Forensic Accounting Review Questions
Course Introduction
Forensic Accounting is a specialized course that explores the application of accounting principles, auditing techniques, and investigative skills to the detection, investigation, and prevention of financial fraud and white-collar crime. Students will learn how to analyze financial records, trace asset movements, identify irregularities, and provide litigation support in legal proceedings. The course integrates case studies and real-world scenarios to help students develop critical thinking skills and an understanding of the ethical, legal, and regulatory environment in which forensic accountants operate.
Recommended Textbook
Forensic Accounting and Fraud Examination 1st Edition by Mary Jo Kranacher Available
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Page 2
Chapter 1: Core Foundation Related to Fraud Examination and
Financial Forensics
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Sample Questions
Q1) When the losses caused by fraud are correlated to the levels of compensation of the perpetrator, the line is somewhat linear, with slow rise from low compensation to approximately:
A) $100,000 annually where the rate of loss skyrockets.
B) $300,000 annually where the rate of loss skyrockets.
C) $500,000 annually where the rate of loss skyrockets.
D) $750,000 annually where the rate of loss skyrockets.
Answer: C
Q2) Under generally accepted auditing standards GAAS auditors are not currently responsible for planning and performing auditing procedures to detect immaterial misstatements, regardless of whether they are caused by error or fraud.
A)True
B)False
Answer: True
Q3) When fraudsters collude, the losses to the victim organization increase more than fourfold.
A)True
B)False
Answer: True
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Chapter 2: Careers in Fraud Examination and Financial
Forensics
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Q1) According to Mr. Sam E. Antar former Crazy Eddie CFO and a convicted felon, too many audit committee members have no formal educational background in accounting and auditing, and no specialized training in fraud detection.
A)True
B)False
Answer: True
Q2) What is the role of research in the fraud examination and financial forensics professions?
Answer: Research drives professional innovation. Practitioners in the field implement the products of research concepts, ideas, theories and evidence by applying, testing and refining theory and research findings in the "real world." Finally, educators create learning frameworks through which students benefit from the combined efforts of practice and research. For fraud examination and forensic accounting to be a viable specialization over the long term, research opportunities and recognition are required to take the profession to the highest levels.
Q3) Why are manhole covers round?
Answer: Manhole covers are round because other shaped covers can be maneuvered to fall through the hole e.g., try a square box.
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Chapter 3: Who Commits Fraud and Why: Criminology and Ethics
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Q1) In terms of the definition of occupational fraud and abuse, who is an employee?
A) Any person who receives regular and periodic compensation from an organization for his or her labor.
B) Only rank and file workers.
C) Any trust violator.
D) Respectable business and professional men.
Answer: A
Q2) Violations of ascribed obligations have historically proved to be strong motivators of financial crimes.
A)True
B)False
Answer: True
Q3) RICO typically addresses which of the following activities?
A) environmental issues
B) workplace issues such as lost wages, disability, and wrongful death.
C) costs and lost profits associated with construction delays.
D) money laundering.
Answer: D
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Chapter 4: Complex Frauds and Financial Crimes
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Q1) Money laundering is:
A) The disguising of assets derived from criminal activities
B) The process of making money obtained from criminal activities appear clean
C) Only involves cash
D) Both "a" and "b"
Q2) Bank secrecy laws make it difficult to "follow the money".
A)True
B)False
Q3) The biggest advantage investigators have when tracing the flow of illegal funds is:
A) Most illegal funds consist of electronic transfers, making detection easier
B) Most illegal funds at some time flow through a bank in the US making detection easier
C) Most illegal funds return to the persons performing the laundering making detection easier
D) Most illegal funds are converted to hard assets making detection easier
Q4) Financial statement fraud is complex because it often involves collusion. A)True B)False
Q5) Describe the stages of money laundering and for each stage, provide an example.
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Chapter 5: Cybercrime: Computer and Internet Fraud
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Q1) Computer crime involves the attempt to access data illegally.
A)True
B)False
Q2) The "computer as a symbol" involves using a computer to intercept data transmission.
A)True
B)False
Q3) Cyber-crime involves the use of cell phones.
A)True
B)False
Q4) Computer crime and computer fraud are synonyms.
A)True
B)False
Q5) Computers offer cyber criminals efficient ways to hide fraudulent activities.
A)True
B)False
Q6) 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
Page 7
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Chapter 6: Legal, Regulatory, and Professional Environment
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Q1) Probable cause is the standard by which law enforcement may make an arrest, conduct a personal or property search, or obtain a warrant.
A)True
B)False
Q2) Which of the following is not a responsibility of the PCAOB?
A) Registering public accounting firms that audit publicly traded companies.
B) Inspecting registered public accounting firms.
C) Converging GAAP standards with IFRS standards.
D) Enforcing compliance with the Sarbanes-Oxley Act.
Q3) What approaches are used by investigators to obtain documents?
Q4) The Sarbanes-Oxley Act mandates that each member of a company's audit committee must be a member of its board of directors and must otherwise be independent.
A)True
B)False
Q5) Discuss the considerations that must be given in respect to documentary evidence.
Q6) What are the three major types of negotiated remedies and how do they differ?
Q7) What remedies are available through the civil and criminal justice systems?
Q8) In the criminal justice system, how is probation different from parole?
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Chapter 7: Fraud Detection: Red Flags and Targeted Risk Assessment
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Sample Questions
Q1) The primary responsibility to oversee management and direct the internal audit and the external auditor with regard to the organization's internal controls over financial reporting and the company's internal control processes rests with the:
A) external audit committee.
B) independent auditors.
C) president/CEO.
D) board of directors and/or the audit committee if one exists.
Q2) In a collusive environment:
A) management is responsible for all acts of fraud.
B) the fear of detection is usually more than adequate to stop fraud by senior management.
C) internal and external auditors must design procedures to detect such activity.
D) All of the choices are correct.
Q3) What is meant by behavioral red flags?
Q4) A fraudster, aided by the digital age, can easily minimize the amount of information captured concerning his nefarious activities.
A)True
B)False
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Chapter 8: Detection and Investigations
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Q1) Predication is required before civil charges can be filed.
A)True
B)False
Q2) Interrogations are for the purpose of securing a confession.
A)True
B)False
Q3) Joe Jones is suspected of gambling heavily and not reporting the gains. He also pays for all expenditures with cash currency. A method that can be used to detect such gains would be:
A) Examining bank records
B) Examining lifestyle choices
C) Examining receipts at places where Joe does business
D) All of the above
Q4) An example of an indirect method of income determination is:
A) Bank analysis method
B) Net worth method
C) Title companies
D) All of the above
Q5) Describe the process by which evidence should be handled.
Q6) Direct evidence
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Chapter 9: Effective Interviewing and Interrogation
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Q1) What is the primary purpose of admission-seeking questions?
Q2) An attorney will often request that the fraud professional or forensic accountant attend the deposition of key witnesses who have knowledge of, or should have knowledge of, the financial transactions and how they are reflected in the books and records.
A)True
B)False
Q3) What are the benefits of strong interviewing and interrogation skills?
Q4) During the introduction stage, the interviewer also maintains a professional tone but importantly solicits the cooperation of the witness, subject, or target
A)True
B)False
Q5) In order to begin in information phase of the interview, you must first make a transition out of the introductory phase. Which method is NOT commonly used during this phase?
A) Begin with background questions
B) Observe verbal and nonverbal behavior
C) Ask leading closed questions
D) Approach sensitive questions carefully
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Chapter 10: Using Information Technology for Fraud
Examination and Financial Forensics
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Q1) This type of graphic allows the investigator to analyze the movement of goods services, people and money:
A) Gantt chart
B) Link chart
C) Association matrix
D) Flow diagram
Q2) An activity that can enhance the ability to recover deleted files is the "Defrag" command.
A)True
B)False
Q3) Once data sectors on computer files have been overwritten, generally a computer forensic specialist can still recover the files.
A)True
B)False
Q4) The graphic 10-4 is called an:
A) Association matrix
B) Link chart
C) Familial chart
D) Grouping chart
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Chapter 11: Cash Receipt Schemes and Other Asset
Misappropriations
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Q1) List three proactive audit tests to detect noncash misappropriations.
Q2) How may the larceny of noncash assets be prevented?
Q3) User access to systems may identify segregation of duties issues. Review of which files can detect problems?
A) System user access master file
B) Accounts Receivable master file
C) General ledge master file
D) Accounts payable master file
Q4) What techniques are generally used to conceal a receivables skimming scheme?
Q5) What is the best proactive computer test to detect skimming where an employee with low sales may be a suspect?
A) Summarize the top ten receivables accounts
B) Summarize sales by locations
C) Summarize net sales by employee, and list the lowest ten employees
D) Summarize by employee discounts
Q6) What types of company assets are typically misused?
Q7) Skimming schemes can be subdivided based on whether they target sales or receivables.
A)True
B)False Page 13
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Chapter 12: Cash Disbursement Schemes
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Q1) Register disbursement fraud in the form of falsified returns can be detected by:
A) Inventory counts
B) Cash counts
C) Examination of return receipts
D) All of the above
Q2) If a check is made payable to cash, detection of the fraudster is made more difficult.
A)True
B)False
Q3) Which of the following would prevent a ghost employee scheme:
A) Separation of payroll and personnel functions
B) Separation of timekeeping and payroll functions
C) Separation of timekeeping and supervisor functions
D) None of the above
Q4) A pass through scheme requires:
A) The availability of an accomplice at a legitimate vendor
B) The ability to add vendors to the vendor master file
C) The ability to change purchase order prices after approval
D) All of the above
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Chapter 13: Corruption and the Human Factor
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Q1) In order to obtain the funds to make bribery payments, employees usually divert company money into ________, a non-company account from which bribes can be made.
A) Petty cash
B) An overseas account
C) A slush fund
D) An imprest fund
Q2) Employees who perceive that they will be caught engaging in occupational fraud and abuse are less likely to commit it.
A)True
B)False
Q3) A conflict of interest occurs when an employee, manager, or executive has an economic or personal interest in a transaction that adversely affects the organization.
A)True
B)False
Q4) A woman had two sons who were born on the same hour of the same day of the same year, but they were not twins. How could this be?
Q5) What is the difference between fraud prevention and fraud deterrence?
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Chapter 14: Financial Statement Fraud
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Q1) Financial statement frauds can be broken down into five distinct categories: concealed liabilities and expenses, fictitious revenues, improper asset valuations, improper disclosures, and timing differences.
A)True
B)False
Q2) Why might senior management overstate or understate business performance?
Q3) What are the four criteria necessary for a sale to be complete?
Q4) Fictitious or fabricated revenue schemes involve the recording of sales of goods or services that did not occur
A)True
B)False
Q5) List four red flags associated with improper disclosure.
Q6) Improper capitalization of expenses was one of the key methods financial statement fraud allegedly used by:
A) Enron
B) Tyco
C) Raptor
D) WorldCom
Q7) List four steps to reduce the opportunity to commit financial statement fraud.
Page 17
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Chapter 15: Consulting, Litigation Support, and Expert
Witnesses: Damages, Valuations, and Other Engagements
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Q1) Although auditors rely heavily on documentation that supports transactions generated in the normal course of business; they typically do not often search public records.
A)True
B)False
Q2) Compare two methods that can be used to develop estimates of lost sales and incremental expenses.
Q3) ________ value represents an asset's balance sheet value, derived by subtracting accumulated deprecation from historical acquisition cost.
A) Book
B) Liquidation
C) Market
D) Investment
Q4) It is generally not necessary to determine the loss period in measuring commercial damages.
A)True
B)False
Q5) What is the purpose of practice aids in forensic and valuation services?
Q6) Define four different measures of value used by a forensic accountant.
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Chapter 16: Remediation and Litigation Advisory Services
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Q1) A deposition is a post-trial process by which the parties to a civil litigation are allowed to examine the other side's fact witnesses and expert witnesses.
A)True
B)False
Q2) The control environment also excludes:
A) Integrity and ethical values
B) A passive board of directors and audit committee
C) Periodic assessment of the organizational structure
D) Human resource policies and practices that facilitate a good control environment
Q3) During the investigation, the anti-fraud professional or forensic accountant has likely developed a number of presentation tools and analyses with the exception of:
A) Regression analyses
B) Link charts
C) The Evidence/Hypothesis Matrix
D) Timelines
Q4) What two points must an injured party prove to recover money in a civil lawsuit?
Q5) What are the types of losses available for recovery?
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