1) President George W. Bush established the  a.

True
Corporate Fraud Task Force within the  *b. False
Department of Justice. 12) Under the KPMG survey scheme of fraud,
 *a. True check forgery is always an external fraud.
 b. False  a. True
2) Transparency is one of the nine qualities and  *b. False
characteristics that make financial information 13) The older fraud pyramid of Edwin Sutherland
useful for investors and creditors according to had these three factors of fraud: motive,
the AICPA committee (No. 2). opportunity, and rationalization.
 a. True  *a. True
 *b. False  b. False
3) The audit committee is one leg of the six-legged 14) A gambling problem would be considered an
stool of the financial reporting process. example of the rationalization factor in the fraud
 *a. True pyramid.
 b. False  a. True
4) Misrepresentation is one of the three M's of  *b. False
financial reporting fraud. 15) Ineffective internal controls is a tempting open
 *a. True door or opportunity for fraud.
 b. False  *a. True
5) The bill-and-hold practice involves selling  b. False
inventory to customers and holding the 16) Effective internal controls will always stop
merchandise, with an agreement to deliver the fraud.
goods later.  a. True
 *a. True  *b. False
 b. False 17) AICPA SAS No. 99 supplemented, but did not
6) Cendant Corporation shifted almost $11 billion supersede SAS No. 82.
of expenses into capital accounts.  a. True
 a. True  *b. False
 *b. False 18) Sherron Watkins stated that there is a defining
7) A restaurant may reduce income (and expenses) moment when one becomes corrupt.
if its lease agreement payments are based upon  a. True
restaurant sales.  *b. False
 *a. True 19) A business in a declining industry would be an
 b. False example of a motivation risk factor.
8) Booking income before receiving payments is  *a. True
called "channel stuffing" by the SEC.  b. False
 *a. True 20) High turnover of senior management would be
 b. False an example of a motivation risk factor.
9) Almost 75% of earnings misstatements from  a. True
1995 to 1999 had to do with revenue  *b. False
recognition. 21) The control environment is one of the five
 a. True interrelated components of internal controls.
 *b. False  *a. True
10) A KPMG survey breaks fraud into internal and  b. False
external fraud. 22) In an Ernst & Young study, 50% of the most
 *a. True serious fraud was committed by the
 b. False organization's own management.
11) Under the KPMG survey scheme of fraud,  *a. True
lapping is only considered to be an employee  b. False
fraud.
23) An exact profile has been developed of a  b. False
potential fraudster by several large CPA firms. 34) Credit card fraud is generally an internal fraud.
 a. True  a. True
 *b. False  *b. False
24) Senior-level management fraudsters often 35) Continuing presence of a firm's founder is a red
surround themselves with "yes people." flag of a poor management philosophy.
 *a. True  *a. True
 b. False  b. False
25) According to KPMG studies, management 36) Obtaining national stock exchange listing status
override is the one factor most likely to cause is not a major motive for fraud.
fraud.  a. True
 a. True  *b. False
 *b. False 37) Absence of a long-term institutional investor is
26) An ethical "tone at the top" helps deter white- a red flag of a poor management philosophy.
collar crime.  *a. True
 *a. True  b. False
 b. False 38) Evaluating the business rationale for a
27) David Duncan was the so-called whistle-blower significant unusual transaction is a way to
inside Enron who wrote the seven-page smoking overcome management overriding controls.
gun letter.  *a. True
 a. True  b. False
 *b. False 39) Significant related-party transactions is an
28) Abusive earnings management is an intentional industry condition risk factor.
and material misrepresentation of financial  a. True
results according to the SEC.  *b. False
 *a. True 40) The presence of an aggressive incentive
 b. False program is an industry condition risk factor.
29) Forensic investigators uncover financial  a. True
statement fraud by looking for unusual red flags  *b. False
or patterns. 41) The FBI has developed a profile of a fraudster.
 *a. True  a. True
 b. False  *b. False
30) Wildcatting is an investigative technique 42) Firms sacrifice on the average 8 cents in
adopted by the SEC to investigate a specific additional income taxes per dollar by cooking
company for check forgery. their books.
 a. True  *a. True
 *b. False  b. False
31) Large companies tend to more frequently 43) A hockey stick pattern indicates that a company
manage earnings to avoid losses than small is using the bad debt account to cook the books.
companies.  a. True
 a. True  *b. False
 *b. False 44) The United States ranks in the top 15 of the
32) Financial fraud is more likely to occur if a more transparent countries in 2008.
company has a poor management control  a. True
philosophy.  *b. False
 *a. True 45) The turmoil in the financial markets in 2008 and
 b. False 2009 caused a number of pension funds to be
33) Check forgery can be both an internal and underwater.
external fraud.  *a. True
 *a. True  b. False
46) Behavioral psychologists call rationalizing  *b. False
white collar crime reframing. 59) Which is not one of the three M's of financial
 *a. True statement fraud?
 b. False  *a. Missing general ledger.
