Question 1

In dealing with capitalized costs, you might find deferred charges of interest on the balance sheet. What should you do?

Accepted Answer

A: A is incorrect because you should not assume they are accurately capitalized. These deferred charges of interest don't exist very often on the balance sheet in companies.
B: B is correct.
C: C is incorrect because the company doesn't accidentally defer interest charges. Interest charges take place in the period in which they occur and are rarely deferred. If they are deferred, it is not usually by accident.
D: D is incorrect because these deferred charges of interest are not normally on the balance sheet. These charges should be on the income statement, and if they are on the balance sheet, you should suspect guilt until you find out otherwise.

Question 2

In liability fraud, liabilities are most often

Accepted Answer

A: Correct - This lowers the amount of liabilities
B: Incorrect - A perpetrator would not overstate liabilities to improve the financial statements
C: Incorrect - This is not done in liability fraud
D: Incorrect - This is not done in liability fraud

Question 3

Which of the following is not used to track changes in fixed asset account balances?

Accepted Answer

Correct

Question 4

All of the following can be used to understate accounts payable except:

Accepted Answer

A: Incorrect
B: Incorrect
C: Correct; this would result in the overstatement of accounts payable
D: Incorrect

Question 5

Capitalized costs that should be expensed ___________.

Accepted Answer

IS CORRECT.
A: Deferred expenses are easy to obtain support for.
B: They usually occur in many transactions that get larger over time.
D: They are usually not written off for a long period of time.

Question 6

Which of the following is not a manner in which companies have overstated their assets in a merger or acquisition?

Accepted Answer

Correct

Question 7

"Cookie jars" refer to which of the following types of accounts?

Accepted Answer

C: Correct; Cookie jar reserves represent a stash of accounting earnings that can be used to improve the perceived performance of a company in the future.

Question 8

When examining whether a company has under recorded accounts payable, each of the following ratios will be helpful except:

Accepted Answer

D: The other ratios would be helpful in determining whether a company is under recording its accounts payable.

Question 9

Fraudulent inventory purchase transactions involving inventory and payable accounts might look like any of the following except:

Accepted Answer

B: Correct

Question 10

All of the following are examples of asset fraud except:

Accepted Answer

D: Correct; this is a fraud scheme that understates liabilities

Question 11

Which of the following ratios will increase in a liability fraud?

Accepted Answer

A: Incorrect, purchases will remain the same, but AP will fall
B: Correct, interest expense will remain high while notes payables are reduced
C: Incorrect, liabilities will be understated
D: Incorrect, lease expense will be understated

Question 12

Regarding deferred revenue liabilities, revenues can generally be recognized when a company:

Accepted Answer

Correct; generally speaking, a company no longer has a deferred revenue liability when they ship the product.

Question 13

Which of the following is most helpful for detecting liability frauds?

Accepted Answer

This is the best answer and will often provide very useful information. The other options are not on track since shipping personnel won't deal with liabilities, financial statement fraud does not usually affect management's lifestyle and overstated liabilities is not a typical concern.

Question 14

Which of the following factors does not make frauds more difficult to detect?

Accepted Answer

D: Correct-A, B, & C are all conditions that make it more difficult to detect fraud in organizations

Question 15

Fraudsters use all of the following methods to conceal frauds from auditors except:

Accepted Answer

E: Correct

Question 16

Which of the following is an example of asset overstatement fraud?

Accepted Answer

A: Incorrect; this is an example of an understatement of liability fraud
B: Incorrect; this is an example of an understatement of liability fraud
C: Correct; this will result in overstated fixed asset accounts
D: Incorrect; this will result in the understatement of assets
E: Incorrect

Question 17

Which of the following expenditures would be most suspicious if it were capitalized?

Accepted Answer

A: Equipment is generally considered an asset
B: Similar to above, computers could be considered assets
C: Though payment for expenses, when paid before the expenses are incurred, pre-paids are considered assets
D: Salaries, regardless for who, are generally considered expenses in the period incurred

Question 18

Recognizing unearned revenue as earned revenue is an example of what type of fraud?

Accepted Answer

Correct; this is an understatement of liability fraud

Question 19

Which of the following assets is probably most difficult to overstate under normal audit procedures?

Accepted Answer

Correct-Assuming an auditor is careful in controlling the confirmation process, cash balances can usually be easily confirmed with banks and other institutions

Question 20

Red flags of financial statement fraud include all but which of the following

Accepted Answer

Correct since the typical company that is committing fraud won't want to report these liabilities.

Quiz 13: Liability, Asset, and Inadequate Disclosure Frauds