Fraud Examination Study Guide Questions
Course Introduction
Fraud Examination explores the principles, techniques, and methodologies used to detect, investigate, and prevent fraudulent activities within organizations. The course covers the nature and types of fraud, including occupational fraud, financial statement fraud, asset misappropriation, and corruption. Students will learn about the legal environment, ethical considerations, red flags, and internal controls relevant to fraud detection. Emphasis is placed on investigative techniques, evidence collection, interviewing suspects and witnesses, and the preparation of fraud reports. Case studies and real-world examples are used to help students understand the complexities and challenges of identifying and mitigating fraud in business environments.
Recommended Textbook
Forensic Accounting 1st Edition by Robert Rufus
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Chapter 1: Introduction to the World of Forensic Accounting
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Q1) The need or motive of the fraud is not the immediate challenge of a fraud examination.
A)True
B)False
Answer: True
Q2) Which of the following forensic accounting services primarily focuses on determining who committed the fraud,the scheme of the fraud,the time frame and duration,how much was taken,and who else was involved?
A) fraud detection
B) fraud deterrence
C) fraud examination
D) fraud anticipation
Answer: C
Q3) All birds have wings.Kiwis have wings.Which of the following can be concluded using deductive reasoning?
A) Kiwis are birds.
B) No conclusion can be obtained.
C) All birds are Kiwis.
D) Kiwis can fly.
Answer: B
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Chapter 2: The Legal Environment of Forensic Accounting
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Q1) Write a brief note on standard of proof.
Answer: The presumption of innocence must be overcome by a certain standard of proof,which describes the amount of evidence the plaintiff must present to prove its case.In a civil case,the requisite standard is a preponderance of the evidence-more likely than not (>50% probability).Some civil cases (such as civil fraud)must be proven by clear and convincing evidence.Clear and convincing is greater than preponderance,but no specific percentage can be assigned.In a criminal case,the prosecution has a legal obligation to prove all elements of an alleged offense (such as fraud,tax evasion,or murder)beyond a reasonable doubt.Again,no percentage can be assigned.The applicable burden and standard of proof are explained to the jury by the judge and included in the jury instructions.The forensic accountant must understand the requisite standard of proof for any litigation engagement and articulate his or her opinion accordingly.
Q2) Which of the following is true of our justice system?
A) The law is fast; litigation lasts for one or two hours.
B) Trials (aside from the verdict) provide a lot of drama.
C) Closing arguments and cross examination are the most important parts of a trial.
D) The role of the jury is not passive.
Answer: D
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Chapter 3: Screening and Staging Engagements
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Q1) Media is an example of primary sources of information considered by forensic accountants.
A)True
B)False
Answer: False
Q2) An engagement letter for providing litigation services is required under the AICPA's professional standards.
A)True
B)False
Answer: False
Q3) Which of the following best defines a hypothesis in a scientific process?
A) derivation of a conclusion based on observations
B) development of a tentative explanation based on preliminary observations
C) collection of data for the engagement
D) a statement of the exact function an accountant has been engaged to do
Answer: B
Q4) A hypothesis is a statement of fact.
A)True
B)False
Answer: False
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Chapter 4: Gathering Evidence Interviews and Observations
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Q1) Which of the following is true of rapport?
A) It serves as a foundation for building trust and confidence.
B) It works only with open-ended questions.
C) It manifests in a number of physical and emotional symptoms.
D) It acts as a stimulus to an unusual or unexpected situation.
Q2) Which of the following is the order in which the witnesses are to be interviewed in a criminal investigation?
A) First, the neutral third parties, then the corroborative witness, then the suspected co-conspirators, and at last, the target.
B) First, the target, then the suspected co-conspirators, then the corroborative witness, and at last, the neutral third parties.
C) First, the target, then the corroborative witness, then the suspected co-conspirators, and at last, the neutral third parties.
D) First, the neutral third parties, then the suspected co-conspirators, then the corroborative witness, and at last, the target.
Q3) Legal observations are made in situations where there is expectation of privacy. A)True B)False
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Chapter 5: Financial Statements Analysis Reading
Between the Lines
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Q1) Financial statements rarely,if ever,represent economic reality.
A)True
B)False
Q2) Which of the following is a difference between conservatism principle and materiality principle?
A) Conservatism requires that financial reporting should neither disproportionately overstate nor understate a situation, whereas materiality holds that strict adherence to accounting principles is not required for items of little significance.
B) Conservatism is listed as a constraint in the conceptual framework determined by the American financial community, whereas materiality is no longer listed as a constraint in the conceptual framework.
C) Conservatism holds that strict adherence to accounting principles is not required for items of little significance, whereas materiality requires that financial reporting should neither disproportionately overstate nor understate a situation.
D) Conservatism requires that revenues be measured within the specific reporting period, whereas materiality requires that costs be deducted from the reported revenues to determine the period's net income.
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Chapter 6: Fraud and White-Collar Crime
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Q1) Which of the following factors is true of circumstantial evidence?
A) It provides "proof certain" of the actual intent of the subject.
B) It is a collection of fragmented evidence that supports one inference over another.
C) It is deemed highly reliable if alternative explanations do exist.
D) Its reliability is not affected by the degree of impact.
