Deck 3: Fraud, Ethics, and Internal Control

Question 1

Which of the following is not a condition in the fraud triangle?

A)Rationalization
B)Incentive
C)Conversion
D)Opportunity

Answer 1

C
Conversion

Question 2

COSO describes five components of internal control.Which of the following terms is best described as "policies and procedures that help ensure management directives are carried out and management objectives are achieved"?

A)Risk assessment
B)Information and communication
C)Control activities
D)Control environment

Answer 2

C
Control activities

Question 3

AICPA Trust Principles identify five categories of risks and controls.Which category is best described by the statement, "Information process could be inaccurate, incomplete, or not properly authorized"?

A)Security
B)Availability
C)Processing integrity
D)Confidentiality

Answer 3

C
Processing integrity

Question 4

The review of amounts charged to the company from a seller that it purchased from is called a:

A)Vendor audit
B)Seller review
C)Collusion
D)Customer review

Question 5

There are many possible indirect benefits to management when management fraud occurs.Which of the following in not an indirect benefit of management fraud?

A)Delayed exercise of stock options.
B)Delayed cash flow problems.
C)Enhanced promotion opportunities.
D)Increased incentive-based compensation.

Question 6

The careful and responsible oversight and use of the assets entrusted to management is called:

A)Control environment
B)Stewardship
C)Preventive control
D)Security

Question 7

A set of documented guidelines for moral and ethical behavior within an organization is termed an):

A)Accounting Information System
B)Code of Ethics
C)Internal Control
D)Sarbannes-Oxley

Question 8

The theft, concealment, and conversion of personal gain of another's money, physical assets, or information is termed:

A)Defalcation
B)Skimming
C)Larceny
D)Fraud

Question 9

Proper segregation of functional responsibilities calls for separation of the functions of:

A)Authorization, execution, and payment
B)Authorization, recording, and custody
C)Custody, execution, and reporting
D)Authorization, payment, and recording

Question 10

Which of the following is not a common form of employee fraud?

A)Inventory theft
B)Expense account fraud
C)Payroll fraud
D)Refund fraud

Question 11

A company's cash custody function should be separated from the related cash recordkeeping function in order to:

A)Physically safeguard the cash
B)Establish accountability for the cash
C)Prevent the payment of cash disbursements from cash receipts
D)Minimize opportunities for misappropriations of cash
TEST BANK - CHAPTER 3 - MULTIPLE CHOICE

Question 12

The most difficult type of misstatement to discover is fraud that is concealed by:

A)Over-recording the transactions
B)Nonrecorded transactions
C)Recording the transactions in subsidiary records
D)Related parties

Question 13

Segregation of duties is a fundamental concept in an effective system of internal controls.Nevertheless, the effectiveness of this control can be compromised through which situation?

A)A lack of employee training
B)Collusion among employees
C)Irregular employee reviews
D)The absence of an internal audit function

Question 14

Which control activity is intended to serve as a method to confirm the accuracy or completeness of data in the accounting system?

A)Authorization
B)Segregation of duties
C)Security of assets
D)Independent checks and reconciliations

Question 15

Which individual or group has the responsibility to establish, enforce, and exemplify the principles of ethical conduct within an organization?

A)Board of Directors
B)Securities and Exchange Commission
C)Management
D)Audit Committee

Question 16

Which of the following is generally an external computer fraud, rather than an internal computer fraud?

A)Spoofing
B)Input manipulation
C)Program manipulation
D)Output manipulation

Question 17

The chance for fraud or ethical lapses will not be reduced if management:

A)Emphasizes ethical behavior
B)Models ethical behavior
C)Hires ethical employees
D)Is unethical

Question 18

Which of the following is not an example of employee fraud?

A)Skimming
B)Larceny
C)Kickbacks
D)Earnings management

Question 19

An example of concealment would include:

A)Changing the payee on a check improperly paid by the organization.
B)Selling a piece of inventory that has been stolen
C)Stealing money from an organization before the related sale and cash receipt has been recorded.
D)All of the above are examples of concealment.

Question 20

The Phar-Mor fraud began when management:

A)Forgot to change the budgeted figures that had been incorrectly computed.

