Chapter 15 Fraud Full Test Bank

Accounting Information Systems, 1e (Savage)

Chapter 15 Fraud

1) Which of the following definitions of fraud is NOT true?

A) Fraud is the known misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.

B) Fraud is intentionally misstating or hiding the truth knowing that the recipient of that information will act on the information.

C) Fraud is a known false statement on which a victim relies on and suffers damages.

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

2) According to the 2020 Association of Certified Fraud Examiners Report to the Nations, organizations lose around

A) 5% of their revenues to fraud.

B) 5% of their profits to fraud.

C) 15% of their revenues to fraud.

D) 15% of their profits to fraud.

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

3) Which of the following could help a company manage fraud?

A) Creating an anti-fraud culture

B) Establishing and maintaining an effective system of internal controls

C) Performing fraud risk assessments

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

4) Which law or regulation requires companies to evaluate their systems of internal controls to prevent and detect fraud?

A) ACFE

B) SOX

C) CPA

D) CFE

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

5) Which of the following is an example of external fraud?

A) A vendor offers to purchase football tickets for a purchasing officer if awarded a contract.

B) A purchasing agent awards a contract to a vendor owned by a friend.

C) A vendor bills the company for services that were never performed.

D) The company overstates the financial performance in publicly-issued financial statements.

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

6) Which of the following represents an accurate definition of external fraud?

A) External fraud is fraud committed by owners, managers, or employees who use their positions to enrich themselves at the expense of the company.

B) External fraud is fraud committed by a company's accounting firm to misrepresent the financial status of the firm to the public.

C) External fraud is fraud committed by vendors who bribe purchasing agents to award contracts.

D) External fraud is fraud committed by customers, vendors or other outside parties against a company.

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

7) Occupational fraud is committed by

A) owners.

B) management.

C) employees.

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

8) Occupational fraud can

A) also be called internal fraud.

B) be committed by employees of the company seeking to enrich themselves at the expense of the company.

C) be committed in as many as 50 different ways.

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

9) Juan Martin is a purchasing manager for North Industries. Juan Martin chose not to award a $1 million-dollar contract to his brother's firm because another firm was more qualified to perform the services required. What type of corruption scheme did Juan Martin avoid by choosing the most qualified vendor to provide services for North Industries?

A) Conflicts of interest

B) Illegal gratuities

C) Commercial bribery

D) Economic extortion

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

10) Daniil is evaluating vendor bids for office furniture for his company's new building. A vendor called Daniil and offered season tickets to the professional basketball team's upcoming season if he were to consider awarding the contract to their firm. What type of fraud would be occurring if Daniil selects the vendor offering the season tickets?

A) Conflicts of interest

B) Illegal gratuities

C) Commercial bribery

D) Economic extortion

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

11) Leylah threatens Alta, Inc. with awarding a contract to another vendor if Alta does not invite Leylah to the next Alta company retreat in Bali. What type of occupational fraud is Leylah committing?

A) Conflicts of interest

B) Illegal gratuities

C) Commercial bribery

D) Economic extortion

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

12) Garbine, an internal auditor for XYZ, examined purchases made for the previous year. Garbine found that several contracts were awarded to the same vendor despite several bids coming in with more favorable terms. Upon questioning those in the purchasing department, Garbine learned that Amanda always handled the contracts with that vendor and seems to have received gifts from the vendor. What kind of corruption may be between Amanda and the vendor?

A) Conflicts of interest

B) Illegal gratuities

C) Bid rigging

D) Economic extortion

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

13) Taylor's mother owns a commercial cleaning business that bid on the job for Taylor's office building. By awarding the cleaning contract to her mother's cleaning company without considering the competing bids, Taylor is engaging in what type of corruption?

A) Conflicts of interest

B) Illegal gratuities

C) Commercial bribery

D) Economic extortion

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

14) Novak accepted an offer of payment from Iga to help sway a business decision. Who is in the wrong in this situation?

A) Novak is guilty of corruption.

B) Iga is guilty of bribery.

C) Both Novak and Iga are guilty.

D) Neither Novak nor Iga can be considered guilty without knowing the outcome of the decision.

Diff: 3

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

15) Alexander, the purchasing manager for Express Limited, recently received a luxury watch in the mail from Matteo, a salesman from VidStar. Alexander awarded a large contract to VidStar last week. Alexander should not accept the watch as it is a(n)

A) conflicts of interest.

B) illegal gratuities.

C) commercial bribery.

D) economic extortion.

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

16) Ons is a purchasing agent for a large casino organization. The organization is reviewing many bids for security services. The two bids with the best cost benefit analysis are very close. Ons has informed one of the companies that they are the second choice but could be the first if they were to provide Ons with a vacation package for the weekend. What type of corruption is Ons guilty of in this situation?

A) Conflicts of interest

B) Illegal gratuities

C) Commercial bribery

D) Economic extortion

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

17) What type of individual is most likely to commit occupational fraud?

A) Someone with a prior criminal conviction

B) A member of the management team

C) A vendor in competition with the firm

D) A customer who has had a bad experience

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

18) Elana works in internal audit and take her job very seriously. So seriously that she rarely takes any time off and insists that she will complete any work when she returns and for no one else to touch her work. Which behavior red flag is being exhibited by Elana?

A) Financial difficulties

B) Unscrupulous attitude

C) Control issues

D) Family problems

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

19) Casper brags and often shares negative comments about his coworkers to sway the management team into assigning him the projects that he prefers. What type of behavioral red flag does Casper exhibit?

A) Unscrupulous attitude

B) Control issues

C) Living beyond one's means

D) Close association with vendor

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

20) Jannik visits with a good customer of the firm frequently at their place of business but never leaves the office to visit other customers. Is Jannik's behavior a red flag?

A) No, Jannik can be friendly with some customers and not others.

B) Yes, a close association with a customer could be a red flag.

C) No, a close association with a vendor is a red flag but not a customer.

D) Yes, Jannik's unscrupulous attitude toward the customer is a red flag.

Diff: 3

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

21) Hubert recently showed pictures of his luxury vacation to Denis. Denis who works in the same department as Hubert knows that he cannot afford this type of vacation on the salary that they both earn. What type of behavioral red flag has Denis identified?

A) Financial difficulties

B) Unscrupulous attitude

C) Control issues

D) Living beyond one's means

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

22) Belinda misses work often for doctor's appointments for her son. The treatments for her son are very expensive and are only partially covered by health insurance. While empathic of Belinda's situation, Elina knows that this is a typical

A) financial difficulty red flag.

B) control issue red flag.

C) unscrupulous attitude red flag.

D) living beyond one's means red flag.

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

23) Victoria, an accountant for the firm, and her husband are getting a divorce. How should the red flag presented by Victoria's divorce be treated by her supervisor?

A) Victoria should be fired as she will commit fraud.

B) All of Victoria's work should be audited to find the fraudulent activity.

C) Victoria's divorce is a behavioral red flag that indicates the possibility not evidence of fraud.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

24) Which of the following statements is TRUE?

A) Accounting professionals are the first line of defense when they use and comply with internal controls in their organization.

B) Compliance professionals are the first line of defense when they design and monitor internal controls in their organization.

C) Internal auditors are the first line of defense when they evaluate accounting systems for internal control deficiencies.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

25) Which of the following statements is incorrect?

A) Accounting professionals are the first line of defense when they use and comply with internal controls in their organizations.

B) Financial accounting professionals are the first line of defense when monitoring internal controls in their organization.

C) Internal auditors are the third line of defense when evaluating accounting systems for internal control deficiencies.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

26) Which of the following statements is TRUE?

A) External auditors, the third line of defense, evaluate systems for internal control deficiencies.

B) External auditors, the second line of defense, monitor internal controls.

C) External auditors provide additional assurance outside the three lines of defense.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

27) Which type of accounting professional provides the third line of defense by evaluating accounting systems for internal control deficiencies that provide an opportunity for fraud?

A) Compliance officers

B) Financial accountants

C) Internal auditors

D) External auditors

Diff: 1

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

28) Who is responsible for designing and monitoring internal controls as part of the second line of defense against fraud within an organization?

A) Compliance professionals

B) Internal auditors

C) External auditors

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

29) Which of the following statements is incorrect?

