Financial Statement Analysis
Exam Bank
Course Introduction
Financial Statement Analysis provides students with the concepts and tools necessary to interpret and evaluate financial statements from a user perspective. The course explores the structure and content of the primary financial statements, including the balance sheet, income statement, and statement of cash flows, and teaches analytical techniques for assessing profitability, liquidity, solvency, and cash flow. Students learn how to use ratio analysis and other methodologies to assess firm performance and risk, make forecasts, and support decision-making in areas such as lending, investment, and corporate strategy. Ethical issues and limitations of financial reporting are also discussed.
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) Which of the following is an example of vendor fraud?
A) You were overcharged for a hotdog that you bought on the street
B) The "new book" you ordered just arrived and contains writing on the inside cover
C) You never received a book you ordered and paid for online
D) All of the above
Answer: D
Q2) In recent years, the size (in dollar amounts) of fraud cases has increased. Which of the following is NOT a reason for increase in the size of discovered frauds
A) Complex accounting systems
B) It is no longer necessary to remove the physical assets
C) The advent of the internet
D) All of the above have contributed to an increase in the size of frauds
Answer: D
Q3) True or false: If a company experiences a $1,000 fraud, it will have to generate $1,000 in additional revenue to make up for the fraud.
A) True
B) False
Answer: B
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Chapter 2: Why People Commit Fraud
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Sample Questions
Q1) Which of the following attributes is a fraud perpetrator most likely to possess?
A) Criminal Record
B) Less Educated
C) Alcohol Abuser
D) Religious
Answer: D
Q2) Which of the following is not a control activity?
A) Dual custody
B) Systems of authorization
C) Internal audit department
D) Documents and records
Answer: C
Q3) What is the most important element in a 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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Chapter 3: Fighting Fraud: An Overview
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Q1) Which of the following is false?
A) Most frauds start small and get larger and larger if not detected.
B) Research has shown that auditors-not employees and managers-detect most frauds.
C) The elements of fraud include concealment, theft act, and conversion.
D) Preventing fraud is the most cost-effective way to reduce losses from fraud.
Answer: B
Q2) Which is not one of the three basic elements of fraud?
A) Concealment
B) Theft
C) Opportunity
D) Conversion
Answer: C
Q3) Which of the following is the best way to create a culture of honesty and integrity?
A) Insist that top management model appropriate behavior
B) Hire the right kind of employees
C) Develop and maintain effective policies
D) All of the above
Answer: D
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5
Chapter 4: Preventing Fraud
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Sample Questions
Q1) Which of the following is a sign of a positive work environment?
A) Yearly turnover of hourly employees exceeds 25%
B) Company returns that consistently beat the industry average
C) Departments cut work parties to keep within their budget
D) Employees work long hours because they care about the company
Q2) The last step in the "fraud savvy" model for dealing with fraud includes follow-up. What is a likely outcome when a company allows perpetrators to go un-prosecuted?
A) The company will avoid bad publicity
B) The perpetrator and others in the company will commit fraud again in the future
C) The perpetrator will be saved from pain and embarrassment and having learned his or her lesson will not commit fraud again
D) Management will send a signal that fraud will not be tolerated
Q3) What is the most likely way to deter fraud?
A) Interview every employee on a regular basis
B) Implement a good system of controls
C) Keep management involved in company procedures
D) Threaten employees that perpetrators will be fired
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Chapter 5: Recognizing the Symptoms of Fraud
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Q1) Which of the following is an example of an analytical anomaly?
A) Excessive late charges
B) Unexplained inventory shortages
C) Too many debit memos
D) All of the above
Q2) Which of the following is an analytical anomaly?
A) Increases in past due Accounts Receivable
B) Significant increases or decreases in account balances
C) Alterations on documents
D) Excessive voids or credits
Q3) Embezzlers who manipulate accounting records to conceal their fraud (or theft of assets) most often ______________.
A) "Balance" the accounting equation by reducing equity.
B) "Balance" the accounting equation by reducing revenues.
C) "Balance" the accounting equation by reducing liabilities.
D) "Balance" the accounting equation by increasing expenses.
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) What is the most direct approach to focusing on changes in the balance sheet?
A) Vertical Analysis
B) Horizontal Analysis
C) Ratio Analysis
D) None of the Above
Q2) When using financial statement analysis, which ratio will be most useful in assessing a company's operational efficiency?
A) Inventory turnover
B) Quick ratio
C) Cost of goods sold percentage
D) Current Ratio
Q3) Benford's Law is best exemplified by what type of distribution curve?
A) First digit numbers are evenly distributed
B) First digit numbers do not follow a defined pattern
C) Number sets will begin with a 1, more often than a 2, a 2 more often than a 3, and so on
D) None of the above
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8
Chapter 7: Investigating Theft Acts
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Sample Questions
Q1) The following are all part of the process for gathering electronic evidence except:
A) Clone the device
B) Calculate CRC checksum
C) Scan the device for errors
D) Check the device manually
E) All of the above are part of the process for gathering electronic evidence
Q2) A vulnerability chart coordinates the various elements of a possible fraud including all the following except:
A) Pressures on the company
B) Concealment possibilities
C) Conversion possibilities
D) Symptoms observed
E) A, B, and D
F) None of the above
Q3) 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
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Page 9
Chapter 8: Investigating Concealment
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Q1) Secondary evidence may be used in all of the following instances except:
A) The original document has been lost or destroyed without the intent or fault of the party seeking to introduce the secondary evidence.
B) The original document is in the possession of an adverse party who fails to produce it after a written notice to do so.
C) The original documents are too voluminous to permit careful examination.
D) The original documents are too fragile to be handled.
Q2) Documents are often the incriminating evidence for fraud. Which of the following should be used when ensuring that the documents are legitimate and accessible for trial?
A) Photograph the evidence
B) Digitally enhance the evidence
C) Mark the evidence
D) Preserve the evidence in a non-transparent container
Q3) Which of the following issues is often disputed in court?
A) Is the signature genuine?
B) Was printing performed before or after a signature?
C) How old is the paper, printing and ink used?
D) All of the above issues are often disputed in court.
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Page 10
Chapter 9: Conversion Investigation Methods
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Sample Questions
Q1) Which of the following is not one of the credit reporting agencies used to check identity theft?
A) Experian
B) Equifax
C) Transunion
D) Proquest
Q2) Which of the following would provide the best information regarding the FBI?
A) The Bureau of Prisons
B) The Department of Justice
C) The Department of Vital Statistics
D) The Attorney General
Q3) The ____________ contains information on individuals who may be a threat to national security.
A) Department of justice
B) Bureau of prisons
C) Department of defense
D) Secret service
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11
Chapter 10: Inquiry Methods and Fraud Reports
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Sample Questions
Q1) The feeling of a General Manager that he can "save" an employee who has committed a fraudulent act is an indication that the manager is in what stage of Crisis.
A) Denial
B) Rationalization or bargaining
C) Depression
D) Bargaining or Rationalization
Q2) 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
Q3) Which of the following is NOT an Inhibitor of Communication?
A) Threatened Egos
B) Trauma
C) Catharsis
D) Unconscious Behavior
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Chapter 11: Financial Statement Fraud
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Sample Questions
Q1) The following characteristic(s) is(are) prevalent in most frauds:
A) The company CEO was the perpetrator
B) The last audit report was a qualified audit opinion
C) The company is listed on the New York Stock Exchange
D) The officers held incompatible positions (CEO and CFO)
E) All of the above
Q2) The termination of an auditor-auditee relationship can be caused by all but which of the following?
A) Failure of the client to pay
B) Auditor-auditee disagreement
C) Auditor's suspicion of fraud
D) State government mandate to break long term audit relationships
Q3) Revenue frauds are perpetrated by:
A) Improperly timing transactions
B) Recording receivables to fictitious customers
C) Overestimating the extent to which the earnings process has been completed
D) All of the above
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13
Chapter 12: Revenue- and Inventory-Related Financial Statement
Frauds
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Sample Questions
Q1) An example of a(n) __________ is a change in behavior to cope with the stress involved with committing fraud.
A) Analytical symptom
B) Accounting symptom
C) Control symptom
D) Lifestyle symptom
E) None of the above
Q2) Which of the following is necessary in order to determine if an analytical symptom exists?
A) Ratio analysis
B) A change statement
C) Vertical analysis
D) An expectation
Q3) ___________ is a practice that suppliers use to encourage customers to buy extra inventory so as to increase current-year sales.
A) Kiting
B) Channel stuffing
C) Redating transactions
D) Partial shipments
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Chapter 13: Liability, Asset, and Inadequate Disclosure
Frauds
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Sample Questions
Q1) Which of the following is an example of liability fraud?
A) Understanding accounts payable
B) Improper capitalizing or expensing
C) Overstating accounts receivable
D) Recording fictitious sales
Q2) Overstated fixed assets are generally a result of the following except:
A) Inflated amounts are recorded in arm's-length purchases
B) Assets are not written down to appropriate values
C) Assets are fictitiously recorded in financial statement accounts
D) Fixed assets are generally overstated for all of the above reasons
Q3) Which of the following are ways/opportunities to overstate assets?
A) In mergers and restructuring
B) Through inter-company accounts
C) In accounts receivable and inventory
D) All of the above
Q4) Capitalized costs that should be expensed ___________.
A) are often easy to detect.
B) usually occur in one large transaction.
C) overstate net income by the same amount of the capitalized costs.
D) are usually written off shortly after the transaction takes place.
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Chapter 14: Fraud Against Organizations
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Q1) Fraudulent financial reporting and misappropriation of assets differ in that fraudulent financial reporting is committed by:
A) Management, to deceive financial statement users while misappropriation of assets is committed against an entity, most often by employees.
B) Employees, to deceive financial statement users while misappropriation of assets is committed against an entity, most often by management.
C) Both A & B
D) None of the above
Q2) Which of the following is the best example of theft of cash through skimming?
A) Preparing fraudulent checks
B) Understating sales by recording false or larger-than reality sales discounts
C) Setting up dummy companies
D) Stealing cash after it has already been recorded
Q3) Thefts of inventory are divided into which of the following two groups:
A) Corruption and bribery
B) Expense scheme and skimming
C) Economic extortion and illegal gratuities
D) Larceny and misuse
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16
Chapter 15: Consumer Fraud
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Sample Questions
Q1) The elderly are often targets for consumer fraud because of all of the following, except:
A) The elderly are often lonely
B) The elderly are often embarrassed they have been victims of fraud
C) The elderly are often extremely trusting and do not believe others will take advantage of them
D) The elderly have significant time to investigate new products
Q2) Cover up or concealment actions involve any actions:
A) That keep an investigator warm during a surveillance
B) That are used to keep a potential fraudster unaware of invigilation
C) That are used to cover the financial footprints of a perpetrator
D) That cover up the investigative steps of a fraud investigator
Q3) Product testing scams are frauds that:
A) Ask consumers to review "new" products for a price
B) Do not include money since testing is involved
C) Involve mystery shopping products
D) Mail stuffing scams
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) As a participant in divorce cases, an adjustor can be best described as a person who
A) Investigates allegations of fraud or misconduct by the debtor or its principals
B) Is the subject of a chapter 11 filing
C) Is the one who holds a valid claim against a debtor
D) Assists the trustee by performing such duties as securing business facilities and assets, locating assets of the debtors estate and arranging asset sales
Q2) Which bankruptcy participant administers a bankruptcy estate?
A) Examiner
B) Trustee
C) Adjuster
D) Creditor
Q3) Most divorce fraud cases are:
A) Civil cases.
B) Criminal cases.
C) Protected by Chapter 7.
D) Rarely investigated through surveillance.
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Chapter 17: Fraud in E-Commerce
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Sample Questions
Q1) A risk assessment should:
A) Identify the risk of doing business with e-business partners
B) Focus only on financial data
C) Be avoided at all cost
D) Cover only non-technological areas
Q2) Generally, the best way to prevent fraud in e-business settings is to focus on:
A) Reducing fraud opportunities
B) Buying and implementing virus software
C) Keeping software updated
D) Hiring security experts
Q3) What is biometrics?
A) A signature sent over the internet
B) Using unique features of the human body to create secure access controls
C) A medical device that forces subjects to tell the truth during interviews
D) Complex information systems implementation
Q4) Which is the most secure method of computer authorization?
A) Digital Signatures
B) Passwords
C) Biometrics
D) Voice activation
19
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Chapter 18: Legal Follow-Up
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Sample Questions
Q1) The concept of probable cause comes from which amendment?
A) The Fourth Amendment
B) The Fifth Amendment
C) The Seventh Amendment
D) The Ninth Amendment
Q2) _________ 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
Q3) Each of the following is a stage in the civil litigation process EXCEPT:
A) Investigation and Pleadings
B) Discovery
C) Grand Jury
D) Motion practice and negotiation
E) Trial and Appeal
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