Question 1

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

Accepted Answer

A)   Improper cutoff
B)   Refreshing transactions
C)   Channel stuffing
D)   Round-tripping
E)   None of the aboveF) A) and C)
G) D) and E)

Question 2

Possible methods of determining whether inventory is properly valued are:

Accepted Answer

A)   talking to the workers who handle the inventory
B)   communicating with vendors about inventory costs
C)   speaking with large customers about inventory quality and product returns
D)   all of the aboveE) All of the above
F) A) and C)

Question 3

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:

Accepted Answer

A)   Management
B)   Audit committee members
C)   Internal audit personnel
D)   Financial statement auditors must make inquiries of all of the aboveE) None of the above
F) All of the above

Question 4

Inventory fraud often involves overstating inventory and/or understating cost of goods sold. The result is a decrease in the:

Accepted Answer

A)   Gross profit ratio
B)   Inventory turnover ratio
C)   Number of days sales in inventory
D)   Two of the above
E)   All of the aboveF) A) and B)
G) C) and E)

Question 5

Which fraud is most difficult to perpetrate for multiple years?

Accepted Answer

A)   Overstating inventory - because last year's overstatement must be offset in the current year.
B)   Overstating inventory - because physical assets are easily audited making it easy to detect inventory fraud in the long run
C)   Overstating revenue - because auditors focus the most attention on revenue recognition
D)   Overstating revenue - because it is difficult to create fake cash year after yearE) B) and C)
F) A) and B)

Question 6

An example of a(n)  __________ is a change in behavior to cope with the stress involved with committing fraud.

Accepted Answer

A)   Analytical symptom
B)   Accounting symptom
C)   Control symptom
D)   Lifestyle symptom
E)   None of the aboveF) B) and C)
G) All of the above

Question 7

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

Accepted Answer

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" analysisE) B) and C)
F) None of the above

Question 8

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

Accepted Answer

A)   Related-party transactions
B)   Side agreements
C)   Double counting
D)   LappingE) A) and B)
F) None of the above

Question 9

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

Accepted Answer

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 symptomsF) B) and D)
G) D) and E)

Question 10

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

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 11

Regarding related-party transactions, fraud occurs when:

Accepted Answer

A)   The transactions are not properly disclosed.
B)   Assets are transferred between related parties.
C)   Business deals or arrangements are made between two parties that create a conflict of interest in a business setting.
D)   all of the aboveE) A) and B)
F) A) and C) A

Question 12

Which of the following is necessary in order to determine if an analytical symptom exists?

Accepted Answer

A)   Ratio analysis
B)   A change statement
C)   Vertical analysis
D)   An expectationE) B) and C)
F) C) and D)

Question 13

___________ is a practice that suppliers use to encourage customers to buy extra inventory so as to increase current-year sales.

Accepted Answer

A)   Kiting
B)   Channel stuffing
C)   Redating transactions
D)   Partial shipmentsE) All of the above
F) None of the above

Question 14

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

Accepted Answer

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 customersE) A) and B)
F) A) and D)

Question 15

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

Accepted Answer

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" repercussionsE) A) and C)
F) B) and D)

Question 16

Benford's law would most likely assist an auditor when looking for:

Accepted Answer

A)   Analytical symptom
B)   Accounting symptom
C)   Control symptom
D)   Lifestyle symptom
E)   None of the aboveF) C) and E)
G) All of the above B

Question 17

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

Accepted Answer

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 symptomsF) B) and D)
G) All of the above E

Question 18

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

Accepted Answer

A)   Analytical symptoms
B)   Lifestyle symptoms
C)   Control symptoms
D)   Tips and complaints
E)   All of the above are revenue-related fraud symptomsF) None of the above
G) All of the above

Question 19

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

Accepted Answer

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 falseE) None of the above
F) A) and B)

Question 20

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:

Accepted Answer

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 explanationsE) A) and C)
F) A) and B)

Exam 12: Revenue- and Inventory-Related Financial Statement Frauds

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

Correct AnswerverifiedShow Answer

Possible methods of determining whether inventory is properly valued are:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Inventory fraud often involves overstating inventory and/or understating cost of goods sold. The result is a decrease in the:

Correct AnswerverifiedShow Answer

Which fraud is most difficult to perpetrate for multiple years?

Correct AnswerverifiedShow Answer

An example of a(n) __________ is a change in behavior to cope with the stress involved with committing fraud.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Regarding related-party transactions, fraud occurs when:

Correct AnswerverifiedA

Which of the following is necessary in order to determine if an analytical symptom exists?

Correct AnswerverifiedShow Answer

___________ is a practice that suppliers use to encourage customers to buy extra inventory so as to increase current-year sales.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Benford's law would most likely assist an auditor when looking for:

Correct AnswerverifiedB

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

Correct AnswerverifiedE

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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A

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B

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E

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