47) Stamping down the desire to steal is an excellent  b. Manipulation.
way to prevent fraud.  c. Misrepresentation.
 *a. True  d. Intentional misapplication.
 b. False  e. None of the above.
48) Poor controls or missing controls cause loss of 60) Which group is not one of the members of
assets and poor business decisions. corporate governance in the six-legged stool as
 *a. True outlined by Professor Zab Razaee?
 b. False  a. Board of Directors.
49) Excessive internal controls can cause increased  b. Audit Committee.
regulations.  c. Internal auditors.
 a. True  *d. Employees of the company.
 *b. False  e. All of the above are one of the six
50) Excessive controls can cause noncompliance. groups.
 a. True 61) Which quality or characteristic is not outlined in
 *b. False Statement of Financial Concepts No. 2?
51) Training employees would be considered a  a. Relevance.
detective control.  b. Materiality.
 a. True  c. Timeliness.
 *b. False  *d. Transparency.
52) Reconciliations of bank statements would be  e. All of the above is in the No. 2
considered a detective control. statement.
 *a. True 62) Which would be an example of the bill-and-hold
 b. False strategy?
53) A drug testing program would be considered a  a. Books are kept open beyond the
preventive control. appropriate time.
 *a. True  *b. Sell products and hold them, with
 b. False an agreement to bill customers later.
54) One research study found that the number one  c. Combine restricted fund account
reason for fraud was pressure to do whatever it with the general fund account.
takes to meet goals.  d. Inflate revenues with phony
 *a. True software sales.
 b. False  e. None of the above.
55) A second surprise cash count would be a 63) An example of "channel stuffing" would be:
preventive type control.  a. Keeping books open beyond the
 a. True appropriate time.
 *b. False  b. Combining restricted fund account
56) Counting the inventory by an auditor would be a with the general fund account.
corrective control.  *c. income Booking before receiving
 a. True payments.
 *b. False  d. Inflating revenues with phony
57) Restatements of earnings fell in 2008. software sales.
 *a. True  e. None of the above.
 b. False 64) Which statement is false with respect to Howard
58) Class action securities fraud actions fell in 2008 M. Schilit's financial shenanigans?
and 2007.  a. Five of the shenanigans boost
 a. True current-year earnings.
  b. Two of the shenanigans shift
current-year earnings into the future.
 c. Recognizing current revenues as
deferred revenues is one of the
shenanigans.
 *d. He suggested nine financial
shenanigans.
 e. None of the above.
65) Under the KPMG categories of fraud, what
would probably not be an external fraud?
 a. Check forgery.
 b. False invoices.
 *c. Stock theft.
 d. Credit card fraud.
 e. All of the above are considered
external fraud.
66) Under the KPMG categories of fraud, what
would probably not be an employee internal
fraud?
 a. Lapping.
 b. Petty cash fraud.
 c. Kickbacks.
 d. Check forgery.
 *e. All of the above are considered
employee internal fraud.
67) Under the KPMG categories of fraud, what
would probably not be an employer internal
fraud?
 *a. False insurance claims.
 b. Ghost vendors.
 c. Check forgery.
 d. False financial statements.
 e. All of the above are considered
employer internal fraud.
68) The proving guilt pyramid does not contain this
factor:
 a. Motive.
 *b. Rationalization.
 c. Opportunity.
 d. Means.
 e. Both c and d.
69) The older fraud pyramid does not contain this
factor:
 *a. Means.
 b. Motive.
 c. Rationalization.
 d. Opportunity.
 e. Both c and d.
70) Which is not a factor, according to Professor
Razaee, present in a company that explains the
fraud triangle with respect to financial statement
fraud?
 a. Conditions.
 *b. Transparency.
 c. Corporate structure.
 d. Choice.
 e. Factors a and d.
71) COSA defines "internal controls" as a process,
effected by an entity's board of directors,
management and other personnel, designed to
provide reasonable assurance regarding the
achievement of objectives in the following
categories except:
 *a. A reasonable degree of
transparency.
 b. Effectiveness and efficiency of
operations.
 c. Reliability of financial reporting.
 d. Compliance with applicable laws
and regulations.
 e. All of the above.
72) Which statement is false?
 a. The flexibility in GAAP gives
management discretion to use its
professional opinion to choose from
a range of guidelines and standards
in selecting those that suit the needs
of a company (e.g., FIFO or LIFO
inventory methods).
 b. Nonfraudulent earnings
management is accomplished within
the GAAP framework.
 c. Fraudulent earnings management
does not follow GAAP.
 *d. Transparency is one of the five
interrelated components of internal
controls.
 e. All of the above are true.
73) Which item would not be a fraud identifier to
spot fraudsters?
 a. Large ego.
 b. Gambling addiction.
 c. Hard worker.
 d. Takes few or no vacations.
