Question 1

Each of the following is an example of an inadequate control environment EXCEPT:
A)The HR department failed to check an applicant's background and hired someone who had committed fraud in the past.
B)A manager instructs employees not to share passwords,and then shares her passwords with others.
C)A company does not establish codes of conduct and does not have training meetings to teach employees to distinguish between acceptable and unacceptable behavior.
D)The employees know who has responsibility for each business activity.

Accepted Answer

Knowing who has responsibility for each business activity is an example of a good control environment, not an inadequate one. A, B, and C are all examples of inadequate control environments.

Question 2

___________ requires every public company to have a code of ethics to help deter wrongdoing.
A)The Glass Steagall legislation
B)The Sarbanes-Oxley legislation
C)The Securities Act
D)Generally Accepted Auditing Standards

Accepted Answer

The Sarbanes-Oxley legislation, also known as the Public Company Accounting Reform and Investor Protection Act, requires every public company to have a code of ethics to help prevent and deter wrongdoing. This legislation was enacted in response to a number of high-profile financial scandals, including Enron and WorldCom. The code of ethics must be disclosed to the public, and violations of the code must be reported to the company's audit committee.

Question 3

An employee who has the responsibilities of both writing checks and making bank deposits would have ____.
A)Financial pressure
B)Perceived opportunity
C)Rationalization

Accepted Answer

B

Question 4

Which of the following statements about accounting systems is incorrect?
A)An effective accounting system provides an audit trail that allows frauds to be discovered.
B)An effective accounting system makes concealment difficult.
C)An effective accounting system can almost always effectively prevent "kickbacks."
D)Without a good accounting system,it is often difficult to distinguish between actual fraud and unintentional error

Accepted Answer

An effective accounting system can help detect and deter fraud, but it cannot completely prevent "kickbacks" or bribery schemes that involve collusion between two or more individuals. Such schemes may involve the submission of false or inflated invoices, which bypass normal internal controls and result in payments to the fraudulent party.

Question 5

The fraud triangle includes all of the following EXCEPT:
A)Validation
B)Perceived opportunity
C)Rationalization
D)Perceived pressure

Accepted Answer

The fraud triangle consists of three elements: perceived opportunity, perceived pressure, and rationalization. Validation is not part of the fraud triangle.

Question 6

When management fraud occurs,companies usually:
A)overstate assets and net income.
B)understate assets and net income.
C)overstate assets and understate net income.
D)understate assets and overstate net income.

Accepted Answer

When management fraud occurs, companies usually overstate their assets and net income to make the company appear more profitable than it actually is. This can be achieved through various methods such as recording fictitious sales or inflating the value of assets. This misleading information can be used to deceive investors and creditors, resulting in significant financial losses.

Question 7

Which of the following is NOT a possible control activity?
A)Having separate authorization,bookkeeping,and custody functions.
B)Protecting access to important information with a password.
C)Requiring two individuals to work on the same task.
D)Supervisory review of each minute task completed by employees.

Accepted Answer

Supervisory review of each minute task completed by employees is not a practical control activity as it would be time-consuming and inefficient. It is important to have oversight mechanisms in place to ensure tasks are being completed accurately, but there needs to be a balance between oversight and maintaining operational efficiency. A better control activity would be to have periodic reviews or spot-checks of work completed by employees. A, B, and C are all valid control activities commonly implemented in organizations.

Question 8

Greed,living beyond one's means and high bills all describe what type of fraud-related pressure?
A)Financial
B)Peer
C)Vice
D)Barometric
E)Work Related

Accepted Answer

Financial pressure is the pressure to commit fraud due to personal financial difficulties or financial goals that are difficult to achieve through legitimate means, such as debt, living beyond one's means, or high bills.

Question 9

An effective accounting system is designed to provide which of the following to help discover fraud?
A)An audit trail
B)Matching of expenses to revenues
C)Set of controls
D)Set of accounting procedures

Accepted Answer

The answer of An effective accounting system is designed to...

Question 10

Which of the following is NOT an element of a good control environment?
A)Trust
B)Modeling
C)Appropriate hiring
D)Management's communication

Accepted Answer

While trust is important in building a positive work environment, it is not necessarily an element of a good control environment. The other options listed are all critical components of a strong control environment. Modeling by senior management, appropriate hiring practices, and clear and effective communication from management all contribute to ensuring a strong control environment.

Question 11

Which is following observations is TRUE?
A)Research shows that only people with a criminal mind set can commit fraud.
B)Fraud perpetrators usually can be distinguished from others on the basis of demographic characteristics.
C)Most fraud perpetrators have profiles that look like those of other honest people.
D)When fraud does occur,the most common reaction by those around the fraud is confession.

