Deck 3: Fraud, Ethics, and Internal Control

Question 1

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

Answer 1

D

Question 2

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

Answer 2

D

Question 3

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

Answer 3

B

Question 4

Which of the following is not an obligation of management in an organization with strong ethical practices and internal controls?

A)to safegauard the funds invested by owners of the company
B)to maintain internal controlswithin the organization
C)to safeguard the per
D)to enforce a code of ethics

Question 5

Each of the following companies was involved in fraudulent financial reporting during 2001 and 2002, except:

A)Adelphia Communications Corp.
B)Micro
C)Enron Corp.
D)Xerox Corporation

Question 6

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 7

The Phar-Mor fraud began when management:

A)Forgot to change the budgeted figures that had been incorrectly computed.
B)Attempted to make the actual net income match the budgeted amounts.
C)Overstated their expenses to cover amounts embezzled from the company.
D)Understated the revenue in order to reduce the tax payable to the IRS.

Question 8

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 9

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

Question 10

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 11

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

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

Question 12

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

Question 13

In addition to ethical practices, management has an obligation to maintain a set of processes and procedures to assure accurate financial reporting and protection of company assets.This obligation arises because:

A)Many groups have expectations of management.
B)Management has a stewardship obligation to investors.
C)Management has an obligation to provide accurate reports to non-investors.
D)All of the above are rea

Question 14

A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives related to the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations is:

A)CO
B)AICPA's definition of stewardship
C)ACFE's definition of confidentiality
D)IMA's definition of competency

Question 15

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 16

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

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

Question 17

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

Question 18

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 19

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 20

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 21

The definition of fraud includes the theft of:

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

Question 22

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 23

The falsification of accounting reports is referred to as:

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

Question 24

Management fraud may involve:

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

Question 25

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 26

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 27

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 28

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 29

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 30

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

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

Question 31

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 32

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

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

Question 33

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 34

If an organization's IT systems are not properly controlled, they may become exposed to the risks of:

A)Unauthorized access
B)Erroneous processing
C)Service interruption
D)All of the above

Question 35

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 36

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 37

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 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

Which is not one of the three conditions necessary for fraud perpetration

A)Desire to commit the fraud
B)Incentive to commit the fraud
C)Rationalization of the fraudulent action
D)Opportunity to commit the fraud

Question 40

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

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

Question 41

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 42

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 43

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

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

Question 44

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 45

The theft of proprietary company information is called:

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

Question 46

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 47

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 48

Examples of customer fraud include all of the following except:

A)Credit Card Fraud
B)Check Fraud
C)Cash Fraud
D)Refund Fraud

Question 49

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 50

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 51

When a person alters a system generated check or reports to commit fraud it is referred to as:

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

Question 52

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 53

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 54

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 55

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 56

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 57

Skimming is a type of employee fraud where

A)An employee sets up an account as a vendor and collects payments for false invoices.
B)Steeling a portion of inventory after it is received in teh warehouse, but before it is stored in its inventory location.
C)Purchasing per
D)an employee steels cash before it is entered into the accounting records.

Question 58

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

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

Question 59

Which of the following is a characteristic of computer fraud?

A)A computer is used in
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 60

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 61

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

A)Identify
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 62

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 63

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 64

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 65

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 philo
B)The identification of
C)The integrity and ethical values of the entity's people
D)The board of directors demonstrates independence from management and exercises oversight of internal controls.

Question 66

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 67

Establishing and maintaining a culture where ethical conduct is recognized, valued, and exemplified by all employees can be accomplished by doing all of the following except:

A)Obeying applicable laws and regulations that govern business
B)Protecting the Environment
C)Avoiding
D)Conducting business in a manner that is honest, fair and trustworthy

Question 68

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 69

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 70

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

A)Every transaction that occurs must be properly authorized in
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 71

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 72

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

A)The CO
B)The CO
C)The CO
D)The CO

Question 73

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 74

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 75

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 76

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 77

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

Question 78

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)CO

Question 79

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 80

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