Q2) Which of the following is a technique of neutralization used by offenders?
A) acceptance of authority
B) organizational misconduct
C) higher loyalty
D) criticism
Q3) Which of the following is required to establish fraudulent intent in the absence of a direct confession?
A) documentary evidence
B) character evidence
C) demonstrative evidence
D) circumstantial evidence
Q4) List the six attributes of white-collar crime.
Q5) Write a short note on techniques of rationalization (neutralization).
Q6) Explain rationalization with respect to Cressey's fraud theory.
Page 8
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Chapter 7: Conducting a Fraud Investigation
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Q1) Which of the following terms describes the act of stealing cash revenue after it has been recorded in the accounting system?
A) cash larceny
B) register disbursement
C) less cash scheme
D) skimming
Q2) Ariel,the CFO of Zaria,Corp.,suspects that the profits of the company are being overstated.Ariel suspects that someone from the mid-level management is behind this.The bonus of the mid-level managers is directly linked to the growth of net profit.The mid-level managers have received no bonus since three years as the reported profit of Zaria has been declining.The books of accounts are only accessible to Ariel.Which of the following elements of the fraud triangle is missing in this case?
A) need
B) rationalization
C) opportunity
D) integrity
Q3) What are the common characteristics of fraudulent journal entries outlined in SAS No.99?
Q4) What are the two alternative dispute resolution strategies which are available?
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Chapter 8: Transforming Data Into Evidence
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Q1) Time is an objective measure,hence timeline data are always highly reliable.Examine the validity of this statement.
Q2) What functions does a data inventory serve?
Q3) Since time is an objective measure,all measurements of time are reliable.
A)True
B)False
Q4) Which of the following is a benefit of a written data analysis plan?
A) It points out weaknesses in the data and assists the rectification of such weaknesses.
B) It lists the tools, methods, and techniques to be used during data analysis.
C) It forces the analyst to explicitly consider constraints.
D) It helps the analyst to identify data that is relevant and important.
Q5) Which of the following is a key consideration when evaluating sufficiency of data?
A) purpose of data
B) application of data
C) relevance of data
D) availability of data
Q6) What are the benefits of a written data analysis plan?
Q7) Why is it important to define the universe of data?
Page 10
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Chapter 9: Transforming Data Into Evidence
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Q1) Which of the following is a difference between the programs Microsoft Excel and Microsoft Access?
A) In Access, either a number or a formula can be entered into a cell, whereas Excel allows each field to store only one type of data for all the records.
B) In Access, it is not necessary to maintain consistency between column headings and the type of data contained in the column, whereas Excel requires it to be consistent.
C) In Access, a certain amount of structure is forced on the data analysis project, whereas Excel allows more flexibility in the project.
D) In Access, it is not possible to infer if a number appearing in a cell is data point or a calculation just by looking at it, whereas in Excel, the nature of the number is always clear.
Q2) Microsoft Access forces some structure on the data analysis project.
A)True
B)False
Q3) What are the different data analysis tests which use Benford's Law to identify irregularities in data sets?
Q4) Explain how a continuous distribution differs from a discrete distribution.
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Chapter 10: Professional Responsibilities
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Q1) AICPA's Code of Professional Conduct helps members to monitor their own behavior and provides a program for resolving disputes.
A)True
B)False
Q2) "Forensic accountants must display the attribute of trustworthiness." Explain why trust is important in any forensic accountants' professional relationships.
Q3) Which of the following statements is true of AICPA's Code of Professional Conduct?
A) Although AICPA membership is voluntary, membership mandates compliance with the Code of Professional Conduct.
B) The purpose of the Code is to induce the accountants through guidance, rules, interpretations, and rulings to join the AICPA.
C) The code helps members monitor their own behavior but it does not provide a framework for resolving disputes.
D) The Code has two sections: principles and rationales.
Q4) Explain the sequence of actions to be followed to reconcile inconsistencies in various organizational standards.
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Chapter 11: Fundamentals of Business Valuation
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Q1) Which of the following is a premise of value that is applied to business valuations?
A) going concern
B) materiality
C) substance over form
D) neutrality
Q2) Which of the following is the foremost professional organization for the business valuation discipline?
A) the National Society of Business Appraisers
B) the American Association of Business Valuators and Appraisers
C) the American Society of Appraisers
D) the National Association of Certified Valuators and Analysts
Q3) Which of the following standards of value is mandated for all federal tax matters?
A) fair value
B) book value
C) fair market value
D) investment value
Q4) Excluding valuation discounts allows for a more equitable determination of fair value.Substantiate.
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Chapter 12: Special Topics
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Q1) The purpose of a ________ in computer forensics is to detect and recover data that has been concealed on a computer system.
A) file analysis
B) timeframe analysis
C) hidden data analysis
D) active data analysis
Q2) Methods of proof employed by forensic accountants can be either direct or indirect,but a combination of the two is not acceptable.
A)True
B)False
Q3) Which of the following is an example of a writable optical media?
A) Blu-ray disks
B) USB flash drives
C) external solid-state disk (SSD) drives
D) tape cartridges
Q4) Briefly explain the defenses established by the courts to protect against abuse of evidence from net worth,source and application of funds and percentage markup methods of proof.
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