A) To prevent and identify fraud, many companies set up an anonymous hotline for employees to report suspected fraud.

B) Anonymous hotlines for fraud reporting allow employees to report suspected fraud without fear of retaliation.

C) Companies allow anonymous tips of suspected fraud because employees do not have legal protection from retaliation.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

30) The fraud triangle includes three motivational elements

A) difficulty, opportunity, and rationalization.

B) rationalization, perceived pressure, and difficulty.

C) opportunity, difficulty, and perceived pressure.

D) perceived pressure, opportunity, and rationalization.

Diff: 1

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

31) Danielle, who was expecting a raise, purchased a new car with payments based on her anticipated new monthly salary. When the raise didn't occur, it rendered Danielle unable to make the car payment on her current budget. What element on the fraud triangle is most closely associated with Danielle's problem?

A) Perceived pressure

B) Opportunity

C) Rationalization

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

32) Danielle purchased a new car with higher payments expecting a raise from her employer. When the raise didn't occur, Danielle started pocketing a bit of cash from the drawer each week to make up for the higher car payment since her employer didn't give her the raise that she deserved. What element of the fraud triangle is most closely related to Danielle's issue?

A) Perceived pressure

B) Opportunity

C) Rationalization

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

33) Diego and Gael approve each other's reimbursement requests. Their collusion on fictitious receipts allows their fraud to go undetected for some time. Which element of the fraud triangle is most closely associated with the collusion of Diego and Gael?

A) Perceived pressure

B) Opportunity

C) Rationalization

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

34) Psychopaths only need to complete two elements of the fraud triangle to commit fraud. Which element is NOT necessary for psychopaths to commit fraud?

A) Perceived pressure

B) Opportunity

C) Rationalization

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

35) Grigor knows from his work on internal controls that the computer system that flags potentially fraudulent transactions can be manipulated to not check all transactions. Grigor's knowledge is an example of which element of the fraud triangle?

A) Perceived pressure

B) Opportunity

C) Rationalization

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

36) Fabio and Frances work in cybersecurity and challenge each other to find holes in the internal control framework of the company as part of their job to test controls. When they discover that there is a monitoring program that can be manipulated, Fabio and Frances decide that the company will not notice a few hundred dollars per week in reimbursements when the normal budget for reimbursements is over $5,000 per week. Which of the following statements about Fabio and Frances's situation is TRUE?

A) The perceived pressure element of the fraud triangle is met with the challenge to find holes.

B) The opportunity element of the fraud triangle is met with the discovery of the ability to manipulate the monitoring program.

C) Fabio and Frances rationalize that the company will not notice to meet the third element of the fraud triangle.

D) All of these answer choices are correct.

Diff: 3

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

37) Jalena is investigating a tip from the employee hotline that Camila may be misappropriating assets. Jalena learned from her investigation that Camila frequently uses her company computer to check her online gambling accounts during her breaks. Knowing that pressure alone does not mean Camila is committing fraud, how should Jalena proceed?

A) Jalena should look for areas of opportunity for Camila to commit fraud.

B) Jalena should look for psychopathic tendencies exhibited by Camila.

C) Jalena should consider whether the element of rationalization is present.

D) All of these answer choices are correct.

Diff: 3

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

38) Which of the following statements is TRUE?

A) Fraud investigations are less expensive than fraud prevention.

B) Preventing fraud is the most cost-effective approach to fighting fraud.

C) To mitigate the risk that fraud will occur, an organization implements internal controls.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

39) Which of the following statements is TRUE?

A) According to ACFE, over half of frauds in 2020 involved collusion.

B) Collusion allows internal controls to be circumnavigated.

C) A larger number of colluders translates to more difficult detection and larger losses.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

40) Which of the following is a primary risk factor in financial statement fraud?

A) Internal controls

B) Perceived pressure

C) Tone at the top

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

41) Which elements of culture help prevent fraud?

A) Zero tolerance for fraud

B) Expectation of integrity

C) Codes of conduct

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

42) External auditors for the firm alert management that the corporate culture could use some improvement with regards to fraud prevention. Which of the following could positively influence the company culture?

A) Corporate leadership should communicate in writing their expectation of honesty and integrity among all corporate employees, including management.

B) Corporate leadership must model behavior consistent with policies and make sure that employees are aware of the policies.

C) Corporate leadership should create codes of conduct for leadership, employees, and those that work with the company.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

43) Ajla suggested to her company that they should consider financial statement analysis to identify potential fraud by comparing changes in items between different financial periods. What kind of analysis is Ajla suggesting?

A) Non-behavioral

B) Behavioral

C) Horizontal

D) Vertical

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

44) Filip, a new accountant for the internal audit team at Wofford, relayed that his previous employer used percentages of line items in financial statement analysis as one method to review for potential fraud. What kind of analysis is Filip suggesting?

A) Non-behavioral

B) Behavioral

C) Horizontal

D) Vertical

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

45) Which of the following is the top method of detecting fraud?

A) Internal audit

B) External audit

C) Tips

D) Surveillance

Diff: 1

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

46) Which of the following is an example of a method to detect fraud within an organization?

A) Company implements a whistleblower hotline.

B) Company uses data analytics to monitor processes.

C) Company ensures that documentation creates an audit trail.

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

47) Which of the following terms refers to the theft of business owned cash, inventory, information, or intellectual property?

A) Skimming

B) Occupational fraud

C) Corruption

D) Asset misappropriation

Diff: 1

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

48) Though the least costly, this type of fraud is focused on by external auditors and is covered on the CPA exam?

A) Corruption

B) Asset misappropriation

C) Financial statement fraud

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

49) Which of the following statements is TRUE?

A) Asset misappropriation schemes are the most common and most costly fraud schemes.

B) The CPA exam focuses on asset misappropriation as it is the costliest fraud scheme by case.

C) Asset misappropriation schemes occur more frequently, but each individual case is less costly than financial statement fraud.

D) Asset misappropriation schemes are less damaging to companies as they do not affect the financial statements.

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

50) Select the statement that is TRUE.

A) Skimming is the theft of assets before being recorded, and larceny is theft of assets after they are recorded in the books.

B) Larceny is the theft of assets before being recorded, and skimming is theft of assets after they are recorded in the books.

C) Skimming can only occur with cash as other forms of payment are easily tracked.

D) Larceny can only occur with physical assets other than cash and may or may not be concealed.

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

51) Which of the following terms is most closely associated with an employee stealing cash before the cash is recorded in the accounting records?

A) Fraud

B) Corruption

C) Skimming

D) Larceny

Diff: 1

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

52) Which of the following fraud situations would controls such as daily bank deposits or credit card only transactions help mitigate?

A) Fraud

B) Corruption

C) Larceny

D) Skimming

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

53) Which of the following controls could mitigate cash skimming efforts in a restaurant?

A) Requiring receipts to be submitted

B) Requiring manager approval for cash and check disbursement

C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers

D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

54) Which of the following controls could mitigate accounts receivable skimming efforts?

A) Requiring receipts to be submitted

B) Requiring manager approval for cash and check disbursements

C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers

D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

55) Which of the following controls could help mitigate billing schemes?

A) Requiring receipts to be submitted

B) Requiring manager approval for cash and check disbursements

C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers

D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

56) Which of the following controls could help mitigate expense reimbursement fraud?

A) Requiring receipts to be submitted for all expenses.

B) Requiring manager approval for cash and check disbursements

C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers

D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

57) Which of the following terms is defined as the theft of company assets after the company has recorded the assets in its books?

A) Fraud

B) Corruption

C) Skimming

D) Larceny

Diff: 1

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

58) Which category of fraud is associated with an employee submitting a receipt twice for reimbursement that was paid for using the company credit card?

A) Billing scheme

B) Cash skimming

C) Accounts receivable skimming

D) Double dipping

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

59) Which category of fraud is associated with an employee selling the employer's customer list to a competitor?

A) Corruption

B) Skimming

C) Larceny

D) Bribery

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

60) Which category of fraud is associated when an employee submits an overpayment on a bill owed by the firm and then intercepts and cashes the overpayment reimbursement check from the vendor?

A) Illegal gratuities

B) Pay and return scheme

C) Economic extortion

D) Expense reimbursement scheme

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

61) Which category of fraud is associated with an employee submitting meal and transportation receipts on an expense report outside of assigned travel dates on a company trip?

A) Illegal gratuities

B) Pay and return scheme

C) Economic extortion

D) Expense reimbursement scheme

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

62) Karolina works for Tour Sales and travels frequently in her own vehicle as part of her job. Anastasia, an accountant at Tour Sales, noticed that Karolina's mileage reimbursement checks seem to be larger than those issued to other employees and cannot determine a reason. What sort of control might Anastasia recommend to help mitigate any risk of Karolina or other employees overstating mileage for reimbursement?

A) GPS Tracking

B) Using map mileage rather than submitted mileage

C) Requiring employees to drive company vehicles

D) All of the above are correct.

Diff: 3

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

63) Which category of fraud is associated with an employee overstating mileage for reimbursement?

A) Fraudulent disbursements

B) Payroll schemes

C) Economic extortion

D) Cash skimming

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

64) Which category of fraud is mitigated by having employees' clock in and out for shifts rather than submit a time sheet?

A) Billing schemes

B) Pay and return schemes

C) Payroll schemes

D) Expense reimbursement schemes

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

65) Which category of fraud may be detected by using data analytics to look for anomalies in the vendor list and among vendor transactions?

A) Billing schemes

B) Pay and return schemes

C) Payroll schemes

D) Expense reimbursement schemes

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

66) Which category of fraud may be detected by audit teams performing independent inventory counts?

A) Billing schemes

B) Pay and return schemes

C) Corruption

D) Skimming

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

67) Which category of fraud may be detected in a grocery store by reconciling cash drawers between cashier shifts?

A) Billing schemes

B) Pay and return schemes

C) Skimming

D) Larceny

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

68) Which category of fraud may be detected by using data analytics to summarize inventory write-offs by employee?

A) Cash skimming

B) Accounts receivable skimming

C) Larceny

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

69) If fraudulent financial statements were to be submitted to the SEC, who at the submitting organization would be held responsible?

A) Chief Accounting Officer and Chief Financial Officer

B) Chief Executive Officer and Chief Financial Officer

C) Chief Executive Officer and Chief Accounting Officer

D) Only the Chief Executive Officer

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

70) Which of the following are victims of financial statement fraud?

A) Investors

B) Employees

C) Customers

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

71) What type of fraud involves materially misrepresenting the financial results and position of a company in the financial statements?

A) Asset misappropriation

B) Fraudulent disbursement

C) Financial statement fraud

D) Occupational fraud

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

72) Which of the following is the best definition of materiality?

A) Materiality means that the misrepresentation is large enough that users who rely on the information to make decisions may suffer financial damage.

B) Materiality means that the misrepresentation is shared in such a way as to purposely dissuade potential investors from investing in the company.

C) Materiality means that the financial statements are not misstated by enough to make a difference to those using the statements for decision making.

D) Materiality means that any misrepresentations in the financial statements are negligible in amount and should not be considered wrong by malicious intent.

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

73) According to the ACFE's 2020 report, which type of fraud is the least common yet most costly of frauds?

A) Corruption

B) Asset misappropriation

C) Financial statement fraud

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

74) Which of the following is an example of a scheme to overstate financial performance?

A) Sham sales

B) Unauthorized shipments

C) Channel stuffing

D) All of these answer choices are correct.

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

75) Which of the following would be considered a fraud scheme to understate financial performance?

A) Unauthorized shipments

B) Channel stuffing

C) Misclassification of revenue

D) Expense cutoff

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Comprehension

AICPA: AC: Systems and Process Management

76) Which of the following reasons would management use to justify overstating performance in the financial statements?

A) To decrease taxes owed

B) To defer earnings to subsequent periods if current goals have been met

C) To reduce investors' current expectations to create a perception of growth in the future

D) To meet benchmarks for performance-based compensation

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

77) What type of fraud would result from a company recording revenue earned on January 2nd in the previous fiscal year after the books are closed?

A) Skimming

B) Corruption

C) Asset misappropriation

D) Financial statement fraud

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

78) Daria is asked to arrange to have a container load of inventory shipped to a newly rented off-site warehouse. Daria prepares and ships the inventory as told and then notices an invoice to a new customer that Daria doesn't recognize for the same amount of inventory that she just arranged shipping to the company-owned warehouse. Daria suspects that fraud might be occurring with this situation. Daria chooses to call the whistleblower hotline and lets them know about the

A) unauthorized shipments.

B) sham sales.

C) channel stuffing.

D) All of these answer choices are correct.

Diff: 3

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

79) Andrey is worried that he will not meet sales goals for the month, so he creates invoices to customers for several thousand dollars in sales and ships the goods to a storage unit to make sure that they are not found on site during the end-of-month inventory count. What type of fraud scheme is Andrey committing?

A) Sham sales

B) Unauthorized shipments

C) Channel stuffing

D) Sales cutoff

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

80) Implementing preventive and detective controls to identify fake customer names similar to legitimate customer names could help mitigate what type of financial statement fraud?

A) Unauthorized shipments

B) Channel stuffing

C) Sham sales

D) Sales cutoff

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

81) Cameron processed and shipped a large order of soccer balls to A-1 Sporting Goods, a regular customer, late in the fiscal year without a customer order. The sale is recorded in the current year's financial statements even though A-1 returned the soccer balls that they did not order a few days later. When the return was received back, Cameron processed it in the next fiscal year. What type of financial statement fraud has Cameron committed?

A) Sham sales

B) Channel stuffing

C) Sales cutoff

D) Unauthorized shipments

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

82) Pablo, an external audit consultant, reviewed the fraud controls for Jamestown Supply. Jamestown recently changed senior leadership after a small fraud incident resulting from the tone at the top. New leaders have asked that Pablo recommend additional controls to help convey that fraudulent activity will not be tolerated. Pablo has recommended that Jamestown implement vertical and horizontal financial statement analysis to detect possible occurrences of

A) sham sales.

B) unauthorized shipments.

C) channel stuffing.

D) All of these answer choices are correct.

Diff: 3

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

83) To meet year-end goals, Trident Telecom doubled shipments to customers during the month of December and let the customers know that they could return any of the extra products that they did not get sold in January. Trident did not allow for any reserve against these expected returns in the financial statements for the year ending in December. What type of financial statement fraud scheme did Trident use to inflate its financial performance?

A) Sham sales

B) Unauthorized shipments

C) Channel stuffing

D) Sales cutoff

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

84) Lorenzo used journal entries to move backdated sales that occurred just after the start of the fiscal year to the previous fiscal year. What type of fraud scheme did Lorenzo use to overstate financial performance for the previous fiscal year?

A) Sham sales

B) Channel stuffing

C) Sales cutoff

D) Unauthorized shipments

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

85) Which type of revenue fraud is most likely to occur at a service-based business?

A) Sales sham

B) Unauthorized shipments

C) Channel stuffing

D) Sales cutoff

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

86) When Alpha Industries records equipment maintenance as a capital improvement to fixed asset accounts instead of an expense account, what is the result?

A) Increased profits

B) Increased owner's equity

C) Capitalization of expenses fraud

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

87) Angelique is asked to help design controls to mitigate the potential of management at Zion attempting to improperly capitalize expenses. Which of the following controls could Angelique recommend for Zion?

A) Implementing segregation of duties in the general ledger system

B) Using data analytics to identify significant capitalization and reviewing for appropriateness

C) Requiring appropriate approvals in the general ledger system

D) All of these answer choices are correct.

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

88) Petra received expenses dated the 31st of the month but waited to record them until the next month to help the current month make the income goals. What type of financial statement fraud is Petra committing by waiting to record and dating the expenses in the following month?

A) Capitalization of expenses

B) Expense cutoff

C) Sales cutoff

D) Channel stuffing

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

89) While Camila Incorporated has had a good sales year, they do not have much cash near the end of the year. To avoid needing to take out a loan to pay dividends to shareholders, Camila chose to push some sales in December into the next fiscal year. What type of fraud scheme is Camila using to understate financial performance?

A) Sales cutoff

B) Expense cutoff

C) Unrecorded revenue

D) Expensing capitalized costs

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

90) A business with cash transactions may choose not to record the cash sales to understate revenue. Why would a business want to understate revenue?

