1. To prevent fraudulent shipments of merchandise, organizations should:
a. Match every receiving slip to an approved purchase order.
b. Match every outgoing shipment to a sales order.
c. Make sure that all increases to perpetual inventory records are supported by proper source documents.
d. All of the above
2. Of the following, which is the best method for detecting the theft of inventory?
a. Have the warehouse manager personally oversee bi-monthly inventory counts.
b. Have someone from purchasing conduct inventory counts every quarter.
c. Have a designated person in customer service follow-up with customers who have complained about short shipments.
d. Match vendor addresses against employee addresses.
3. Which of the following procedures would be least helpful in preventing larceny of non-cash assets?
a. Segregating the duties of sales and accounts payable
b. Installing surveillance cameras in the warehouse and on sales floors
c. Creating access logs to track employees that enter restricted areas
d. Employing security guards at the entrance of the warehouse
4. Unexplained increases in inventory shrinkage can be a red flag that signals which type of fraud scheme?
a. Fictitious refunds
b. Inventory larceny
c. Sales skimming
d. All of the above
5. Which of the following computer audit tests can be used to detect purchasing and receiving schemes?
a. Identifying dormant customer accounts for the past six months that show a sale in the last two months of the year
b. Calculating the ratio of the largest sale to the next largest sale by customer
c. Extracting all inventory coded as obsolete and possessing reorder points within the inventory system
d. All of the above
6. Andy Kaplan is a foreman for JCP Enterprises, a regional construction company. He recently ordered some plumbing supplies from the company warehouse for an office building project he is overseeing. When the supplies arrived at the job site, however, he loaded them in his truck and took them home to use in remodeling his master bathroom. What kind of inventory theft scheme did Andy commit?
a. False shipments
b. Unconcealed larceny
c. Asset requisition
d. Misappropriation of intangible assets
B
1. ___________________ is the offering, giving, receiving, or soliciting of something of value as a reward for a favorable decision.
a. Business diversion
b. Economic extortion
c. Illegal gratuity
d. Commercial bribery
2. The offering, giving, receiving, or soliciting of something of value for the purpose of influencing a business decision without the knowledge or consent of the principal is known as:
a. Official bribery
b. Commercial bribery
c. Conflict of interest
d. Illegal gratuity
3. To facilitate a bribery scheme, a fraudster might divert company funds to a non-company account from which the illegal payments can be made. This account is called a:
a. Slush fund
b. Petty cash fund
c. Bid pool
d. None of the above
4. Identifying trends in over-purchased and/or obsol ...
1. To prevent fraudulent shipments of merchandise, organizations s.docx
1. 1. To prevent fraudulent shipments of merchandise,
organizations should:
a. Match every receiving slip to an approved purchase order.
b. Match every outgoing shipment to a sales order.
c. Make sure that all increases to perpetual inventory records
are supported by proper source documents.
d. All of the above
2. Of the following, which is the best method for detecting the
theft of inventory?
a. Have the warehouse manager personally oversee bi-monthly
inventory counts.
b. Have someone from purchasing conduct inventory counts
every quarter.
c. Have a designated person in customer service follow-up with
customers who have complained about short shipments.
d. Match vendor addresses against employee addresses.
3. Which of the following procedures would be least helpful in
preventing larceny of non-cash assets?
a. Segregating the duties of sales and accounts payable
b. Installing surveillance cameras in the warehouse and on sales
floors
c. Creating access logs to track employees that enter restricted
areas
d. Employing security guards at the entrance of the warehouse
4. Unexplained increases in inventory shrinkage can be a red
flag that signals which type of fraud scheme?
a. Fictitious refunds
b. Inventory larceny
c. Sales skimming
d. All of the above
2. 5. Which of the following computer audit tests can be used to
detect purchasing and receiving schemes?
a. Identifying dormant customer accounts for the past six
months that show a sale in the last two months of the year
b. Calculating the ratio of the largest sale to the next largest
sale by customer
c. Extracting all inventory coded as obsolete and possessing
reorder points within the inventory system
d. All of the above
6. Andy Kaplan is a foreman for JCP Enterprises, a regional
construction company. He recently ordered some plumbing
supplies from the company warehouse for an office building
project he is overseeing. When the supplies arrived at the job
site, however, he loaded them in his truck and took them home
to use in remodeling his master bathroom. What kind of
inventory theft scheme did Andy commit?
a. False shipments
b. Unconcealed larceny
c. Asset requisition
d. Misappropriation of intangible assets
B
1. ___________________ is the offering, giving, receiving, or
soliciting of something of value as a reward for a favorable
decision.
a. Business diversion
b. Economic extortion
c. Illegal gratuity
d. Commercial bribery
2. The offering, giving, receiving, or soliciting of something of
3. value for the purpose of influencing a business decision without
the knowledge or consent of the principal is known as:
a. Official bribery
b. Commercial bribery
c. Conflict of interest
d. Illegal gratuity
3. To facilitate a bribery scheme, a fraudster might divert
company funds to a non-company account from which the
illegal payments can be made. This account is called a:
a. Slush fund
b. Petty cash fund
c. Bid pool
d. None of the above
4. Identifying trends in over-purchased and/or obsolete
inventory over several periods is a proactive computer audit test
that can be used to detect which of the following schemes?
