Borrowing a company asset for personal use without permission, even if it is returned unharmed, is a form of non-cash asset misappropriation.a. Trueb. False
a. True
Which of the following is not a red flag in a fraudulent shipment scheme?a. An increase in bad debt expenseb. An unexplained decrease in the scrap accountc. Unusually high levels of reorders for inventory itemsd. Shipments with missing sales documents
b. An unexplained decrease in the scrap account
To prevent fraudulent shipments of merchandise, organizations shoulda. match every receiving slip to an approved purchase orderb. match every outgoing shipment to a sales orderc. Make sure that all increases to perpetual inventory records are supported by proper source documentsd. All of the above
d. All of the above
Which of the following methods can be used to conceal inventory shrinkage on a company's books?a. Creating fictitious sales and receivablesb. Writing off inventory as obsoletec. Physically paddingd. All of the above
d. All of the above
An employee causes his organization to purchase merchandise that it does not need. This is an example of what type of scheme?a. Purchasing and receiving schemeb. False billing schemec. Unconcealed larceny schemed. Asset requisition scheme
b. False billing scheme
Of the following, which is the best method for detecting the theft of inventory?a. Have the warehouse manager personally oversee bi-monthly inventory accountsb. Have someone from purchasing conduct inventory counts every quarterc. Have a designated person in customer service follow-up with customers who have complained about short shipmentsd. Match vendor addresses against employee addresses
c. Have a designated person in customer service follow-up with customers who have complained about short shipments
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 post a sale in the last two months of the yearb. Calculating the ratio of the largest sale to the next largest sale by customerc. Extracting all inventory coded as obsolete and possessing reorder points within the inventory systemd. All of the above
d. All of the above
Which of the following computer audit tests can be used to detect an inventory misappropriation scheme?a. Identifying inventory receipts in the receiving system that do not agree to the receipts per the accounts payable systemb. Identifying inventory shipments delivered to an address that is not designated as a business addressc. Identifying inventory with a negative quantity balanced. All of the above
b. Identifying inventory shipments delivered to an address that is not designated as a business address
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 shipmentsb. Unconcealed larcenyc. Asset requisitiond. Misappropriation of intangible assets
b. Unconcealed larceny
In one of the cases in the textbook, Larry Gunter was a shipping clerk for a computer company that manufactured microprocessor chips. After learning that the chips were valuable, he stole three boxes and sold them to his girlfriend's father. Since the scheme worked so well the first time, he continued stealing and selling the chips, even letting a co-worker in on the scheme. How was the theft discovered?a. A security guard found the chips in a routine check of his work cartb. An inventory manager filling an order noticed that many of the chips were missingc. The auditors found the shortage when they conducted the annual inventory countd. His co-worker notified the loss prevention department in exchange for a cash award
b. An inventory manager filling an order noticed that many of the chips were missing
Which of the following is not a type of corruption scheme?a. Briberyb. Conflict of interestc. Illegal Gratuitiesd. Concealed payments
d. Concealed payments
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 briberyb. Commercial briberyc. Conflict of interestd. Illegal gratuity
b. Commercial bribery
Which of the following is a type of kickback scheme?a. Improper disclosureb. Overbillingc. Turnaround saled. Extortion
b. Overbilling
A corruption scheme in which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work, is known as:a. Bid poolingb. Bid riggingc. Bid divisiond. Bid diversion
a. Bid pooling
To deter kickback schemes, an organization should implement which of following procedures?a. Separate the purchasing, authorization, and cash disbursements functionsb. Track purchase levels by vendorc. Compare the prices paid for goods and services to market ratesd. all of the above
d. all of the above
Which of the following is a red flag indicating that an employee may be receiving kickbacks?a. The purchase of inferior-quality inventory or merchandiseb. An unusually high volume of purchases from a particular vendorc. The amount charged for purchases is frequently above market ratesd. All of the above
d. All of the above
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 purchasesb. Corruptionc. Overstated expensesd. None of the above
b. Corruption
Matching the vendor master file to the employee master file is a proactive computer audit test that can be used to detect which type of fraud scheme(s)?a. Briberyb. Shell companyc. Both bribery and shell companyd. None of the above
c. Both bribery and shell company
Stanley Block works in the IT department at Towery INC. After finding out that the company is planning to purchase four more computers for the accounting department, Stanley bough four computers from a friend for $1200. Then, using his brother's name and address as vendor information, he resold the computers to Towery for $2300. This type of scheme is known as a:a. Over-purchase saleb. Resource diversion salec. Double-sided saled. Turnaround sale
d. Turnaround sale
In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchase more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. How did the investigation get started?a. A whistleblower called the GSA's hotline to report that inspectors in New Jersey were receiving bribes for certifying furnitureb. A series of articles in a Washington D.C. Newspaper led to a congressional investigationc. An audit conducted by the GSA found a high rate of return of modular furniture during a six-month periodd. A Senator had his desk collapse when he threw his sub-committee's budget on his desk after a hearing
b. A series of articles in a Washington D.C. Newspaper led to a congressional investigation
In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchase more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. The investigators eventually focused on one particular regional inspector because:a. He vacationed in Europe with the vendor and charged the trip back to the government as a business related tripb. He paid cash for a new home on the Jersey shorec. He purchased eleven race horsesd. He had credit card charges of more than twice his annual salary during a six-month period
c. He purchased eleven race horses
In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchase more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. What happened to the furniture manufacturing company?a. It was charged with making false certifications and fined $2 millionb. It lost its contract with the GSA and went bankruptc. It was bought by another companyd. All of the above
b. It lost its contract with the GSA and went bankrupt
According to a study by COSO, which of the following groups is the most likely to commit financial statement fraud?a. Organized criminalsb. Mid-level employeesc. Senior managementd. Lower-level employees
c. Senior management
Which of the following is a reason that a Chief Executive Officer might commit financial statement fraud?a. To increase a performance bonusb. To avoid termination due to poor performancec. To conceal the company's true performanced. All of the above
d. All of the above
Senior management is most likely to understate business performance in the financial statements for which of the following reasons?a. To reduce the value of an owner-managed business for purposes of a divorce settlementb. To comply with loan covenantsc. To increase the value of a corporate unit whose management is planning a buyoutd. To trigger performance-related compensation or earn-out payments
a. To reduce the value of an owner-managed business for purposes of a divorce settlement
Which of the following is not a reason that senior management would overstate business performance to meet certain objectives?a. To meet a lender's criteria for granting/extending loan facilitiesb. To meet or exceed the earnings or revenue growth expectations of stock market analystsc. To reduce current expectations so that future growth will be better perceived and rewardedd. To increase the amount of financing available from asset-based loans
c. To reduce current expectations so that future growth will be better perceived and rewarded
If a fraudster manipulates the assumptions used to calculate depreciation charges in order to increase earnings to a desired figure, which general method of financial statement fraud is the fraudster using?a. Going outside the accounting systemb. Beating the accounting systemc. Going around the accounting systemd. Playing the accounting system
d. Playing the accounting system
When a fraudster feeds fictitious information into the accounting system in order to manipulate reported results, this is called:a. Going outside the accounting systemb. Beating the accounting systemc. Going around the accounting systemd. Playing the accounting system
b. Beating the accounting system
If a fraudster uses a typewriter to produce fictitious financial statements while completely ignoring the data in the accounting system, this is an example of what general financial statement fraud method?a. Beating the accounting systemb. Playing the accounting systemc. Going outside the accounting systemd. None of the above
c. Going outside the accounting system
The conceptual framework for financial reporting includes several assumptions that underlie generally accepted accounting principles. Which of the following is one of these assumptions?a. Economic entityb. Relevancec. Matchingd. Comparability
a. Economic entity
Fraudulent manipulation of the going concern assumption usually results from an organization trying to conceal its terminal business situationa. Trueb. False
a. True
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. Periodicityb. Matchingc. Historical costd. Revenue recognition
b. Matching
The financial statements for DRG Industries contain a misstatement that is so significant that reasonable investors would likely make a different investment decision if they were given the correct information. What concept of GAAP applies to this situation?a. Full disclosureb. Revenue recognitionc. Materialityd. Cost-benefit
c. Materiality