Fraud Exam 3 True/False
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Paper-and-pencil honesty tests are most frequently used to determine whether someone has committed a crime.
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False
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Failure to pass a polygraph test means certain guilt.
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False
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Interviews during the rationalization stage are often not objective and can be harmful to the potential prosecution efforts.
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True
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The general tone of a fraud report should be neither accusatory nor conclusive as to guilt, even if the suspect has confessed his or her involvement in a crime.
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True
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An interviewer should always be sympathetic and respectful during an interview.
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True
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Confrontational interviews should always be conducted even if there is no evidence that can be obtained from the suspect.
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False
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Telling a significant lie and getting away with it during an interview is usually very difficult if the interviewer is well trained.
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True
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If a suspect continually repeats phrases, words, or your questions, it could be a verbal cue that he or she is lying.
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True
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The fraud report should include recommendations for disciplinary action.
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False
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The interview should always take place at the interviewee's place of work.
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False
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Fraud reports should only list findings that do not negatively impact the company.
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False
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The first reaction to crisis is denial.
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True
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Unlike other types of fraud, financial statement fraud is usually not concealed and is therefore relatively easy to spot.
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False
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Fraud indicators, or red flags, can be caused by fraud or by legitimate, non-fraud factors.
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True
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Without a confession, forged documents, or repeated fraudulent acts that establish a pattern of dishonesty, convicting someone of fraud is often difficult.
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True
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According to the 1999 and 2010 COSO studies of fraudulent financial reporting, the most common method used to perpetrate financial statement fraud includes overstating liabilities.
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False
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According to the 1999 COSO study, most companies that committed financial statement fraud has no audit committee or had an audit committee that met less than twice a year.
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True
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In identifying management fraud exposures, it is useful to think of the fraud exposure triangle, which includes 1) management and directors 2) organizations and industry and 3) relationships with others
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False
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Financial statement fraud is usually committed by entry-level accountants against an organization.
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False
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In searching for financial statement fraud, the three aspects of directors and members of management that should be known are 1) their background 2) their motivations and 3) their influence in making decisions for the organization
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True
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An organization's relationship with other organizations and individuals is of no interest to a fraud examiner.
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False
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Recording fictitious revenues is one of the most common ways of perpetrating financial statement fraud.
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True
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Most often, the controller or CFO of a corporation is the perpetrator of financial statement fraud because of his or her knowledge of accounting and unlimited access to accounts.
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False
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Financial statement fraud, like other types of fraud, is most often committed against an organization instead of on behalf of an organization.
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false
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Most people who commit management fraud are repeat offenders.
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False
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Most financial statement fraud occurs in large, historically profitable companies.
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False
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Zero-order strategic reasoning takes into account the potential actions of others before one decides to act.
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False
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Backdating is a method of dating stock options so that stock option holders can maximize their payout.
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True
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Identifying fraud exposures is one of the most difficult steps in detecting financial statement fraud.
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True
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High-order reasoning is the most challenging of the types of strategic reasoning, but can potentially be the most effective in detecting financial statement fraud.
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True
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Understated revenues and understated net income are among the most common types of financial statement fraud.
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False
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Two reasons revenue-related financial statement fraud is so prevalent are because revenue recognition can be highly subjective and because revenue is so easily manipulated.
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True
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Performing a horizontal analysis of the statement of cash flows is an excellent way to proactively search for revenue-related financial statement fraud.
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False
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The most common accounts manipulated when perpetrating financial statement fraud are revenues and accounts receivable.
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True
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An increase in gross margin and an increase in number of days' sales in inventory could be an indication of inflated inventory fraud.
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True
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A \"sales discounts\" amount that appears too low could be a fraud symptom.
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True
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Comparing financial results and trends of a company with those of similar firms is an ineffective way to look for fraud symptoms.
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False
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Focusing on changes in financial statements from period to period can help identify analytical symptoms.
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True
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Controls over inventory should be closely examined when searching for fraud symptoms.
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True
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The gross profit (margin) ratio is calculated by dividing gross profit by COGS.
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False
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Working capital turnover ratio is calculated by dividing average working capital by sales.
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false
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Accounts receivable turnover is one of the most widely used ratios to analyze revenues and is a measure of the efficiency with which receivables are being collected.
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True
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One of the most practical ways to look for analytical symptoms of fraud is to focus on changes and comparisons within and from the financial statements.
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True
