Forensic Accounting Exam Preparation Guide
Course Introduction
Forensic Accounting delves into the specialized field at the intersection of accounting, investigation, and law. This course teaches students to uncover, analyze, and interpret financial evidence in cases of fraud, embezzlement, and other economic crimes. Topics include methods for detecting fraudulent financial activity, understanding relevant regulatory frameworks, and applying forensic techniques during litigation and dispute resolution. Students will also explore real-world case studies and develop skills in preparing expert reports, testifying in court, and collaborating with law enforcement. The course prepares future professionals to play a vital role in maintaining financial integrity within organizations and supporting the justice system.
Recommended Textbook
Forensic Accounting and Fraud Examination 2nd Edition by William S. Hopwood
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Chapter 1: Introduction to Forensic Accounting and Fraud Examination
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Q1) What credential does the AICPA offer?
A) Accredited in Business Valuation.
B) Accredited Business Accountant.
C) Forensic Accountant Accreditation.
D) Accounting for Forensic and Litigation.
Answer: A
Q2) What types of organizations offer credentials to forensic accountants?
A) Association of Certified Fraud Examiners.
B) American College of Forensic Examiners.
C) Institute of Business Appraisers.
D) All of the above.
Answer: D
Q3) Misrepresentation is the act of presenting oneself in a manner that does not agree with reality. What does "presenting" mean?
A) Actions, statements, or omissions.
B) Words, court judgments or opinions.
C) Appearance, style or function.
D) Both a and
Answer: A
Page 3
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Chapter 2: The Forensic Accounting Legal Environment
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Q1) Explain the Personal Knowledge Rule and how expert witnesses are exempt from it.
Answer: The personal knowledge rule is that witnesses can only testify to things that they personally observe with one or more of their own senses. Expert witnesses are exempt from the personal knowledge rule and are allowed to draw conclusions based upon evidence and facts presented to them.
Q2) If a motion in limine is made, the judge may:
A) Excuse some jury members.
B) Exclude some evidence.
C) Modify bail conditions.
D) Provide a lawyer to the defendant.
Answer: B
Q3) Double Jeopardy is when:
A) You can be tried for the same crime in both Federal and State courts.
B) You cannot be tried in the same court for the same crime once the trial begins.
C) You cannot be tried for the same crime in the same court if the judge dismisses the case.
D) All of the above are true.
Answer: D
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Chapter 3: Fundamentals I: Accounting Information Systems
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Q1) If a systems developer is using a pre-developed system as a starting point for the final system, he or she is using the:
A) classical approach.
B) business blueprint approach.
C) ERM approach.
D) Six-Sigma approach.
Answer: B
Q2) Which of the following is an example of an internal control question that an auditor may ask?
A) Do you make daily intact deposits of each day's receipts?
B) Do you restrictively endorse checks "for deposit only?"
C) Do you reconcile bank deposit receipts against credits to accounts receivables?
D) All of the above.
Answer: D
Q3) Internal control is very much process oriented.
A)True
B)False
Answer: True
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Chapter 4: Fundamentals II: The Auditing Environment
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Q1) Auditing is the process of:
A) Developing internal controls.
B) Testing internal controls.
C) Gathering and evaluating evidence.
D) Proving standards of SOX 2002 are upheld.
Q2) Which of the following is not a type of test that an auditor might perform?
A) Tests of Controls.
B) Tests of Principles.
C) Substantive tests of transactions.
D) Substantive tests of balances.
Q3) Compare and contrast sampling for risk and sampling for attributes.
Q4) An auditor may want to observe the physical count of inventory.
A)True
B)False
Q5) What does the model ADR = AAR/(IR x CR) represent?
Q6) Auditors may be employed to audit:
A) Part of a financial statement.
B) Part of a balance sheet.
C) The internal controls of a company.
D) All of the above.
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Chapter 5: Fraud Prevention and Risk Management
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Q1) Which of the following is an information security deliverable?
A) Information-security-related processes.
B) Software and hardware products.
C) Security-related personnel.
D) All of the above.
Q2) An information security deliverable, information security management system and enterprise risk management are generally a part of a companies:
A) Internal Controls.
B) External Controls.
C) Detective Controls.
D) Preventative Controls.
Q3) Which of the following is not a layer of data protection?
A) Network layer.
B) Internal control layer.
C) Application layer.
D) Database layer.
Q4) How could Information security assurance (ISA) be implemented at your businesses or college?
Q5) How is Information Security Assurance achieved?
Q6) Who are some types of individuals posing active and passive threats?
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Chapter 6: Fraud Detection
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Q1) Within the U.S. Federal Government, how do Inspector General's operate?
A) They investigate possible fraud, independently of internal auditors.
B) They investigate possible fraud in conjunction with internal auditors.
C) They investigate only fraudulent situations that involve sexual harassment claims.
D) Inspector Generals have no authority or jurisdiction to investigate fraud.
Q2) When implementing preventative or detective controls:
A) 75% of the money should be invested in detective controls.
B) Half of all control funds should be spent on preventative controls.
C) The costs associated with them should be weighed against the benefits.
D) For every preventative or detective control, one corrective control should be implemented.
Q3) Pressure/incentive typically relates to:
A) Situations in which an employee has an unmet substantial financial need.
B) Opportunity, as without opportunity fraud can become possible.
C) The employee fabricating an internal moral excuse for the fraud.
D) Mafia or blackmail situations.
Q4) What are some additional elements that should be added to an organization if a Fraud Detection Hotline is going to be established?
Q5) Describe a data-driven fraud detection model.
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Chapter 7: The Fraud Investigation and Engagement
Processes
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Q1) Some standard defenses include the following:
A) All of the below are possible standards of defense.
B) Someone else did it.
C) A hacker did it.
D) Those were simply errors and not fraudulent entries.
Q2) Reverse proof means that the investigator must consider the evidence for both sides.
A)True
B)False
Q3) Who can become a fraud investigator within a company and what is their engagement process?
Q4) The first and primary objective in a fraud investigation is to punish the fraudster. A)True B)False
Q5) An incident report and a unified case file are the same thing. A)True
B)False
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Q6) What are the four types of evidence that are gathered in the evidence collection process?
Chapter 8: The Evidence Collection Process
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Q1) What is the fraud investigators primary responsibility?
A) Collecting basic evidence
B) Proving that fraud exists
C) Providing reverse proof
D) Liaising with law enforcement
Q2) Outline the steps in the evidence collection process
Q3) Predication dictates that there must be a reasonable justification for each step in the evidence collection process.
A)True
B)False
Q4) Predication dictates that there must be:
A) A reasonable justification for each step in the evidence collection process.
B) A physical justification for each step in the evidence collection process.
C) A reasonable justification for each step in the interviewing process.
D) A reasonable justification for each step in the documentation process.
Q5) Evidence can be:
A) Only tangible objects
B) Anything
C) Documents
D) Testimony
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Chapter 9: Fraud Examination Evidence I: Physical,
Documentary, and Observational
Evidence
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Q1) The basis for net worth calculations is:
A) Net Worth= Gross Pay - Tax Liabilities
B) Current Debt - Cash on hand
C) Assets= Liabilities - Owner's Equity
D) Assets = Liabilities + Owner's Equity
Q2) List the four ways documentary evidence is obtained.
Q3) Why must financial institutions file large currency transaction reports?
A) So bank auditors can ensure there is no fraud within the bank.
B) So that the IRS can ensure proper taxes are paid.
C) To help provide the link between the movement of money and people who supplied it.
D) To help fraud investigators perform their ratio analysis.
Q4) Who is exempt from the Currency Transactions Report that banks must file?
A) Businesses incorporated in that state.
B) Non-profit organizations.
C) Individuals.
D) Businesses that routinely make such large cash deposits.
Q5) How does a Benford analysis work?
Q6) What are the five common types of analytical procedures?
Page 11
Q7) Provide at least three examples of both private and public databases.
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Chapter 10: Fraud Examination Evidence II: Interview and Interrogation Methods
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Q1) Which of the following would not be a part of the forensic accountants profile of a suspect?
A) Length of time suspect has been with the firm.
B) Suspect's assets.
C) Suspect's outstanding bills, including recent purchases such as cars and real estate.
D) Suspects children's school grades.
Q2) Describe the proper setting and room in which interviews are to be conducted
Q3) A confession should be presented and signed during the interview when possible A)True
B)False
Q4) Which of the following is NOT a type of final question that would be asked to non-suspects?
