Financial Statement Fraud

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Question 1
Free
Multiple Choice

Which of the following is true?

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A

Most financial statement frauds occur in large historically profitable companies.

B

Most people who commit management fraud are first-time offenders.

C

An active board of directors or audit committee does little to deter fraud.

D

Perpetrating fraud is much easier in an organization with democratic leadership, where the decision making is spread among several individuals

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Question 2
Free
Multiple Choice

Which of the following reasons for an organization to change auditors would not be a concern to a successor auditor or an investor?

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A

Failure of the client to pay the auditor

B

Auditee's view that the fees are too high

C

Auditor suspicious of fraud or other problems

D

Auditor-auditee disagreement

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Question 3
Free
Multiple Choice

Your firm has just acquired a new audit client. The new client is a company that is highly leveraged and has debt with several institutions. The new client is also planning on expanding its business and wants to obtain additional debt financing in the near future. Based on these facts, which one of the following should be most carefully examined?

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A

Large transactions that result in revenues and/or income

B

Loans and other financing transactions between related entities

C

Large amounts of goodwill on the balance sheet

D

Recent change in credit policies

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Question 4
Free
Multiple Choice

The senior on your audit engagement suspects there might be fraud in the company you are auditing. As such she assigns you, a first year staff, to investigate the financial statements and anything else you feel appropriate and then to report your findings. As part of your investigation will consider which of the following:

Choose correct answer/s
A

The financial statements alone

B

Financial statement numbers compared with real-world numbers

C

Company management and their motivations

D

B and C

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Question 5
Free
Multiple Choice

Which of the following balance sheet accounts is not often misstated when a company commits financial statement fraud?

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A

Accounts payable

B

Inventory

C

Accumulated Depreciation

D

All of the above are accounts often misstated.

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Question 6
Multiple Choice

Which of the following items is NOT true, according to the study done by the Committee of Sponsoring Organizations (COSO)?

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A
Frauds were most commonly perpetrated by improper revenue recognition, overstating assets, and understating expenses.
B
The average financial statement fraud period extended over 5 years and the frequency of fraudulent acts was sporadic during the period.
C
Severe consequences were associated with companies who committed financial statement fraud (e.g., Chapter 11 bankruptcy, stock was delisted, lawsuits by stockholders or bondholders).
D
Most companies were experiencing net losses or were just holding break-even positions in periods prior to the fraud. Meaning, many frauds were used to reverse downward spirals or to maintain upward trends.
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Question 7
Multiple Choice

Financial statement fraud, like other fraud, is rarely visible and may be concealed through which of the following?

Choose correct answer/s
A
Unintentional errors
B
Collusion
C
Falsified documentation
D
B and C
E
All of the above
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Question 8
Multiple Choice

Revenue frauds are perpetrated by:

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A
Improperly timing transactions
B
Recording receivables to fictitious customers
C
Overestimating the extent to which the earnings process has been completed
D
All of the above
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Question 9
Multiple Choice

Your audit team, on a newly acquired audit client, discovers that there has been fraudulent financial reporting for the past 5 years. Who is most likely to have been involved in the fraud?

Choose correct answer/s
A
Middle management in positions of trust
B
Disgruntled employees
C
Top management
D
The accountants in charge of preparing the financial statements
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Question 10
Multiple Choice

All of the following are true except?

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A
The CFO is the most likely executive to orchestrate and commit fraud.
B
Management fraud is usually committed on behalf of an organization rather than against it.
C
The four areas of financial statement fraud that need to be examined in detecting financial statement fraud are management and directors, relationships with others, the organization and financial results and operating characteristics.
D
Financial statements play an important role in keeping U.S. capital markets efficient.
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Question 11
Multiple Choice

Understanding a company's debt or leverage is important for which of the following reasons?

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A
It helps in gaining a perspective of management's motivations.
B
It helps in understanding the pressures a company faces.
C
It helps identify opportunities in which the company might commit fraud.
D
B and C
E
All of the above
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Question 12
Multiple Choice

FS fraud is often perpetrated with the help of real or fictitious organizations. As such, auditors should examine those relationships very closely. What type of a change in relationship poses the greatest risk or evidence of wrong doing?

Choose correct answer/s
A
Auditors
B
Lawyer
C
Investors
D
Bank
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Question 13
Multiple Choice

Assuming your client has had a long-standing relationship with a law firm that has resulted in much profitable business for the law firm as they have advised the client in all areas of its business. If the law firm should decide it no longer wants to conduct business with your client, this should...

Choose correct answer/s
A
not be a cause for concern of potential financial statement fraud.
B
be a minor concern that financial statement fraud may be occurring.
C
be a large cause for concern that financial statement fraud may be occurring.
D
indicate that the client has likely outgrown the law firm.
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Question 14
Multiple Choice

The termination of an auditor-auditee relationship can be caused by all but which of the following?

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A
Failure of the client to pay
B
Auditor-auditee disagreement
C
Auditor's suspicion of fraud
D
State government mandate to break long term audit relationships
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Question 15
Multiple Choice

Although GAAP does allow for some flexibility, which standards should be maintained in preparing financial statements?

Choose correct answer/s
A
Assertiveness
B
Integrity & Objectivity
C
Independence
D
None of the above
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Question 16
Multiple Choice

Which of the following is most likely a fraudulent cause for financial statement balances to deviate from an expected result?

Choose correct answer/s
A
Lost documents
B
Unexpected changes in economic conditions
C
Manipulation of expenses
D
Accounting errors
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Question 17
Multiple Choice

Frauds are more likely to occur in

Choose correct answer/s
A
Large, historically profitable companies
B
Companies with an active board of directors
C
Smaller companies where one or two individuals have almost all control in decision making
D
The probability of a fraud does not change with the size of a company
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Question 18
Multiple Choice

Gaining an understanding of management is crucial in identifying fraud exposures or opportunities for fraud. Which aspect of management should be investigated?

Choose correct answer/s
A
Management compensation plan
B
Management backgrounds
C
Management's ability to influence organizational decision making
D
All of above
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Question 19
Multiple Choice

Which of the following is important to focus on when trying to detect financial statement fraud?

Choose correct answer/s
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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Question 20
Multiple Choice

Which of the following is an auditor's most important area to search for detecting financial statement fraud?

Choose correct answer/s
A
Management and the Directors.
B
The Company's relationships with other entities.
C
The financial results and operating characteristics.
D
None of the above.
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