Internal Auditing Solved
Exam Questions
Course Introduction
Internal Auditing is a course designed to introduce students to the principles, standards, and practices of internal auditing within organizations. The course covers the role of internal auditors in evaluating and improving the effectiveness of risk management, control, and governance processes. Students will explore the internal audit process, including planning, evidence gathering, documentation, and reporting. Key topics include ethical considerations, audit techniques, risk assessment, and the use of technology in auditing. By the end of the course, students will develop analytical and critical thinking skills essential for conducting internal audits and ensuring organizational compliance with relevant laws and regulations.
Recommended Textbook
Fraud Examination 3rd Edition by W. Steve Albrecht
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18 Chapters
929 Verified Questions
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Chapter 1: The Nature of Fraud
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Sample Questions
Q1) Which of the following is not a characteristic of management fraud:
A) Top management deception
B) Manipulation of financial statements
C) Kickbacks or bribes
D) Pressure to earn year-end bonuses
Answer: C
Q2) Company X's management team convinces Company Y to give them 100 shares of Company Y's stock. The management team claimed that the Company owes them the stock from a pre-existing agreement (such an agreement never existed). Upon receiving the stock, the management team splits the stock up amongst themselves to sell on the open market. This is an example of what type of fraud?
A) Occupational Fraud
B) Management Fraud
C) Investment Scams
D) Customer Fraud
Answer: D
Q3) The burden of proof in a criminal case must be
A) "Beyond a Reasonable Doubt"
B) A "Preponderance of Evidence"
Answer: A
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Chapter 2: Why People Commit Fraud
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Sample Questions
Q1) Which of the following statements about accounting systems is incorrect?
A) An effective accounting system provides an audit trail that allows frauds to be discovered.
B) An effective accounting system makes concealment difficult.
C) An effective accounting system can almost always effectively prevent "kickbacks."
D) Without a good accounting system, it is often difficult to distinguish between actual fraud and unintentional error
Answer: C
Q2) Fraud perpetrators are closer to which of the following groups?
A) College students
B) Property offenders
C) Politicians
D) Accountants
Answer: A
Q3) Studies show that in advanced countries, levels of honesty are:
A) Generally stable
B) Increasing
C) Decreasing
Answer: C
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Page 4
Chapter 3: Fighting Fraud: An Overview
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Sample Questions
Q1) Research indicates that fraud occurs less frequently when employees have feelings of ___________ toward their organization than when they feel abused, threatened, or ignored.
A) Tenure
B) Avoidance
C) Ownership
D) Responsibility Answer: C
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 a component of The Evidence Square:
A) Rationalization
B) Perceived Pressure
C) Personal Observation
D) Perceived Opportunity
Answer: C
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Chapter 4: Preventing Fraud
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Sample Questions
Q1) Having a manager watch over employee's shoulders is a good example of:
A) Discouraging collusion
B) Monitoring employees
C) Creating an expectation of punishment
D) None of the above
Q2) The correct order of the six elements of Fraud-Savvy Organizations is:
A) Tone at the Top, Education and Training, Proactive Detection, Integrity Risk and Controls, Reporting and Monitoring, Investigation and Follow-up
B) Tone at the Top, Education and Training, Integrity Risk and Controls, Reporting and Monitoring, Proactive Detection, Investigation and Follow-up
C) Education and Training, Integrity Risk and Controls, Reporting and Monitoring, Proactive Detection, Investigation and Follow-up, Tone at the Top
D) Education and Training, Tone at the Top, Integrity Risk and Controls, Reporting and Monitoring, Proactive Detection, Investigation and Follow-up
Q3) Most frauds are committed by
A) Individuals
B) Groups
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Chapter 5: Recognizing the Symptoms of Fraud
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Sample Questions
Q1) Of the elements of fraud, which is usually least likely to be detected by auditors?
A) Theft act
B) Concealment
C) Conversion
D) Personal pressures
Q2) Which of the following is a problem related to the segregation of duties?
A) Julie both writes expense checks and takes customers' cash
B) Bob both orders office supplies and orders company checks
C) Steve both records receivables and can write off bad accounts
D) Rebecca both types memos and orders lunch
Q3) Which of the following is NOT a "strange" financial statement relationship?
A) Increased revenues with decreased inventory
B) Increased revenues with decreased receivables
C) Decreased inventory with decreased payables
D) Decreased volume with decreased cost per unit
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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Sample Questions
Q1) Each of the following is true about Benford's Law except:
A) Benford's law broadly identifies the possible existence of fraud, but does not identify promising leads.