A) Confirm information received by the interviewer during the interview.
B) Obtain information that has not yet been gathered.
C) Ask for assistance in confronting the fraudster.
D) Seek the subject's agreement that he will continue to cooperate.
Q5) During an interview, acting angry is the same as being angry.
A)True
B)False
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Chapter 11: Fraud Examination Evidence III: Forensic Science and Computer Forensics
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Q1) In the court system, obtaining forensic identification is often not enough to convict a suspect.
A)True
B)False
Q2) When the physical evidence can be specifically and unequivocally linked to a particular object or person, then the investigators have achieved:
A) a case that can bring charges.
B) guilt beyond a reasonable doubt.
C) criminal checks and balances.
D) forensic identification.
Q3) Paper documents, surface impressions on paper documents, and other types of surface impressions such as shoeprints and tire-tread impressions are known as:
A) Potential evidence.
B) Forensic data.
C) Questioned documents.
D) Criminalist functional areas.
Q4) Forensic accountants should be familiar with computer forensic procedures.
A)True
B)False
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Chapter 12: The Fraud Report, Litigation, and the Recovery Process
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Q1) Instead of firing fraudster employees, what do some employers do?
A) Reassign them.
B) Provide them favorable recommendations to other jobs.
C) Give them a paid leave of absence.
D) Rehabilitate them.
Q2) Explain what a chronology of the fraud is and how it typicaly differs from how a fraud investigator constructs his report.
Q3) If payroll taxes are embezzled, who does the IRS hold responsible?
A) The fraudster.
B) The owners and officers of the company.
C) The employees whose taxes were not paid.
D) .The lost funds are forgiven by the IRS.
Q4) What can the opposing party do to prevent expert testimony if they feel the expert is not qualified?
A) File a batson petition.
B) File a motion for miss-trial.
C) File an appeal.
D) File a motion in limine.
Q5) Outline the different options for fraud loss recovery
Q6) Explain the three methods of dealing with fraud loss. Page 14
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Chapter 13: Employee, Vendor, and Other Frauds Against the Organization
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Q1) An employee routinely throws excess raw materials in the dumpster outside the business and then takes it home with him after hours. This is an example of:
A) Accounts receivable fraud.
B) Expenditure cycle fraud.
C) Custodial theft of money.
D) Production cycle fraud.
Q2) Check laundering typically only occurs in small businesses.
A)True
B)False
Q3) The most important element in detecting and catching employee fraud is:
A) audit trail
B) chain of custody.
C) authorization and approval.
D) physical security and monitoring.
Q4) What are the three elements of the fraud triangle? Describe each.
Q5) Research has shown that about 35%-45% of employees are fundamentally dishonest and are likely to steal from the company if given a good opportunity.
A)True
B)False
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Chapter 14: Financial Statement Fraud
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Q1) What are some legitimate discretion choices that management can make?
Q2) How do public oversight boards help prevent financial statement fraud?
A) They perform post-audit evaluation of financial statements.
B) They set standards for auditors.
C) They educate CEOs and CFOs on ways to prevent financial statement fraud.
D) They help enforce SOX standards within corporations.
Q3) The only way with withholding of goodnews/badnews hurts investors is if corporate management sells some of their own shares.
A)True
B)False
Q4) Financial statement fraud is:
A) Putting forth another company's financial statements as your own.
B) Any intentional or grossly-negligent violation of GAAP that is undisclosed and materially affects any financial statement.
C) Any intentional or grossly-negligent violation of GAAP that is undisclosed and affects any financial statement.
D) When the CEO and CFO do personally sign the financial statements.
Q5) What are some motivators to financial statement fraud?
Q6) What is financial statement fraud and what are its three elements?
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Chapter 15: Fraud and Sox Compliance
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Q1) Under Section 302, the CEO and CFO must file separate reports that certify:
A) The signing officer has reviewed the report.
B) The report does not contain any untrue statement of a material fact.
C) The financial statements fairly present in all material respects the financial condition and results of operations of the year.
D) All of the above.
Q2) Title X of SOX states that the CEO must sign the corporate tax return.
A)True
B)False
Q3) What is the major change to restitution under Section 308-Fair funds for investors?
A) Investors are guaranteed full restitution of any losses from the date of their purchase of the corporations securities.
B) The U.S. Treasury cow pay restitution to investors.
