Question 1

What three things must a perpetrator have to commit fraud? Include a brief description of each.

Accepted Answer

The perpetrator must have motive - reason for committing the fraud, such as financial difficulties.
The perpetrator must have opportunity - access to the asset or financial statements in order to carry out the fraud.
The perpetrator must have the means to carry out the fraud - knowledge or skills that permit the perpetrator to commit the crime.

Question 2

List the three fraud and abuse categories. Provide examples.

Accepted Answer

1. Corruption, such as bribery
2. Misappropriation of assets, including theft of cash, fraudulent disbursements, or stealing merchandise
3. Fraudulent financial reporting, such as misstating financial statements in order to meet earnings targets (acfe.com, 2009)

Question 3

Earnings management focuses on managing when revenues and expenses are recorded in order to favorably reflect a company's financial performance in a(n)________.
A)Illegal manner
B)Legal manner
C)Questionable manner
D)Vague manner

Accepted Answer

Earnings management is legal as long as it follows the generally accepted accounting principles (GAAP), and the primary purpose is to present a more favorable financial performance of the company to investors or stakeholders.

Question 4

What percentage of occupational fraud is committed by upper management?
A)19%
B)15%
C)25%
D)30%

Accepted Answer

According to the Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations, 19% of occupational fraud cases are committed by individuals in upper management positions.

Question 5

What percentage of occupational fraud is committed by the accounting department?
A)16%
B)29%
C)35%
D)38%

Accepted Answer

According to the Association of Certified Fraud Examiners, 29% of occupational fraud is committed by the accounting department.

Question 6

Tips are the most likely means of detecting fraud.

Accepted Answer

Tips from employees, customers or other sources are the most common way of detecting fraud, according to various studies and surveys. Other means of detecting fraud include audits, data analytics, and surprise investigations.

Question 7

What are the elements required to prove fraud?

Accepted Answer

The answer of What are the elements required to prove...

Question 8

The typical fraud lasts three years before it is detected.

Accepted Answer

The answer of The typical fraud lasts three years before...

Question 9

The Sarbanes-Oxley Act of 2002, which would become known as SOX, created the ________ to oversee and regulate public companies and their auditors.

Accepted Answer

The answer of The Sarbanes-Oxley Act of 2002, which would...

Question 10

List and describe the principles for establishing an environment to effectively manage fraud risk.

Accepted Answer

The answer of List and describe the principles for establishing...

Question 11

The SOX legislation basically requires management of privately held companies must assess and report on the effectiveness of internal controls for financial reporting using a recognized framework.

Accepted Answer

The SOX legislation applies only to publicly traded companies. Privately held companies are not subject to SOX regulations.

Question 12

Accounting professionals often refer to the fraud triangle as incentive/opportunity/rationalization.

Accepted Answer

This is true. The fraud triangle is commonly referred to as incentive/opportunity/rationalization, and it helps to identify the factors that contribute to fraudulent behavior.

Question 13

Most occupational frauds are committed by the accounting department or upper management.

Accepted Answer

According to the Association of Certified Fraud Examiners' 2020 Report to the Nations, the accounting department and upper management were responsible for 11% and 18% of occupational frauds, respectively. However, the majority of frauds were committed by employees in non-management roles (71%).

Question 14

If the internal audit revealed any significant deficiencies, it is not required to be disclosed by the signing officers of the company.

Accepted Answer

The signing officers of the company are required to disclose any significant deficiencies identified by the internal audit as part of their disclosure obligations under securities laws. This information is included in the company's annual report and other filings with regulatory bodies.

Question 15

Substantive procedures collect evidence regarding the accuracy, completeness, and validity of data produced by the accounting system.

Accepted Answer

Substantive procedures are designed to gather evidence about the accuracy, completeness, and validity of data produced by the accounting system. These procedures involve testing transactions, account balances, and disclosures to ensure that they are free from material misstatement. Examples of substantive procedures include analyzing account balances, conducting inventory observations, reviewing contracts and agreements, and analyzing accounting estimates.

Question 16

What percentage for frauds are detected by tips?
A)33%
B)36%
C)46%
D)56%

Accepted Answer

According to a study conducted by the Association of Certified Fraud Examiners, tips were the most common way frauds were detected, accounting for 46% of all fraud cases. This was followed by internal audits (15%) and management review (13%). Therefore, the best choice is C, which corresponds to 46%.

Question 17

How long does the typical fraud last before being detected?
A)Six months
B)One year
C)Two years
D)Three years

Accepted Answer

The typical fraud lasts two years before being detected, according to the Association of Certified Fraud Examiners' 2020 Report to the Nations.

Question 18

________ techniques to avoid potential key fraud risk events should be established, where feasible, to mitigate possible impacts on the organization.

Accepted Answer

The answer of ________ techniques to avoid potential key fraud...

Question 19

________ focuses on managing when revenues and expenses are recorded in order to favorably reflect a company's financial performance in a legal manner.

Accepted Answer

The answer of ________ focuses on managing when revenues and...

Question 20

________ techniques should be established to uncover fraud events when preventive measures fail or unmitigated risks are realized.

Accepted Answer

The answer of ________ techniques should be established to uncover...

Quiz 10: Fraud and Internal Control