B) Benford's law states that each digit (from 1 to 9) will be the first digit in a number approximately the same amount of times as every other digit.
C) A major advantage of using Benford's law to detect fraud is that it is the least expensive method to implement and use.
D) Fraud perpetrators are less likely to learn that you are analyzing data according to Benford's law because it does not involve extensive data mining queries.
Q2) Which of the following illustrates the proactive approach to fraud detection?
A) Using data-mining software to identify fraud
B) Using Benford's law to identify fraud
C) Locating accounting anomalies and investigating for possible fraud
D) Learning about the business or operations to be studied prior to investigating for fraud
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8
Chapter 7: Investigating Theft Acts
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Sample Questions
Q1) Locating a scene to be observed, anticipating the actions that are most likely to occur at the scene, and keeping detailed notes on tape or film is:
A) Static surveillance
B) Electronic Surveillance
C) Stationary surveillance
D) Moving surveillance
Q2) When investigating fraud, detectives should usually interview suspects:
A) At the beginning of the investigation to really put the heat on them
B) In the middle of the investigation to make them feel like their not really a suspect
C) At the end of the investigation to allow time to find the most evidence against them
Q3) Invigilation is
A) A theft investigation technique that analyzes physical evidence
B) A theft investigation technique that closely supervises suspects closely
C) A type of undercover operation
D) Interviewing the suspect at the beginning of the investigation
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9
Chapter 8: Investigating Concealment
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Sample Questions
Q1) Concealment is generally accomplished by manipulating any of the following documents except:
A) Bills of laden
B) Sales receipts
C) Titles
D) Insurance policies
E) All of the above can be manipulated to conceal a fraud
Q2) Which of the following terms describes the risk that the sample is not representative of the population?
A) Errors
B) Non-sampling risk
C) Sampling risk
D) Detection risk
Q3) You are completely sure of which variable to examine in a concealment fraud case. The most efficient investigation method would be:
A) Computer searches, since they better identify signals of fraud
B) Random sampling
C) Discovery sampling, since they better identify signals of fraud
D) Check all records, because it eliminates both sampling and non-sampling risk
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Page 10
Chapter 9: Conversion Investigation Methods
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Sample Questions
Q1) All of the following federal agencies maintain information that can help fraud investigations except which?
A) ATF
B) Social Security Administration
C) Department of Justice
D) Postal Service
Q2) The Secret Service performs all of the following functions except:
A) Protects the president of the United States
B) Investigates counterfeiting
C) Investigates theft of government checks
D) Investigates charges of treason
E) The Secret Service performs all of the above functions
Q3) After 1999, how could you obtain information from a financial institution?
A) Court Subpoena
B) Search warrants
C) False pretenses
D) Both a and b
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11
Chapter 10: Inquiry Methods and Fraud Reports
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Sample Questions
Q1) What is Graphology?
A) The study of handwriting for the purpose of character analysis
B) Voice stress analysis for the purpose of determining whether a person is lying or telling the truth.
C) Using answers to pencil-and-paper honesty tests to elicit information about a person's honesty and code of ethics.
D) The process by which we obtain release from unpleasant emotional tensions by talking about the source of these tensions.
Q2) The use of body movement to convey meaning is
A) Proxemic communication
B) Kinetic communication
C) Chronemic communication
D) Paralinguistic communication
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) Gaining an understanding of management is crucial in identifying fraud exposures or opportunities for fraud. Which aspect of management should be investigated?
A) Management compensation plan
B) Management backgrounds
C) Management's ability to influence organizational decision making
D) All of above
Q2) Which area do auditors tend to focus on almost entirely when searching for financial statement fraud?
A) Management and directors
B) The company's relationship with other entities
C) The organization and its industry
D) Financial results
Q3) Which of the following is important to focus on when trying to detect financial statement fraud?
A) Management and Directors
B) The relationships of the company with other entities
C) Financial Results and Operating Characteristics
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) The least effective method for comparing account balances from period to period is:
A) To focus on and calculate changes in the actual financial statement numbers (raw data)
B) Perform horizontal analysis
C) Study the statement of cash flows
D) None of the above
Q2) According to a study sponsored by The Committee of Sponsoring Organizations (COSO), the most common way to manipulate revenue accounts is by:
A) Reclassifying expenses as revenues
B) Recording fictitious revenues
C) Inappropriately reducing sales returns and allowances
D) Prematurely recording revenue
Q3) Which of the following is not a fraud scheme affecting the revenue accounts?