C) The corporation will now pay all civil penalties to its investors.
D) The CEO and CFO's personal assets can be liquidated to pay restitution to investors.
Q4) Of all the SEC offices, which is the most important to the accounting industry and why?
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Chapter 16: Tax Fraud
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Q1) Can the Fifth Amendment be invoked by a taxpayer when it comes to willful failure to file return, supply information, or pay tax; why or why not?
Q2) There are typically more civil fraud convictions than criminal fraud convictions because criminal cases can require more effort on the part of the government due to the higher burden of proof that the government must bear in criminal cases (beyond a reasonable doubt).
A)True
B)False
Q3) How are carryback or carryforward treated when calculating penalties for civil fraud?
A) They are included as if they were calculated under normal circumstances.
B) They are deducted at twice the rate that they were originally added into the calculations.
C) They cannot be used when calculating civil penalties.
D) It is up to the courts to pass judgment as to their treatment.
Q4) Explain how the Internal Revenue Code treats force and intimidation in regards to interference with tax laws.
Q5) What are at least three methods of proof that the IRS may employ.
Q6) Compare and contrast Affirmative indications and Affirmative acts.
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Chapter 17: Bankruptcy, Divorce, Identity Theft
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Q1) What is typically one of the first signs that an individual's identity has been stolen?
A) Unauthorized change in address.
B) Bill collectors begin calling for accounts the individual is not aware of.
C) Incorrect information appearing on credit reports.
D) Unauthorized charges appear on statements.
Q2) Fraudulent conveyances typically involved unqualified persons offering fee-based financial advice, credit counseling, and bankruptcy-filing services.
A)True
B)False
Q3) When dealing with the issue of asset concealment in divorce cases, the forensic accountant must keep in mind that:
A) one or both parties will always be trying to conceal assets from the other party.
B) lawyers from either party may be employing the forensic accountant in order to drain marital assets.
C) assets may be accidentally concealed as some individuals are not good at financial record keeping.
D) All of the above.
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Chapter 18: Organized Crime, Counterterrorism, and Anti-Money Laundering
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Q1) How does the LCN hide its cash assets?
A) Money Market accounts.
B) Investment portfolios.
C) Offshore bank accounts.
D) Large assets in other people's names.
Q2) How many Muslims currently live in Europe?
A) 10 million.
B) 20 million.
C) 30 million.
D) 40 million.
Q3) What does the average annual percentage rate figure out to for loan-shark loans?
A) 8%.
B) 28%.
C) 100%.
D) 300%.
Q4) What was the Window WMF exploit?
Q5) Most Muslims in Europe subscribe to radical Islamic fundamentalism, and many of those who do support the idea of the Islamic state subscribe to violence. A)True
B)False
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Chapter 19: Business Valuation
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Q1) Once a replacement cost is calculated, it is customary to:
A) Adjust the price of the asset upward to account for depreciation that was deducted in the replacement calculations.
B) Adjust the price of the asset downward to account for its age.
C) Marginalize the cost calculated by current market conditions.
D) Average the cost calculated by the original cost of the asset.
Q2) Name at least 7 assets that might need appraisal or valuation.
Q3) Compare and contrast historical and replacement costs.
Q4) Under the market approach, the value of the asset is what the asset can be sold for in an open market within some reasonable time period.
A)True
B)False
Q5) Business valuators will always state their findings in a specific dollar amount and never in a dollar value range.
A)True
B)False
Q6) Under the Market approach, what are assets valued at?
Q7) Explain what restrictions on transferability are and how they might effect business valuation.
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Chapter 20: Dispute Resolution Services
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Q1) If an accounting firm becomes involved in disputes with their clients and employees they are now a(n):
A) mediator
B) dispute participant
C) arbitrator
D) plaintiff
Q2) Provide at least 5 reasons that ADR has advantages over litigation:
Q3) Which of the following are some ways that a forensic accountant can play a role in out of court settlements?
A) Mediator.
B) Arbitrator.
C) Expert Consultant/Witness.
D) All of the above.
Q4) A combination of mediation and arbitration is called:
A) arb-med
B) med-arb
C) arbi-medi
D) juxtaposition
Q5) What are the Labor Interest Arbitration methods? Describe them.
Q6) Explain the accounting practice of litigation support services.
Page 23
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