Accepted Answer

Research has shown that most fraud perpetrators have profiles that look like those of other honest people, making it difficult to identify potential perpetrators solely based on demographic characteristics or other observable traits. The idea that only people with a criminal mind set can commit fraud is a myth. Confession is not the most common reaction to fraud; in fact, many frauds go undetected or unreported.

Question 12

Which of the following is NOT one of the key elements common to all frauds?
A)Perceived pressure
B)Perceived inequality
C)Perceived opportunity
D)Rationalization

Accepted Answer

Perceived inequality is not one of the key elements common to all frauds. The three key elements common to all frauds are perceived pressure, perceived opportunity, and rationalization.

Question 13

A fraud perpetrator uses the float time between banks to give the impression that he had money in his accounts.Which crime is he committing?
A)Floating
B)Strip
C)Spinning
D)Kiting

Accepted Answer

The perpetrator is committing kiting, which is the fraudulent practice of deliberately writing a check for a value greater than the account balance from an account in one bank, then writing a check from another account in another bank, also with non-sufficient funds, with the second check serving to cover the non-existent funds from the first account. This creates a temporary "float" in the accounts, giving the impression of having more money than actually available.

Question 14

What is the most important element in a control environment?
A)Management's communication
B)Management's role and example
C)The hiring process
D)The internal audit department

Accepted Answer

Management's role and example is the most important element in a control environment as it sets the tone for the entire organization and influences employee behavior. Effective control environments require strong leadership from management, including clear communication of expectations, commitment to ethical principles, and a focus on creating a culture of compliance. While the other options listed (management's communication, the hiring process, and the internal audit department) are important components of a strong control environment, they are all ultimately reliant on management's role and example.

Question 15

Which of the following is NOT a common rationalization of fraud perpetrators?
A)The organization owes me
B)I'm only borrowing the money
C)No one will get hurt
D)I don't deserve more.

Accepted Answer

"I don't deserve more" is not a common rationalization used by fraud perpetrators. The other three choices are common rationalizations, with "the organization owes me" and "I'm only borrowing the money" being particularly common among embezzlers.

Question 16

Modeling and labeling are sub-components of which control structure component?
A)Control environment
B)Accounting system
C)Control procedure
D)Review

Accepted Answer

The answer of Modeling and labeling are sub-components of which...

Question 17

Poor credit could become a ____ that could lead to fraud.
A)Financial pressure
B)Perceived opportunity
C)Rationalization

Accepted Answer

The answer of Poor credit could become a ____ that...

Question 18

Financial statement fraud is typically committed by:
A)Employees with access to company assets
B)Top management
C)Customers
D)Vendors

Accepted Answer

Financial statement fraud is usually committed by top management, as they have the ultimate responsibility for preparing and presenting financial statements. They may manipulate financial data to meet earnings targets, inflate stock prices, or secure loans. Employees with access to company assets, customers, and vendors are not typically in a position to commit financial statement fraud at the same level as top management.

Question 19

Which of the following is NOT a primary control procedure to minimize the occurrence of fraud?
A)Dual custody
B)Systems of authorization
C)Internal audit department
D)Documents and records

Accepted Answer

Internal audit department is not a primary control procedure to minimize the occurrence of fraud, but rather a secondary control procedure that helps to detect and reduce the impact of fraud after it has occurred. Primary control procedures include dual custody, systems of authorization, and documents and records, which aim to prevent fraud from occurring in the first place.

Question 20

When fraud occurs,the most common reaction to those affected by the fraud is:
A)Anger
B)Acceptance
C)Denial
D)Retribution

Accepted Answer

The answer of When fraud occurs,the most common reaction to...

Quiz 2: Why People Commit Fraud

Each of the following is an example of an inadequate control environment EXCEPT:

___________ requires every public company to have a code of ethics to help deter wrongdoing.

An employee who has the responsibilities of both writing checks and making bank deposits would have ____.

Which of the following statements about accounting systems is incorrect?

The fraud triangle includes all of the following EXCEPT:

When management fraud occurs,companies usually:

Which of the following is NOT a possible control activity?

Greed,living beyond one's means and high bills all describe what type of fraud-related pressure?

An effective accounting system is designed to provide which of the following to help discover fraud?

Which of the following is NOT an element of a good control environment?

Which is following observations is TRUE?

Which of the following is NOT one of the key elements common to all frauds?

A fraud perpetrator uses the float time between banks to give the impression that he had money in his accounts.Which crime is he committing?

What is the most important element in a control environment?

Which of the following is NOT a common rationalization of fraud perpetrators?

Modeling and labeling are sub-components of which control structure component?

Poor credit could become a ____ that could lead to fraud.

Financial statement fraud is typically committed by:

Which of the following is NOT a primary control procedure to minimize the occurrence of fraud?

When fraud occurs,the most common reaction to those affected by the fraud is: