1: The Nature of Fraud
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Q1) According to chapter 1, what is the estimated average organization's loss from various types of fraud?
A) "About 5 - 6% of total company revenues"
B) "Approximately 20 - 30% of revenues"
C) "Greater than 50% of revenues"
D) "Average losses cannot be estimated due to incomplete information"
Answer: A
Q2) Which of the following is not a primary reason why frauds are becoming increasingly frequent?
A) The advent of computers
B) Complex accounting systems
C) Globalization of corporations
D) The Internet
Answer: C
Q3) Vendor fraud can involve all of the following except:
A) An overcharge for purchased goods
B) The shipment of inferior goods
C) Non-payment of goods by the customers
D) Non-shipment of goods even though payment has been made
Answer: C
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Chapter 2: Why People Commit Fraud
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Q1) Which racial group is most likely to commit fraud?
A) Caucasian
B) African American
C) Asian
D) Hispanic
E) People of every race commit fraud
Answer: E
Q2) Teaching and Training are examples of
A) Modeling
B) Labeling
C) Physical Safeguards
D) Independent Checks
Answer: B
Q3) What is the most important element of the control environment?
A) Management's communication
B) Management's role and example
C) The hiring process
D) The internal audit department
Answer: B
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Page 4
Chapter 3: Fighting Fraud: An Overview
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Q1) In lieu of acting honestly and facing negative consequences many people will do which of the following?
A) Break down emotionally
B) Run away from the problem
C) Face the music
D) Act dishonestly
Answer: D
Q2) Of the key activities related to fraud, which of the following is the most important and perhaps the most profitable?
A) Follow-up legal action/resolution
B) Early fraud detection
C) Fraud investigation
D) Fraud prevention
Answer: D
Q3) Which is not a type of evidence collected in fraud investigations?
A) Testimonial Evidence
B) Documentary Evidence
C) Electronic Evidence
D) Physical Evidence
Answer: C
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Chapter 4: Preventing Fraud
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Q1) Which factors are crucial in creating a culture of honesty, openness, and assistance?
A) Hiring honest people and training them in fraud awareness
B) Creating a positive work environment
C) Disseminating a well understood and respected code of conduct or ethics
D) All of the above
Q2) What are key attributes for a low-fraud environment?
A) Rules, consequences, and fear
B) Recognition, remorse, and restitution
C) Honesty, openness, =and assistance
D) Opportunity, incentive, and rationalization
Q3) The single most effective tool in preventing and detecting fraud is
A) Proactive fraud auditing
B) Tip hotlines
C) Creating an expectation of punishment
D) Good internal controls
Q4) True or False. Internal controls are "fraud proof".
A)True
B)False
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Chapter 5: Recognizing the Symptoms of Fraud
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Q1) Choose the answer that is NOT a common example of an analytical anomaly.
A) Increased volume with increased cost per unit
B) Increased revenues with increased inventory
C) Increased revenues with decreased receivables
D) Increased inventory with decreased payables
Q2) It is discovered that a bank does not require two signatures on cashier's checks exceeding $500,000. This is an example of:
A) Analytical anomalies.
B) Accounting anomalies.
C) Faulty journal entries.
D) Internal control weaknesses.
Q3) Auditors are better positioned than anyone to detect which element of fraud:
A) Theft
B) Conversion
C) Concealment
D) None of the above
Q4) People who can delay gratification rarely embezzle.
A)True
B)False
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Chapter 6: Data-Driven Fraud Detection
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Q1) An appropriate red flag search to detect kickbacks or other favors would include
A) Invoices without valid purchase order
B) Employee and vendor telephone numbers are the same
C) Purchase orders with zero dollar amounts by buyer
D) Price increases greater than 30% for four consecutive years
Q2) A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers:
A) Inductive fraud detection
B) Deductive Fraud detection
C) Benford's law
D) Horizontal Analysis
E) Vertical Analysis
Q3) The data-driven method of fraud detection does not include which of the following characteristics:
A) Determining symptoms that the most likely frauds would generate
B) Understanding the business
C) Understanding and using Benford's law to analyze company databases
D) Understanding what kinds of frauds could occur
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8
Chapter 7: Investigating Theft Acts
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Q1) The best pattern to use to conduct a fraud/theft investigation includes:
A) Search public records, interview suspect, invigilation
B) Check personnel records, invigilation, interview suspect
C) Interview suspect, invigilation, interview former employers
D) Interview co-workers, interview former employers, interview suspect
Q2) Methods for theft act investigations include all of the following EXCEPT:
A) Surveillance and covert operations
B) Interviews and interrogation
C) Invigilation
D) Physical evidence
Q3) Characteristics of invigilation include which of the following?
A) A method of creating a loosely monitored environment that catches the fraudulent action
B) An inexpensive method to monitor the suspect for a short time period.
C) A method comparing regular periods with a temporary period of enhanced controls
D) A method of watching and recording physical facts and movement
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9
Chapter 8: Investigating Concealment
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Q1) Which of the following is not a common way to obtain hard-to-get documentary evidence?
A) Subpoena
B) Search Warrant
C) Voluntary Consent
D) Force
Q2) DocLab is a division of which organization?
A) US Marshals
B) FBI
C) CIA
D) ACFE
Q3) Documents presented in court are often disputed. The following are questions that arise from disputed documents except:
A) Was the signature written before the rest of the document?
B) Is the signature genuine?
C) Was the writing disguised?
D) How old are the paper, printing and ink used?
E) All of the above are questions that arise from disputed documents
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Chapter 9: Conversion Investigation Methods
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Q1) Searching through someone's garbage is considered a legal activity when:
A) the trash is more than 14 days old
B) the trash is in the person's possession
C) the trash has left the person's home or sidewalk
D) Stealing a person's trash is never considered a legal activity.
Q2) What is the purpose of the net worth calculation in fraud?
A) It is used to determine the extent of stolen funds
B) It is used to determine how much money can be stolen without causing a company to go bankrupt.
C) It is used to help locate fraudulent asset accounts
D) All of the above
Q3) Which of the following is not a good reason for involving postal inspectors in a fraud investigation?
A) Postal inspectors share jurisdiction with other federal, state, and local agencies.
B) Postal inspectors work for the prosecution of offenders who violate postal laws.
C) Postal inspectors have access to an individual's past and current addresses.
D) Postal inspectors work to protect citizens from loss through theft that uses the mail system.
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Chapter 10: Inquiry Methods and Fraud Reports
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Q1) Which of the following is the correct sequence of reactions to crisis?
A) Denial, anger, rationalization, depression, acceptance
B) Rationalization, anger, depression, acceptance, denial
C) Denial, depression, anger, rationalization, acceptance
D) Rationalization, depression, anger, denial, acceptance
Q2) Interviewers who use pacing are employing a form of communication called
A) Kinetic
B) Paralinguistic
C) Chronemic
D) Proxemic
Q3) In an admission-seeking interview,
A) the interview should be held in the interviewee's office or home.
B) the interviewer must read Miranda Warnings.
C) the interviewee should be confronted as soon as authorities have reason to suspect him.
D) the interviewer should attempt to interrupt any denial.
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Chapter 11: Financial Statement Fraud
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Q1) According to the COSO's study of financial statement frauds, what is the average period of a financial statement fraud?
A) 12 months
B) 18 months
C) 24 months
D) 30 months
Q2) Although GAAP does allow for some flexibility, which standards should be maintained in preparing financial statements?
A) Assertiveness
B) Integrity & Objectivity
C) Independence
D) None of the above
Q3) Understanding a company's debt or leverage is important for which of the following reasons?
A) It helps in gaining a perspective of management's motivations.
B) It helps in understanding the pressures a company faces.
C) It helps identify opportunities in which the company might commit fraud.
D) B and C
E) All of the above
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Page 13
Chapter 12: Revenue- and Inventory-Related Financial
Statement Frauds
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Q1) Which of the following is not a typical analytical symptom of revenue fraud?
A) Revenue appears too high
B) Discounts appear too low
C) Allowance for doubtful accounts appears too high
D) Bad debt expense appears too low
E) All of the above are typical analytical symptoms of revenue fraud
Q2) Which accounts are most commonly manipulated in a financial statement fraud?
A) Revenues/ receivables
B) Inventory/ COGS
C) Long-term liabilities
D) Short-term liabilities
Q3) Overstating ending inventory has the following effect on cost of goods sold and net income, respectively.
A) Overstated, overstated
B) Understated, overstated
C) Overstated, understated
D) No effect on either account
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Page 14
Chapter 13: Liability, Asset, and Inadequate Disclosure
Frauds
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Q1) Companies use all but which of the following to finance their operation?