a. False purchases
b. Corruption
c. Overstated expenses
d. None of the above
5. Johanna Pye is a hair stylist at Mamon Salon. The salon’s
policy states that stylists receive 40 percent of the revenue they
4. generate as their compensation. Johanna grew tired of sharing
her income with the salon and decided she wanted to make more
money. She continued seeing her existing clients at the salon,
but when new clients called for an appointment, Johanna lied
and told them the salon was completely booked for the next few
months. She then offered to come to their homes and cut their
hair for 10 percent less than what the clients would be charged
at the salon. She did not report the house call appointments to
the salon, and was therefore able to keep all the income she
generated from these side clients. This is an example of what
type of scheme?
a. Shell company
b. Resource diversion
c. Business diversion
d. Double dealing
6. Julius Smith is a purchasing agent for a Louisiana state
agency. He has a project budgeted for $24,000 that he would
like to hire RGS Consultants to handle. Unfortunately for Julius
and RGS Consultants, the state has a requirement that all
projects over $10,000 must be sent out for competitive bids. In
order to avoid the bidding process, Julius breaks the project into
three component projects worth $8,000 each. RGS Consultants
is subsequently awarded the contracts for all three projects.
What type of bid-rigging scheme is this?
a. Bid pooling
b. Underbidding
c. Bid splitting
5. d. Bid diversion
C
1. According to COSO’s study, Fraudulent Financial Reporting:
1998-2007, which of the following is the most likely to commit
financial statement fraud?
a. Organized criminals
b. Mid-level employees
c. The chief executive officer and/or chief financial officer
d. Lower-level employees
2. Which of the following is a reason that a chief executive
officer might commit financial statement fraud?
a. To receive or increase a performance bonus
b. To avoid termination due to poor performance
c. To conceal the company’s true performance
d. All of the above
3. Intentionally reporting product sales in the financial
statements for the period prior to when they actually occurred is
a violation of which generally accepted accounting principle?
a. Periodicity
b. Matching
c. Historical cost
d. Revenue recognition
6. 4. Walden Industries is being sued by a former employee for
wrongful termination. It is probable that the company will lose
the case and be ordered to pay the plaintiff a significant sum of
money. If Walden fails to report this information somewhere in
its financial statements, it is violating the GAAP concept of:
a. Materiality
b. Full disclosure
c. Matching
d. Cost-benefit
5. A company’s financial statements are the responsibility of:
a. The independent auditors
b. The shareholders
c. The accounting department
d. Management
6. Vanessa Armstrong was the chief financial officer for D&G
Technologies, a publicly traded corporation. During the 20X1
fiscal year, she caused the company’s financial statements to
violate reporting requirements by including a significant
overstatement of revenue so that she would receive a large
performance bonus. When her transgression came to light, the
company was required to issue restated financial statements for
20X1. Under the provisions of Sarbanes-Oxley, Vanessa must
reimburse the company for any bonus she received during the 12
months after the 20X1 financials were initially filed.
a. True
7. b. False
D
1. Which of the following is not an example of financial
statement fraud?
a. Falsification of material financial records, supporting
documents, or business transactions
b. Unintentional misapplication of accounting principles
c. Deliberate omission of material disclosures
d. All of the above are examples of financial statement fraud
2. Which of the following is a red flag associated with fictitious
revenues?
a. An unusual decrease in gross margin
b. An unusual decline in the number of days’ purchases in
accounts payable
c. Several unusual and highly complex sales transactions
recorded close to the period end
d. Recurring losses while reporting increasing cash flows from
operations
3. At the suggestion of the external auditors, the audit
committee of Alpha Technologies called in Bryce Miller, CFE,
to investigate some suspected improprieties. During his
investigation, Bryce learns that the company has been involved
in several highly-complex transactions with related parties that
do not appear to have any logical business purpose. Further,
8. Alpha’s organizational structure is overly complex and involves
some unusual legal entities with overlapping lines of authority.
Bryce also discovers four large bank accounts in the Cayman
Islands that have no clear business justification. When
questioned about these situations, the company’s CEO treats
them as unimportant and refuses to provide any further
explanation. What type of financial statement fraud scheme do
Bryce’s findings most likely indicate?
a. Fictitious revenues
b. Improper asset valuation
c. Improper disclosures
d. Concealed expenses
4. An unusual change in the relationship between fixed assets
and depreciation is a red flag associated with which type of
financial statement fraud scheme?
a. Timing differences
b. Improper asset valuation
c. Improper disclosure
d. All of the above
5. According to SAS 99, the auditor should ask management
about the risks of fraud and how they are addressed. Which of
the following is not described as an issue that the auditor should
ask management about?
a. Whether management has knowledge of fraud or suspected
fraud
9. b. Management’s understanding of the risk of fraud
c. Whether and how management communicates the company’s
financial results to its employees
d. Programs that the entity has established to prevent, deter, or
detect fraud
6. The textbook lists several ways to reduce the pressures to
commit financial statement fraud, including:
a. Avoiding setting unachievable financial goals
b. Maintaining accurate and complete internal accounting
records
c. Having confidential reporting mechanisms to communicate
inappropriate behavior
d. Maintaining accurate personnel records including background
checks on new employees
7. Scott Ruskin is the CEO of Decatur Materials. The company
has been struggling for the last few years and is in danger of
defaulting on several of its bank loan covenants. Scott is facing
significant pressure from the board of directors to turn the
company around. Unless he meets all of the financial goals for
the year, he will be out the door without a golden parachute. To
improve the financial appearance of the company, Scott
undertakes a scheme to boost the balance sheet by faking
inventory. The analysis of what financial ratio would most
likely bring this scheme to light?
a. Quick ratio