Question 21

Which of the following types of fraud is the most common, according to the Association of Certified Fraud Examiners?

A)Corruption Schemes
B)Asset Misappropriation
C)Earnings Management
D)Financial Statement Misstatement

Question 22

The falsification of accounting reports is referred to as:

A)Defalcation
B)Internal Theft
C)Misappropriation of Assets
D)Earnings Management

Question 23

Internal controls can be effective in preventing or detecting all of the following types of fraud except:

A)Customer Fraud
B)Management Fraud
C)Vendor Fraud
D)Employee Fraud

Question 24

The theft of assets by a non-management employee is termed:

A)Inventory theft
B)Employee fraud
C)Expense account fraud
D)Skimming

Question 25

A cash payment made by a vendor to an organization's employee in exchange for a sale to the organization by the vendor is termed:

A)Bribery
B)Collusion
C)Kickback
D)Payment Fraud

Question 26

According to the authors of this textbook, which of the following is not one of general categories of people who commit fraud?

A)Employees
B)Government Agencies
C)Customers
D)Management

Question 27

Management fraud may involve:

A)Overstating expenses
B)Understating assets
C)Overstating revenues
D)Overstating liabilities

Question 28

An example of Cash receipts fraud would include:

A)an employee steals checks collected from customers.
B)an employee overstates hours worked on a timecard.
C)management understates accounts payable amounts .
D)an employee steals checks before being paid to vendors.

Question 29

The definition of fraud includes the theft of:

A)Assets
B)Money
C)Information
D)All of the above

Question 30

Changing the accounting records to hide the existence of a fraud is termed:

A)Theft
B)Conversion
C)Collusion
D)Concealment

Question 31

A situation where the organization's cash is stolen before it is entered in the accounting records is termed:

A)Kickback
B)Larceny
C)Collusion
D)Skimming

Question 32

The theft of any item of value is referred to as:

A)Fraudulent financial reporting
B)Misappropriation of assets
C)Misstatement of financial records
D)Earnings management

Question 33

Fraudsters typically try to justify their behavior by telling themselves that they intend to repay the amount stolen or that they believe the organization owes them the amount stolen.This justification is referred to as:

A)Opportunity
B)Rationalization
C)Incentive
D)Concealment

Question 34

Circumstances that provide access to the assets or records that are the objects of the fraudulent activity describes which condition of the Fraud Triangle?

A)Rationalization
B)Incentive
C)Concealment
D)Opportunity

Question 35

A kickback is an example of which type of fraud?

A)Cash Receipts Fraud
B)Accounts Payable Fraud
C)Accounts Receivable Fraud
D)Expense Account Fraud

Question 36

Which of the following is the most common method of detecting occupational fraud?

A)Financial Statement Audit
B)Management Review
C)Internal Audit
D)Tip from an employee, customer, or vendor

Question 37

A situation where the organization's cash is stolen after it is entered in the accounting records is termed:

A)Kickback
B)Larceny
C)Collusion
D)Skimming

Question 38

Management misstatement of financial statements often occurs in order to receive indirect benefits such as:

A)Decreased income taxes
B)Delayed cash flows
C)Increased stock prices
D)Increased dividends

Question 39

Financial pressures, market pressures, job-related failures, and addictive behaviors are all examples of which condition of the Fraud Triangle?

A)Opportunity
B)Conversion
C)Incentive
D)Rationalization

Question 40

Management circumvention of systems or internal controls that are in place is termed:

A)Management override
B)Management collusion
C)Management stewardship
D)Management manipulations

Question 41

This type of control is designed to avoid errors, fraud, or events not authorized by management.

A)Prevention
B)Judicial
C)Detection
D)Correction

Question 42

A fraudster uses this to alter a program to slice a small amount from several accounts, crediting those small amounts to the perpetrator's benefit.

A)Trap door alteration
B)Salami technique
C)Trojan horse program
D)Input manipulation

Question 43

The theft of proprietary company information is called:

A)Vendor fraud
B)Customer fraud
C)Espionage
D)Management fraud

Question 44

The objectives of an internal control system include all of the following except:

A)Maintain ongoing education
B)Safeguard assets
C)Maintain accuracy and integrity of accounting data
D)Ensure compliance with management directives

Question 45

Which of the following is NOT one of the three critical actions that a company can undertake to assist with fraud prevention and fraud detection?