A) Earnings
B) Dividends
C) Debt
D) Owner investments
Q2) The fixed asset relationships for identifying analytical symptoms of fraud can be examined by all of the following ratios EXCEPT:
A) Total Fixed Assets ÷ Long Term Debt.
B) Sales ÷ Total Fixed Assets
C) Total Fixed Assets ÷ Long Term Debt
D) Accumulated Depreciation ÷ Depreciable Assets
Q3) All of the following are ways to detect disclosure fraud except:
A) A tip or a complaint
B) Making inquiries of management regarding related-party transactions, and other liabilities
C) Identifying inconsistencies between disclosures and information in the financials
D) Searching for analytical symptoms in the financial statements
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Page 15
Chapter 14: Fraud Against Organizations
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Q1) What is skimming?
A) Removal of cash from a victim organization before entry into an accounting system
B) Very similar to bribery
C) Submission of a false or altered invoice that causes an employer to willingly issue a check
D) None of the above
Q2) What are the four types of corruption?
A) Bribery, conflicts of interest, extortion, and illegal gratuities
B) Bribery, larceny, extortion, and conflicts of interest
C) Skimming, larceny, extortion, and conflicts of interest
D) Conflicts of interest, check tampering, skimming, and illegal gratuities
Q3) When suppliers are engaged in bid-rigging, they vie for contracts in cutthroat environments, and usually only gain an advantage over competitors through bribing an employee with inside influence.
A) True
B) False
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16
Chapter 15: Consumer Fraud
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Q1) Identity theft is used to describe those circumstances when someone uses another person's:
A) Name and/or address
B) Bank account information
C) Social security information
D) All of the above
Q2) A Nigerian money offer scam normally does all of the following, except:
A) States the need for urgent assistance
B) Makes the victim feel like he or she is the only recipient of the offer
C) Uses the traditional mail system to increase believability
D) Tries to build a relationship of confidence with the recipient
Q3) Which act gives individuals the right to opt-out of having their information sold?
A) Identity Theft and Assumption Deterrance Act
B) Family Education Rights and Privacy Act of 1974
C) The Gramm-Leach-Bliley Act
D) Fair Credit Reporting Act
Q4) Multi-level Marketing Companies are illegal in the United States.
A)True
B)False
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Chapter 16: Bankruptcy, Divorce, and Tax Fraud
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Q1) Which of the following is a possible indicator of concealment in a bankruptcy or divorce fraud?
A) Increases in operating losses that are not explained by economic factors
B) The size of orders placed on credit and the credit balances with suppliers suddenly and dramatically decrease
C) A sudden change in management is made without public notice
D) The company sells goods at large discounts
Q2) If reorganization does not work under Chapter 11 bankruptcy, judges will often order a _________ bankruptcy.
A) Chapter 5
B) Chapter 9
C) Chapter 10
D) Chapter 13
E) None of the above
Q3) The concealment of assets during or in contemplation of a bankruptcy is:
A) Often used in divorce cases
B) Often used in a planned bankruptcy
C) How a bust-out is designed
D) All of the above
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Page 18
Chapter 17: Fraud in E-Commerce
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Q1) Identify the true statement about control activities in an e-business environment.
A) Although the same types of control activities are used, they are not as effective in e-business.
B) Adequate separation of duties is not as important in e-commerce as it is in traditional brick-and-mortar businesses.
C) Proper authorization is a key control in e-business - passwords, firewalls, digital signatures and certificates, and biometrics are especially important and must be carefully monitored.
D) A and C only
E) All of the above
Q2) ___________ are self-contained programs that spread via direct transfer, email, or another mechanism.
A) True viruses
B) Internet worms
C) Trojan Horses
D) Spyware
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Chapter 18: Legal Follow-Up
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Q1) _________ is the body of law that provides remedies for violations of private rights.
A) Civil Law
B) Criminal Law
C) Judicial Law
D) Constitutional Law
E) Personal Injury Law
Q2) Which of the following motions are frequently made during the pretrial phase?
A) A motion to dismiss charges as a matter of law
B) A motion to suppress certain evidence because it was illegally obtained
C) A motion to dismiss charges as a matter of principle
D) Both C and A
E) Both A and B
Q3) The following are all stages in civil litigation except:
A) Trial and appeal.
B) Discovery.
C) Investigation and pleadings.
D) All are stages in civil litigation.
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