Financial Statement Analysis
Solved Exam Questions
Course Introduction
Financial Statement Analysis is a comprehensive course designed to equip students with the skills needed to evaluate and interpret corporate financial reports. The course covers key concepts such as ratio analysis, trend analysis, and cash flow analysis, enabling students to assess a company's financial health, performance, and potential risks. Through case studies and real-world examples, learners gain experience in using financial statements for decision-making purposes, including investment, lending, and strategic planning. Emphasis is placed on understanding the limitations of financial statements and the impact of accounting policies and estimates on reported results.
Recommended Textbook
Forensic Accounting and Fraud Examination 1st Edition by Mary Jo Kranacher
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16 Chapters
916 Verified Questions
916 Flashcards
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2
Chapter 1: Core Foundation Related to Fraud Examination and Financial
Forensics
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) Give examples of nonfraud forensic and litigation advisory engagements.
Answer: Engagements may be criminal, civil or administrative cases that involve economic damage claims, workplace or matrimonial disputes, or asset and business valuations.
Q2) Differentiate between fraud and abuse.
Answer: Although both fraud and abuse involve an intentional deception that causes its victim to suffer an economic loss and/or the perpetrator to realize a gain, abuse does not rise to the level of fraud. Abuse is often a way to describe a variety of petty crimes and other counterproductive behavior, such as surfing the web while at work, coming to work late or leaving early, using sick leave when not sick, that have become common and even silently condoned in the workplace.
Q3) The acronym "M.I.C.E." as typical motivations of fraud perpetrators stands for:
A) Money, Ideology, Coercion, and Environment.
B) Money, Ideology, Coercion, and Ego.
C) Motive, Ideology, Coercion, and Ego.
D) Money, Image, Capability, and Environment.
Answer: B
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Page 3
Chapter 2: Careers in Fraud Examination and Financial
Forensics
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Pick the incorrect continuation: To effectively discharge its financial reporting responsibility, management should:
A) ensure that published financial statements are not misleading and are free of material errors, irregularities, and fraud.
B) assess and manage the risk of fraud associated with the identified circumstances, conditions, and factors.
C) identify and assess the circumstances, conditions, and factors that can lead to fraud.
D) design and implement an adequate and effective internal control process for prevention and detection of fraud.
Answer: A
Q2) The Society of Financial Examiners is a professional society for examiners of insurance companies, banks, savings and loans, and credit unions primarily based in the European Economic Community.
A)True
B)False
Answer: False
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Chapter 3: Who Commits Fraud and Why: Criminology and Ethics
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Sample Questions
Q1) Conspiracy is a means of prosecuting the individuals involved in illegal organized activity.
A)True
B)False
Answer: True
Q2) Without visually representing the crime scene, very different conclusions are reached about who committed a crime.
A)True
B)False
Answer: True
Q3) According to Albrecht, opportunities to commit fraud may be created by individuals, or by deficient or missing internal controls.
A)True
B)False
Answer: True
Q4) Negligence applies when a person acts in a reasonable and prudent manner.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Complex Frauds and Financial Crimes
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) Bank secrecy laws make it difficult to "follow the money".
A)True
B)False
Q2) Which of the following is an example of churning:
A) An investor who frequently trades for his account
B) An advisor who reinvests dividend and interest payments regularly for a client
C) An advisor who executes frequent trades to take advantage of market movements
D) An advisor who executes frequent trades to generate income for himself
Q3) Which of the following is NOT an example of financial statement fraud:
A)The sales manager records as a sale a large shipment of finished goods on January 1, 20X1, the day after year-end in order to earn a large bonus
B) The financial controller increases monies in the reserve account in order to meet analysts' expectations regarding earnings
C) The CEO insists that the payment for current year accrued bonuses be deferred to the next fiscal year
D) The treasurer transfer money from one bank account to another in order to mask a shortage
Q4) Explain how the Patriot Act enhances RICO.
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Page 6
Chapter 5: Cybercrime: Computer and Internet Fraud
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Sample Questions
Q1) Computers offer cyber criminals efficient ways to hide fraudulent activities.
A)True
B)False
Q2) Computer crime and computer fraud are synonyms.
A)True
B)False
Q3) Cyber-crime involves the use of cell phones.
A)True
B)False
Q4) An employee, having authorized access to a work computer, commits fraud while using the computer. This is an example of a computer crime.
A)True
B)False
Q5) The "computer as a symbol" involves using a computer to intercept data transmission.
A)True
B)False
Q6) Computer crime involves the attempt to access data illegally.
A)True
B)False
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Chapter 6: Legal, Regulatory, and Professional Environment
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52 Flashcards
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Sample Questions
Q1) What is meant by demonstrative evidence? Give examples.
Q2) The ______ Amendment provides that an individual has the right to an attorney to defend himself and the right to confront witnesses against him.
A) Fifth
B) Fourth
C) Sixth
D) Fourteenth
Q3) What approaches are used by investigators to obtain documents?
Q4) It is advisable that employers document good cause for any termination in the employee's personnel file. Good cause might include the following EXCEPT:
A) The employee's conduct was against written policy.
B) The investigation was fair, objective, and evidence suggested the elimination of alternative suspects.
C) The punishment fits the crime, meaning that the punishment is reasonable given the nature of the offense.
D) The termination was discriminatory, meaning that not all persons committing such an act were or would be terminated.
Q5) What remedies are available through the civil and criminal justice systems?
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Chapter 7: Fraud Detection: Red Flags and Targeted Risk Assessment
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Sample Questions
Q1) Generally, how is the problem of management override and collusion addressed?
Q2) SAS No. 99 lists several steps in considering the risk of fraud in a financial statement audit. All of the following are correctly stated except:
A) Auditors must brainstorm with the key personnel of both the internal and independent audit teams to plan a strategy to detect fraud.
B) Auditors must evaluate the audit evidence throughout the audit and respond to any identified misstatements.
C) Auditors must determine the types of fraud risks that exist.
D) Auditors are required to report all fraud to an appropriate level of management.
Q3) Define the terms fraud prevention, fraud deterrence, and fraud detection and identify issues of timing.
Q4) What are some red flags that may indicate that fraud is occurring?
Q5) Unusual behaviors such as irritability or the inability to relax are examples of analytical anomalies..
A)True
B)False
Q6) What is the role of the external auditor in the financial reporting process?
Page 9
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Chapter 8: Detection and Investigations
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Sample Questions
Q1) Circumstantial evidence
Q2) Evidence must be authentic in order to be admitted.
A)True
B)False
Q3) Using a copy of an electronic file is not allowed in court.
A)True
B)False
Q4) Intent:
A) Need not be proved directly
B) Must be proved
C) Must be proved with evidence
D) Both "b" and "c"
Q5) An anonymous tip can be a form of predication.
A)True
B)False
Q6) A fraudster erases files from his hard drive. This is an example of data alteration.
A)True
B)False
Q7) Data mining software
Page 10
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Chapter 9: Effective Interviewing and Interrogation
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56 Verified Questions
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Sample Questions
Q1) Which of the following questions is NOT appropriate for an interviewer to ask?
A) Is there anything that I have forgotten to ask?
B) Is there anything else you would like to add for the record?
C) Is there anyone else I should speak with about the issues we have covered?
D) Do you think embezzling is a crime?
Q2) At a minimum, during the close of an interview, the interviewer will review and summarize important aspects of the interview, clarifying when necessary and asking any final questions about the interviewee's responses.
A)True
B)False
Q3) ________ questions are those that limit the possible responses by requiring a precise answer - usually "yes" or "no."
A) Open
B) Closed
C) Affirmative
D) Leading
Q4) What are some suggested approaches for conducting interviews?
Q5) What are the benefits of strong interviewing and interrogation skills?
Q6) Provide three of Joe Well's ten commandments for effective interviewing.
Page 11
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Chapter 10: Using Information Technology for Fraud
Examination and Financial Forensics
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57 Verified Questions
57 Flashcards
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Sample Questions
Q1) What role do graphics play in an investigation?
Q2) Case management software can be used in a number of situations to manage cases and case data.
A)True
B)False
Q3) In data analysis and extraction software, the types of queries conducted on accounts receivable would includes everything EXCEPT:
A) Identifying debits to expense accounts
B) Create a list of customer limit increases
C) Age accounts receivable in various formats
D) Identify gaps in the sequence of invoice numbers
Q4) Restoring data and files is a more sophisticated approach to recovering deleted files.
A)True
B)False
Q5) List two commercial data extraction and analysis software and list four functions of this software.
12
Q6) What is the purpose of timelines in an investigation?
Q7) What is meant by the acronym CAATTs and what are they used for?
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Chapter 11: Cash Receipt Schemes and Other Asset
Misappropriations
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55 Verified Questions
55 Flashcards
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Sample Questions
Q1) An employee who would probably not be involved in skimming would be:
A) The president of the company
B) The cashier
C) The accounts receivable manager
D) The petty cash clerk
Q2) How may the larceny of noncash assets be prevented?