A) Related-party transactions
B) Side agreements
C) Double counting
D) Lapping
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Page 14
Chapter 13: Liability, Asset, and Inadequate Disclosure
Frauds
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Sample Questions
Q1) Red flags of financial statement fraud include all but which of the following
A) Companies with unrealistically large growth in assets, revenues or profits
B) Companies with a principal who has been involved in a bankruptcy
C) Companies whose success depends on a special tax loophole or tax avoidance scheme
D) Companies that report contingent liabilities that are reasonably possible and have the potential to create a loss for the company
Q2) In asset fraud, assets are most often:
A) Understated
B) Overstated
C) Recorded as liabilities
D) Recorded as revenues
Q3) 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
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Page 15
Chapter 14: Fraud Against Organizations
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Q1) A conflict of interest is corruption that can be defined as:
A) Offering, giving, receiving or soliciting anything of value in order to influence an official act
B) Corrupt employees demand payments from vendors for deciding in the vendors' favor
C) Corrupt employees are rewarded for making favorable decisions
D) The employee has an undisclosed economic or personal stake in a transaction that adversely affects the company
Q2) Which of the following is one of the three main categories of occupational fraud and abuse?
A) Corruption
B) Bid-rigging
C) Check tampering
D) Lapping
Q3) Corruption involves which of the following schemes:
A) Bribery
B) Conflicts of interest
C) Economic extortion
D) Illegal gratuities
E) All of the above
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Chapter 15: Consumer Fraud
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Sample Questions
Q1) Discovery (gaining and verifying information) is part of the:
A) Identity theft cycle
B) Fraud triangle
C) Investigative model
D) Personal vandalism cycle
Q2) Which of the following method involves using the Internet to steal information?
A) Shoulder surfing
B) Phishing
C) Skimming credit cards
D) Rummaging through a victim's trash
Q3) 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
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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Sample Questions
Q1) Which is not something that a fraud perpetrator conducting a bust-out is likely to do?
A) Work to establish credibility
B) Contact law enforcement to strengthen their cover
C) Quietly buy an existing company that already has established credit or business
D) Take on a business name similar to a well-reputed company
E) A fraud perpetrator conducting a bust-out is likely to do all of the above
Q2) The duties of the court-appointed trustee in a chapter 11 case include all of the following except:
A) Investigate the acts, assets, liabilities, and financial condition of the debtor
B) Examine proofs of claims
C) Collect and liquidate the property of the debtor's estate
D) All of the above are duties of a court-appointed trustee
Q3) Which of the following is not a participant in the bankruptcy process?
A) U.S. trustee
B) Bankruptcy court
C) Creditors
D) All of the above are participants in the bankruptcy process
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18
Chapter 17: Fraud in E-Commerce
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Sample Questions
Q1) Defrauding people through e-business is generally __________________ in normal business settings.
A) Easier than
B) Harder than
C) The same as
Q2) What is the most important aspect of internal control?
A) The personnel
B) The board and audit committee participation
C) A controlled system
D) All of the above are equally important aspects of internal control
Q3) Which of the following is an important element of the control environment?
A) Integrity and ethical values
B) Board of directors and audit committee participation
C) Management's philosophy and operating style
D) All of the above
Q4) Specific fraud risks to conducting e-business include:
A) Data theft, hijacking, and biometrics.
B) Sniffing, kickbacks, and spoofing.
C) Falsified identity, spoofing, and hijacking.
D) Unauthorized access to passwords, data theft, and viruses.
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Chapter 18: Legal Follow-Up
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Sample Questions
Q1) During which basic stage of a civil case does each party's attorney try to find all information about the other side's case before the trial begins?
A) Arraignment
B) Discovery
C) Motion practice and negotiation
D) Interrogatories
Q2) Which amendment precludes a person from being tried twice for the same crime?
A) 1st Amendment
B) 4th Amendment
C) 5th Amendment
D) 19th Amendment
Q3) What does the Fourth Amendment protect against?
A) Unreasonable searches and seizures by the government
B) Trying a person twice for the same crime
C) The government taking a private party's property without just compensation
D) Arrests without a warrant
Q4) Which type of trial uses pre-trial depositions?
A) Criminal
B) Civil
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