A) To decrease tax liabilities

B) To decrease inflate stock prices

C) To hide problems

D) To meet the terms of loan covenants

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

91) Marin recorded the purchase of a new delivery vehicle as a delivery expense for the current year. What type of financial statement fraud is being committed by Marin?

A) Unrecorded revenue

B) Expense cutoff

C) Expensing capitalizable costs

D) Capitalizing expense costs

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

92) What term is used to describe what happens when the senior leadership of an organization chooses to ignore controls that are in place to prevent fraud?

A) Corruption

B) Collusion

C) Management misclassification

D) Management override

Diff: 1

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

93) A purchasing manager awards a contract worth $500,000 to a company owned by a family friend even though there were other similar bids in the $475,000 range. After the contract is awarded the family friend takes the purchasing manager on a weekend deep sea fishing trip with all expenses paid by the family friend. Analyze the situation to determine if fraud has occurred. Record your findings for your supervisor.

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

94) Katerina works in reimbursement accounting for the firm. Katerina has not taken more than a day at a time off in the past three years, always saying that it is more work to be gone than it is worth and no one else can properly do her job. When she is gone for a day, she insists that she will handle it her next day in the office. A new internal auditor learned of this behavior and started watching Katerina's transactions more closely. Is the auditor's action appropriate? Why?

Diff: 2

Learning Objective: 15.1 Identify the main types of fraud.

Section Reference: What Is Fraud?

AACSB: Analytic

Bloom's: Knowledge

AICPA: AC: Systems and Process Management

95) Hans and Frans both work in payroll at Tech Industries. Both employees have shared comments with each other and others in the department about feeling underpaid for the work required and stress level of the job. An external auditor recently discovered paychecks written to an employee not in the company directory. Payroll management discovered that Hans and Frans had colluded to create the fictional employee and collected those checks for themselves. Explain how applying the fraud triangle framework to the situation may have prevented continual losses for the company.

Diff: 2

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

96) 89th Bank recently reviewed the SEC's Accounting and Auditing Enforcement Releases. The report found that 89% of cases named the CEO and/or the CFO and indicated that fraud occurred because of control environment issues resulting from tone at the top. The findings have spurred 89th Bank to review their tone at the top and controls environment. Propose a plan for 89th Bank to ensure that the tone from their executive leadership works to prevent fraudulent activity.

Diff: 3

Learning Objective: 15.2 Describe the role of an accounting professional in fraud management.

Section Reference: How Do We Manage Fraud Risk?

AACSB: Analytic

Bloom's: Synthesis

AICPA: AC: Systems and Process Management

97) Analyze the expense reimbursement request submitted by an employee for possible red flags. Explain why each red flag should be investigated further.

Diff: 3

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

98) Dominic noticed that his restaurant had not seemed to make as much in profit in the couple of months since Beniot was hired as the manager. Dominic's first thought was that an employee might be cash skimming and not recording cash restaurant sales. The new point-of-sale system in place requires that orders be entered for the kitchen to fill the order, so Dominic is confident that this internal control is preventing the cash skimming scheme that he first suspected. After digging deeper, Dominic found that the inventory receipts were much higher than the cost of goods sold recorded for sales through the restaurant, yet there was not a backlog of inventory nor was Beniot writing off expired inventory. What should Dominic investigate to determine what might be going on with his restaurants lack of profitability?

Diff: 2

Learning Objective: 15.3 Explain how to identify, prevent, and detect asset misappropriation schemes.

Section Reference: How Does Asset Misappropriation Result in Fraud?

AACSB: Analytic

Bloom's: Application

AICPA: AC: Systems and Process Management

99) For what reasons might a manager choose to override controls to allow fraud to occur?

Diff: 2

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Analysis

AICPA: AC: Systems and Process Management

100) Compare and contrast how a product-based business and service-based business may overstate revenue as part of financial statement fraud.

Diff: 3

Learning Objective: 15.4 Identify financial statement fraud and explain how to mitigate its risks.

Section Reference: What Are the Characteristics of Financial Statement Fraud?

AACSB: Analytic

Bloom's: Evaluation

AICPA: AC: Systems and Process Management

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