Revenue- And Inventory-related Financial Statement Frauds

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Question 1
Free
Multiple Choice

Revenue-related financial statement fraud is prevalent for all of the following reasons except:

Choose correct answer/s
A

There are numerous accounting methods for recognizing revenue.

B

Revenue-recognition policies are unlikely to be reviewed by financial statement auditors.

C

Net income can be easily manipulated by using revenue accounts.

D

Judgment can significantly affect the amount of revenue recognized by an entity.

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Question 2
Free
Multiple Choice

The practice of ____________ involves selling unused assets while promising to buy them back at roughly the same price

Choose correct answer/s
A

Improper cutoff

B

Refreshing transactions

C

Channel stuffing

D

Round-tripping

E

None of the above

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Question 3
Free
Multiple Choice

Which of the following is not a fraud scheme affecting the revenue accounts?

Choose correct answer/s
A

Related-party transactions

B

Side agreements

C

Double counting

D

Lapping

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Question 4
Free
Multiple Choice

Which of the following are not revenue-related fraud symptoms?

Choose correct answer/s
A

Analytical symptoms

B

Lifestyle symptoms

C

Control symptoms

D

Tips and complaints

E

All of the above are revenue-related fraud symptoms

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Question 5
Free
Multiple Choice

Which of the following is not a typical analytical symptom of revenue fraud?

Choose correct answer/s
A

Revenue appears too high

B

Discounts appear too low

C

Allowance for doubtful accounts appears too high

D

Bad debt expense appears too low

E

All of the above are typical analytical symptoms of revenue fraud

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Question 6
Multiple Choice

Which of the following is not a typical behavioral or verbal symptom of revenue fraud?

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A
Inconsistent or vague responses from management arising from revenue inquiries
B
Denied access to facilities, employees, or records related to revenue-related audit evidence
C
Unusual delays by the entity in providing revenue-related information
D
Untrue responses by management to queries about revenue-related accounts
E
All of the above are typical symptoms
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Question 7
Multiple Choice

Which of the following are ways to proactively search for fraud symptoms?

Choose correct answer/s
A
Responding to customer complaints regarding sales terms.
B
Investigating anomalies noticed when sampling transactions for routine control testing.
C
Exploring claims of a disgruntled employee that were received in an exit interview.
D
None of the above.
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Question 8
Multiple Choice

Common ways of performing "within-statement" analysis include all of the following except:

Choose correct answer/s
A
Comparing a firm's account balances from period to period
B
Comparing relationships between account balances from period to period
C
Comparing financial results with industry averages from period to period
D
All of the above are common ways of performing "within-statement" analysis
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Question 9
Multiple Choice

__________ involves examining percentage changes in account balances from period to period.

Choose correct answer/s
A
Horizontal analysis
B
Change statement analysis
C
Ratio analysis
D
None of the above
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Question 10
Multiple Choice

Horizontal analysis is not typically performed on the ___________ .

Choose correct answer/s
A
Balance sheet
B
Income statement
C
Statement of cash flows
D
None of the above
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Question 11
Multiple Choice

Which of the following ratios is not commonly used to discover revenue-related analytical fraud symptoms?

Choose correct answer/s
A
Asset turnover ratio
B
Earnings per share
C
Gross profit ratio
D
Accounts receivable turnover
E
All of the above are commonly used to discover revenue-related analytical fraud symptoms
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Question 12
Multiple Choice

Which of the following is false concerning "topside" journal entries used to commit financial statement fraud?

Choose correct answer/s
A
Upper management usually records the journal entry
B
Entries are recorded directly to the subsidiary ledger
C
The journal entry may be recorded after normal business hours.
D
All of the above are false
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Question 13
Multiple Choice

Under SAS 99, financial statement auditors are required to make inquires of all of the following individuals or groups about possible fraudulent activity or red flags except:

Choose correct answer/s
A
Management
B
Audit committee members
C
Internal audit personnel
D
Financial statement auditors must make inquiries of all of the above
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Question 14
Multiple Choice

Potential whistle-blowers are hesitant to come forward with information for all of the following reasons except:

Choose correct answer/s
A
They don't know who to tell
B
They don't feel it's their responsibility
C
They don't want to wrongly accuse someone
D
They are afraid of "whistle-blower" repercussions
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Question 15
Multiple Choice

Which of the following is not a common inventory-related fraud scheme?

Choose correct answer/s
A
Capitalizing costs that should be expensed
B
Cutoff problems
C
Consigned inventory
D
All of the above are inventory-related fraud schemes
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Question 16
Multiple Choice

Auditors realize that XYZ is experiencing increasing levels of inventory while its competitors' inventory levels remain stable. All of the following are likely explanations except:

Choose correct answer/s
A
The increase in inventory is a result of poor management decisions
B
The increase in inventory is a result of increased sales expectations
C
The increase in inventory is a result of fraud
D
All of the above are possible explanations
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Question 17
Multiple Choice

Which of the following is not a typical symptom of revenue fraud?

Choose correct answer/s
A
managers and other company officers are living a lavish lifestyle
B
management overrides significant internal control activities related to the revenue cycle
C
revenue-related ledgers do not balance
D
the company has numerous large customers
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Question 18
Multiple Choice

Which of the following is most likely to be indicative of a potential revenue fraud?

Choose correct answer/s
A
a sudden increase in the sales discount percentage
B
a high sales return percentage
C
a rapidly increasing asset turnover ratio
D
a rapidly decreasing working capital turnover ratio
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Question 19
Multiple Choice

According to the text, what is the unique reason that the accounts receivable turnover ratio is so widely used in analyzing revenue?

Choose correct answer/s
A
significant revenues and receivables will almost always affect this ratio
B
it is easy to compute
C
the data is readily available
D
the accounts receivable turnover ratio is not a widely used ratio in analyzing revenue
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Question 20
Multiple Choice

When analyzing ratios, what is typically the most important aspect to evaluate?

Choose correct answer/s
A
the size of the ratio
B
the direction of the ratio
C
the change in the ratio
D
the complexity of the ratio
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