 *e. All of the above are fraud
identifiers.
74) Based upon KPMG studies, what factor is most
likely to cause fraud?
 a. Management override.
 b. Employee collusion.
  c. High risk industry.
 *d. Poor internal controls.
 e. Some other factor is most likely.
75) Employee fraud can be discovered by
considering:
 a. Behavioral habits.
 b. Employee stress factors.
 c. Lifestyle of the employee.
 d. Assets owned by the employee.
 *e. All of the above.
76) COSO suggests which of the following are
major motives for fraud?
 a. To obtain national stock exchange
listing status.
 b. To cover up assets
misappropriated for personal gain.
 c. To increase stock prices and
benefit inside traders.
 *d. All of the above.
77) Which of the following is a red flag for forensic
accountants?
 a. Complex financial products.
 b. Recurring charges.
 c. Aggressive revenue recognition
policies.
 *d. Both a and c.
 e. None of the above.
 f. All of the above.
78) What is an industry conditions risk factor?
 *a. Company in a declining industry.
 b. Significant accounts based upon
estimates.
 c. Significant related-party
transactions.
 d. Aggressive incentive programs.
 e. None of the above.
79) What is an operating and financial stability risk
factor?
 a. New accounting requirements for
the company.
 *b. Substance over form questions.
 c. Company declining in the
industry.
 d. High degree of competition.
 e. All of the above.
80) What is an industry risk factor?
 a. Aggressive incentive programs.
 b. Significant related-party
transactions.
 *c. New accounting requirements.
 d. Significant accounts based upon
estimates.
 e. All of the above.
81) What is an investigative technique used by the
SEC to investigate specific companies for
cooking the books?
 a. Lapping.
 b. Kiting.
 *c. Wildcatting.
 d. Ghosting.
 e. Channeling.
82) Which variable is in the fraud pyramid but not
in the fraud diamond?
 a. Opportunity.
 b. Motive.
 c. Rationalization.
 d. Capacity.
 *e. None of the above.
83) Elements in the fraud triangle can be restated as
all of the following except:
 a. Individual is either dishonest or
able to rationalize theft.
 b. Notices or creates an opportunity
to commit fraud.
 *c. Generally acts alone, out of
embarrassment.
 d. Feels some sort of pressure or
incentive to commit fraud.
 e. None of the above.
84) A typical lower-level employee in a public
business would engage mostly in which type of
crime?
 a. Fraud.
 *b. Misappropriation of assets.
 c. Error.
 d. Embezzlement.
 e. Lapping.
85) Which financial statement should be studied to
determine if a company has the ability to pay a
significant debt?
 a. Balance sheet.
 b. Shareholders equity.
 c. Income statement.
 *d. Cash flow statement.
 e. Annual budget.
86) Which is not one of the classic "red flags" of
"cooking the books"?
 a. Double billing a customer.
 b. Personal expenses paid with
company funds.
  *c. Sudden raises or bonuses to  c. Cookie-jar reserves.
employees.  d. Backdating stock options.
 d. Unnecessary use of collection  *e. None of the above. '
services. 94) Corruption would not include:
 e. Income increasing faster than  a. Bribery of a government official.
cash.  b. Kickbacks to a purchasing agent.
87) Which would be a good name for the scheme of  c. Free vacation to an acquisition
listing investment income as operating revenue? agent.
 a. Period shift.  *d. Stealing petty cash by a
 b. Expense manipulation. purchasing agent.
 c. Liability trap.  e. None of the above.
 *d. Revenue trick. 95) Which is not a detective control?
 e. Asset scam.  a. Reconciliations.
88) What is an equitable remedy that allows a  *b. Training of employees.
person to win a dispute against a company that  c. Reviews.
does not have standing to suit?  d. Surprise cash count.
 a. Equity doctrine.  e. None of the above.
 *b. Alter ego. 96) Which is not a preventive control?
 c. Two-prong test.  *a. Process redesign.
 d. Division analysis.  b. Segregation of duty.
 e. Dominance doctrine.  c. Passwords on a computer.
89) Which would be a preventive control?  d. Job rotation.
 *a. Segregation of duties.  e. Requiring approvals.
 b. Reconciliations.
 c. Surprise cash count.
 d. Surprise inventory count.
 e. All of the above.
90) Which would be a detective control?
 a. Required approvals.
 b. Job rotation.
 c. Passwords.
 *d. Surprise cash account.
 e. All of the above.
91) Which would be a corrective control?
 *a. Training.
 b. Event notifications.
 c. Perpetual inventory system.
 d. Job rotation.
 e. Alarm system.
92) Which is not one of the three types of controls?
 *a. Minimizing.
 b. Corrective.
 c. Preventive.
 d. Detective.
 e. Both a and b.
93) Which would be a nonfraudulent earnings
management scheme?
 a. Bill-and-hold technique.
 b. Channel stuffing.