Q3) A computer audit test for detecting cash larceny where employees have high dollar differences between the cash count and sales register tape would include:
A) Summarize by employee the difference between the cash receipt report and the sales register system
B) Summarize by store the difference between the cash receipt report and the sales register system
C) Summarize by location the discounts and returns
D) Compare adjustments to inventory
Q4) What techniques are generally used to conceal a receivables skimming scheme?
Q5) Software like IDEA and ACL is generally not suitable to detect skimming of cash.
A)True
B)False
Q6) What types of company assets are typically misused?
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Chapter 12: Cash Disbursement Schemes
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Sample Questions
Q1) Brenda is the new company CFO and she wants to prevent a shell company scheme. She should implement which of the following controls:
A) Separation of duties between accounts payable and the treasurer
B) Separation of duties between purchasing and the controller
C) Separation of duties between purchasing and accounting
D) None of the above
Q2) Detecting a shell company scheme requires:
A) A review of bank statements
B) A review of cash disbursements
C) An analysis of price variances
D) Both "b" and "c"
Q3) One way to thwart a ghost employee scheme is for someone with no responsibility for collection of time and attendance data to distribute the paychecks.
A)True
B)False
Q4) Ghost employees are employees that physically exist but are not on the payroll records.
A)True
B)False
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Chapter 13: Corruption and the Human Factor
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Sample Questions
Q1) Why is it problematic for an organization to set standards that are too high?
Q2) Employers sometimes have ________ their employees that may contribute to occupational fraud and abuse.
A) unreasonable expectations of
B) confidence n
C) hopes in
D) confusion about
Q3) Describe the features of an effective fraud reporting program within a company.
Q4) What are the different types of corruption schemes?
Q5) The threat of ________, especially in businesses that are currency-intensive, may be a powerful deterrent to occupational fraud and abuse.
A) jail time
B) surprise audits
C) conflicts of interest policy
D) external reviews
Q6) Perhaps the most common indicator of collusive bidding practices is an unusually low contract price.
A)True
B)False
Page 15
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Chapter 14: Financial Statement Fraud
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Sample Questions
Q1) If a misstatement on financial statements is so significant that reasonable, prudent users of the financial statements would make a different decision than they would if they had been given correct information, then the misstatement is material and requires correction.
A)True
B)False
Q2) Which of the following is NOT a red flag of improper financial disclosure?
A) Domination of management by a single person or small group in a non-owner-managed business with no compensating controls
B) Used by the company of a non-Big Four accounting firm
C) Ineffective board of directors or audit committee oversight of the financial reporting process and internal control
D) Ineffective communication, implementation, support, or enforcement of the entity's values or ethical standards by management
Q3) Receivable turnover is computed by:
A) Net credit sales / average net receivables
B) Average net receivables / net credit sales
C) Average net receivables / 365
D) Net credit sales / 365
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Page 16
Chapter 15: Consulting, Litigation Support, and Expert
Witnesses: Damages, Valuations, and Other Engagements
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Sample Questions
Q1) Torts occur when a party has been injured, even though the parties to the suit do not have a contractual relationship.
A)True
B)False
Q2) What must an injured party prove to be successful in a claim for damages?
Q3) Practicing professionals, because of the nature of their independence and objectivity, should not accept contingent fee arrangements.
A)True
B)False
Q4) The fraud examiner or forensic accountant often uses public records to verify the existence of the vendor business, the vendor's ownership, and the vendor's address and phone number.
A)True
B)False
Q5) The amount of loss in commercial damages may be affected by all EXCEPT:
A) The general economy
B) The conditions of the industry
C) The damages entity's completive environment
D) Compliance with GAAP
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Chapter 16: Remediation and Litigation Advisory Services
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Sample Questions
Q1) When may an expert's opinion be subject to challenge?
Q2) A company should develop a system of internal controls that provides absolute assurance that assets are protected and financial statements are fairly presented.
A)True
B)False
Q3) Remediation is characterized as the steps necessary to "clean up the mess" after a fraud or financial crime has been discovered and investigated, and the results of the investigation have been reported.
A)True
B)False
Q4) The expert witness can also present a negative impression through:
A) Illustrations and analogies
B) Confidence
C) Hesitation when answering questions
D) Concise organizations
Q5) A judgment is a formal and temporary decision made by a court of law.
A)True
B)False
Q6) What two points must an injured party prove to recover money in a civil lawsuit?
Page 18
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