A)Maintain and enforce a cost of ethics.
B)Maintain an accounting information system
C)Maintain a system of accounting internal controls
D)Maintain a system of information technology controls

Question 46

This type of control is included in the internal control system because it is not always possible to prevent all frauds.They help employees to discover or uncover errors, fraud, or unauthorized events.

A)Investigation
B)Judicial
C)Detection
D)Correction

Question 47

The COSO report is also known as:

A)Fraud Triangle
B)Internal Control Integrated Framework
C)Code of Ethical Behavior
D)Report to the Nation

Question 48

Which of the following would be considered a vendor fraud?

A)The submission of duplicate or incorrect invoices.
B)A customer tries to return stolen goods to collect a cash refund.
C)The use of stolen or fraudulent credit cards.
D)Inflating hours worked.

Question 49

When a customer improperly obtains cash or property from a company, or avoids liability through deception, it is termed:

A)Check fraud
B)Customer fraud
C)Credit card fraud
D)Refund fraud

Question 50

When a person, using a computer system, pretends to be someone else, it is termed:

A)DoS Attack
B)Hacking
C)Spoofing
D)Phishing

Question 51

Jamie Stark, a sales employee, stole merchandise from her employer, and Frank Adams, the accounting clerk, covered it up by altering the inventory records.This is an example of:

A)Inventory theft
B)Financial journal fraud
C)Skimming
D)Collusion

Question 52

The authors presented their "picture" of internal control as a series of umbrellas which represent different types of controls.Which of the following is not one of those types of controls?

A)Prevention
B)Investigation
C)Detection
D)Correction

Question 53

When two or more people work together to commit a fraud, it is called:

A)Collusion
B)Larceny
C)Skimming
D)Override

Question 54

When a person alters a system's checks or reports to commit fraud it is referred to as:

A)Input manipulation
B)Output manipulation
C)Program manipulation
D)Collusion

Question 55

A small, unauthorized program within a larger legitimate program, used to manipulate the computer system to conduct a fraud is referred to as an):

A)Trap door alteration
B)Salami technique
C)Trojan horse program
D)Input manipulation

Question 56

The accounting profession has accepted this report as the standard definition and description of internal control.

A)Sarbanes-Oxley Report
B)FCPA Report
C)ERI Report
D)COSO Report

Question 57

The types of concepts commonly found in a code of ethics would not include:

A)Obeying applicable laws and regulations that govern business.
B)Avoiding all conflicts of interest.
C)Operating at a profit in all reporting periods.
D)Creating and maintaining a safe work environment.

Question 58

The Sarbanes-Oxley act was passed in 2002 as a Congress's response to the many situations of fraudulent financial reporting discovered during 2001.The intention of the Act was:

A)Police the accounting firms responsible for auditing the corporations.
B)Punish the companies that had been involved in the cases of fraudulent financial reporting.
C)Establish accounting standards that all companies are to follow.
D)Reform accounting, financial reporting, and auditing functions of companies that are publicly traded.

Question 59

This type of external computer fraud is intended to overwhelm an intended target computer system with so much bogus network traffic so that the system is unable to respond to valid traffic.

A)DoS Attack
B)Hacking
C)Spoofing
D)Phishing

Question 60

Which of the following is a characteristic of computer fraud?

A)A computer is used in some cases to conduct a fraud more quickly and efficiently.
B)Computer fraud can be conducted by employees within the organization.
C)Computer fraud can be conducted by users outside an organization.
D)All of the above are characteristics

Question 61

Independent checks on the performance of others is one of the categories of internal control.These independent checks would include all of the following, except:

A)Reviewing batch totals
B)Reconciliation
C)Comparison of physical assets with records
D)Use of appropriate ID to enter restricted areas

Question 62

Which of the following was NOT listed as a procedure to accomplish independent checks?

A)Recalculation of amounts
B)Analysis of reports
C)Review of auditing procedures
D)Reconciliation

Question 63

Which of the following statements is false, related to the authorization of transactions?

A)Every transaction that occurs must be properly authorized in some manner.
B)General authorization is the set of guidelines that allows transactions to be completed as long as they fall within established parameters.
C)It is not possible, nor is it important, to try to ensure that an organization engage only in transactions that are authorized.
D)Specific authorization that explicit approval is needed for that single transaction to be completed.

Question 64

The category of control activities referred to as segregation of duties requires that certain activities should be the responsibility of different person or department.The three duties that are to be separated are:

A)Authorizing, recording, and paying
B)Recording, custody, and disposition
C)Authorizing, paying, and custody
D)Authorizing, recording, and custody

Question 65

The range of actions that make up the component of internal control referred to as control activities includes each of the following, except:

A)Segregation of duties
B)Risk assessment
C)Independent checks and reconciliations
D)Authorization of transactions

Question 66

The existence of verifiable information about the accuracy of accounting records is called an):

A)Audit trail
B)Internal control
C)Risk assessment
D)Supporting documentation

Question 67

The COSO report identified a component of internal control as the policies and procedures that help ensure that management directives are carried out and that management directives are achieved The component is:

A)Control activities
B)Risk assessment
C)Monitoring
D)Information and communication

Question 68

Which of the following statements related to the COSO report is false?

A)The COSO report provided the standard definition of internal control accepted be the accounting industry.
B)The COSO report is commonly known as the Internal Control Integrated Framework.
C)The COSO report has not been updated since it was issued in 1992.
D)The COSO report was the result of a comprehensive study of interest control.

Question 69

The component of internal control, identified in the COSO report, that sets the tone of an organization and includes the consciousness of its employees is:

A)Risk Assessment
B)Control Activities
C)Control Environment
D)Information and Communication

Question 70

The control environment component of internal control was identified to have a number of different factors.Which of the following is NOT one of those factors?

A)Management's oversight responsibility, including its philosophy and operating style
B)The identification of sources of risk
C)The integrity and ethical values of the entity's people
D)The attention and direction provided by the board of directors

Question 71

When discussing the security of assets and documents, there are many actions that can be taken.Which of the following would not be related to this category of internal control?

A)Securing the assets and records so that they are not misused or stolen.
B)Limiting access to certain assets to the extent that is practical.
C)Identifying sources of risk and estimating the possibility of that risk.
D)Enacting physical safeguards, such as security cameras, to protect some assets.

Question 72

The process of risk assessment would include all of the following actions, except:

A)Identify sources of risk, both internal and external
B)Determine the impacts of identified risks
C)Develop and execute an action plan to reduce the impact and probability of identified risks
D)Report the risks to the audit committee

Question 73

This activity serves as a method to confirm the accuracy and completeness of data in the accounting system:

A)Compensating control
B)Independent checks
C)Audit trail
D)Supporting documentation

Question 74

Which of the following objectives were not identified as necessary to be provided by an effective accounting system?

A)Prepare the appropriate documents
B)Identify all relevant financial events
C)Capture the important data
D)Proper recording and processing of the data

Question 75

The approval or endorsement from a responsible person or department of an organization that has been sanctioned by top management is the process of:

A)Securing assets
B)Segregating duties
C)Authorizing transactions
D)Adequate recording

Question 76

A good system of internal control includes many types of documentation.Which of the following types of documentation is not part of the adequate records and documents category of internal control?

A)Schedules and analyses of financial information
B)Supporting document for all significant transactions
C)Accounting cycle reports
D)All of the following are types of documentation

Question 77

All of the following are reasons why it is not possible to eliminate all fraud risks, except

A)Human Error
B)Human Behavior
C)Opportunity
D)May not be cost effective

Question 78

If an accounting supervisor were allowed to hire employees, approve the hours worked, prepare the paychecks, and deliver the paychecks, which of the categories of control activities would be violated?

A)Adequate records
B)Segregation of duties
C)Authorization of transactions
D)Independent checks

Question 79

One of the components of internal control identified by COSO required that management must be considering threats and the potential for risks, and stand ready to respond should these events occur.This component is referred to as:

A)Control Environment
B)Control Activities
C)Risk Assessment
D)Communication

Question 80

According to the COSO report, there are five different interrelated components of internal control.Which of the following is not one of those five components?

A)Code of Ethics
B)Control Environment
C)Information and Communication
D)Monitoring