Type:
Test Bank
Resource:
Forensic Accounting
Edition:
1st Edition
Author(s):
Robert Rufus Laura Miller William Hahn
Forensic Accounting (Rufus) Chapter 1 Introduction to the World of Forensic Accounting 1.1 True/False Questions 1) Forensic accounting can be defined as the application of financial facts to legal situations. Answer: TRUE Explanation: Forensic accounting can be defined as the application of financial facts to legal situations. Diff: 1 LO: 1-1 AACSB: Analytical Thinking 2) "Trust, but verify" is the general rule while exercising professional skepticism. Answer: TRUE Explanation: Forensic accountants must exercise a healthy dose of professional skepticism. This reflects a proactive, questioning mindset, where nothing is as it seems and "trust, but verify" is the general rule. Diff: 1 LO: 1-1 AACSB: Analytical Thinking 3) Fraud detection and fraud examination describes reactive strategies while fraud deterrence describes proactive strategies. Answer: TRUE Explanation: Fraud deterrence differs from fraud detection and fraud examination in that it describes proactive (rather than reactive) strategies. Diff: 1 LO: 1-2 AACSB: Analytical Thinking 4) The need or motive of the fraud is not the immediate challenge of a fraud examination. Answer: TRUE Explanation: The primary focus of a fraud examination is to determine the following elements of the fraud: who committed the fraud, how they committed it, when it was committed, how much was taken, and who else was involved. The why (need or motive), although important to the overall understanding of fraud, is not the immediate challenge. Diff: 1 LO: 1-2 AACSB: Analytical Thinking 5) Fraud deterrence strategies include statistical analysis. Answer: FALSE Explanation: Statistical analysis is a fraud detection strategy. Diff: 1 LO: 1-2 AACSB: Analytical Thinking 1 .
6) Fact witnesses can express opinions but expert witnesses cannot. Answer: FALSE Explanation: Expert witnesses differ from fact witnesses in that they can express opinions. Diff: 1 LO: 1-2 AACSB: Analytical Thinking 7) The accounting process has three basic steps: recording, classifying, and summarizing. Answer: TRUE Explanation: The accounting process has three basic steps: recording, classifying, and summarizing. Diff: 1 LO: 1-3 AACSB: Analytical Thinking 8) The first line of defense against accounting failures within an organization is the external auditor. Answer: FALSE Explanation: The first line of defense against accounting failures within an organization is the internal auditor. Diff: 1 LO: 1-3 AACSB: Analytical Thinking 9) Deductive reasoning draws conclusions from patterns. Answer: FALSE Explanation: Inductive reasoning draws conclusions from patterns. Diff: 1 LO: 1-4 AACSB: Analytical Thinking 10) Expert reports prepared in the course of litigation are exempt from professional report writing standards. Answer: TRUE Explanation: Expert reports prepared in the course of litigation are exempt from professional report writing standards. Diff: 1 LO: 1-4 AACSB: Analytical Thinking
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1.2 Multiple-Choice Questions 1) Which of the following best describes the term forensic accounting? A) It is a discipline that deals with the preparation and analysis of financial statements of companies. B) It is the use of accounting principles to consolidate financial statements of foreign corporations. C) It is a discipline that primarily deals with methods of preparation of financial budgets of a company. D) It is the use of accounting theories, principles, or analyses in a legal action, often through expert witness testimony. Answer: D Explanation: D) Forensic accounting can be defined as the use of accounting theories, principles, or analyses in a legal action, often through expert witness testimony. In other words, it is the application of financial facts to legal situations. Diff: 2 LO: 1-1 AACSB: Analytical Thinking 2) Which of the following is recognized as the first forensic accountant? A) Frank J. Wilson B) Maurice Peloubet C) Alphonse Capone D) Leslie A. Shuway Answer: A Explanation: A) The term forensic accountant was first used by Maurice Peloubet in 1946 in the Journal of Accountancy to recognize and celebrate IRS Special Agent Frank J. Wilson as the man who brought down Capone. Diff: 1 LO: 1-1 AACSB: Analytical Thinking 3) Which of the following statement is true of forensic accountants? A) They should have a reactive mindset. B) They should focus their investigations on numbers rather than looking beyond them. C) They should embrace systematic thinking. D) They must trust their preexisting judgments. Answer: C Explanation: C) Forensic accountants need to be intellectually curious. In addition to this, they must embrace systematic thinking and exercise a healthy dose of professional skepticism. Diff: 1 LO: 1-1 AACSB: Analytical Thinking
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4) Which of the following shows Paul, a forensic accountant, indicating an intellectually curious mindset? A) He relies on the reports given by the management to form an opinion on the financial viability of the business. B) He bases his judgments on the existing industry standards and not on the environment in which the organization operates. C) He gives room for the possibility that mistakes maybe attributable to negligence. D) He questions his understanding of an issue, in spite of being an expert in the field. Answer: D Explanation: D) An intellectually curious individual possesses a restless mind-one that is never satisfied with his or her understanding of an issue, regardless of experience and expertise. Moreover, forensic accountants must have the instinct to explore problems that challenge conventional wisdom. Diff: 2 LO: 1-1 AACSB: Reflective Thinking 5) Which of the following situations shows Kelcie, a forensic accountant, exercising professional skepticism? A) Kelcie argues that the immediate previous year's records serve as a better basis for the investigation than the earlier years. B) Kelcie believes that the reputation of the external auditor is an indicator of the reliability of the audit report. C) Kelcie believes in the phrase "guilty, until proved otherwise" and does not presume innocence until she has reasonable doubt. D) Kelcie verifies the reports given by the internal auditor against available evidence before using it in her reports. Answer: D Explanation: D) Forensic accountants must exercise a healthy dose of professional skepticism. This reflects a proactive, questioning mindset, where nothing is as it seems and "trust, but verify" is the general rule. Kelcie follows this general rule, which indicates professional skepticism. Diff: 2 LO: 1-1 AACSB: Reflective Thinking
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6) Which of the following statements is true of forensic accounting investigative services? A) These are provided in connection with actual, pending, or potential legal or regulatory proceedings-criminal or civil. B) These are only performed after a crime has occurred. C) These include fraud detection, fraud examination, and fraud deterrence. D) These generally involve actual or threatened litigation. Answer: C Explanation: C) Investigative services provided by forensic accountants are generally related to corporate investigations, which are initiated for the purpose of protecting the organization and its assets from internal or external threats. Diff: 2 LO: 1-2 AACSB: Analytical Thinking 7) Which of the following is a technique of fraud detection? A) perception of detection B) analysis of financial statement C) preemployment screening D) evaluation of hiring practices Answer: B Explanation: B) Fraud detection includes a variety of strategies, such as internal control procedures, statistical analysis, financial statements analysis, and anonymous reporting channels (such as hotlines). Diff: 2 LO: 1-2 AACSB: Analytical Thinking 8) Which of the following is NOT the primary focus of a fraud examination by a forensic accountant? A) Who committed the fraud? B) How was the fraud committed? C) When was the fraud committed? D) Why was the fraud committed? Answer: D Explanation: D) The primary focus of a fraud examination is to determine the following elements of the fraud: who committed the fraud, how they committed it (the fraud scheme), when it was committed (time frame and duration), how much was taken, and who else was involved. The why (need or motive), although important to our overall understanding of fraud, is not the immediate challenge. Diff: 2 LO: 1-2 AACSB: Analytical Thinking
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9) Which of the following is a difference between fraud examination and fraud detection? A) Fraud examination is done before a fraud has been committed, whereas fraud detection is done after a fraud has been committed. B) Fraud examination is the investigation specific allegations or suspicions of fraud, whereas fraud detection is the identification of an error or irregularity after it has occurred. C) Fraud examination focuses on the time and duration of the fraud, whereas fraud detection focuses on the need or motive of the fraud. D) Fraud examination adapts proactive strategies, whereas fraud detection adapts reactive strategies. Answer: B Explanation: B) Fraud detection is simply the discovery of fraud. Detective procedures are designed to identify an error or irregularity after it has occurred. A fraud examination's purpose is to investigate specific allegations or suspicions of fraud. Diff: 2 LO: 1-2 AACSB: Analytical Thinking 10) Which of the following is most likely a short-term strategy for fraud deterrence? A) financial statement analysis B) employee invigilation C) time series analysis D) evaluation of hiring practices Answer: D Explanation: D) Examples of short-term (or procedural) strategies include evaluation of hiring practices, internal controls, and performance monitoring. Diff: 1 LO: 1-2 AACSB: Analytical Thinking 11) Which of the following is a proactive employee strategy of fraud deterrence? A) perception of detection B) analysis of financial statement C) analysis of statistical data D) employee contracts Answer: A Explanation: A) Proactive employee strategies include preemployment screening, employee training, employee monitoring, perception of detection (through internal controls and external audits), and organizational culture. Diff: 2 LO: 1-2 AACSB: Analytical Thinking
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