Chapter 5: Recognizing the Symptoms of Fraud

Question 1

TF 1

Analytical anomalies are present in every fraud

Answer 1

F

Question 2

TF 2

Recording an expense is a possible way to conceal the theft of cash

Answer 2

T

Question 3

TF 3

A check is an example of a source document

Answer 3

T

Question 4

TF 4

Internal control weaknesses give employees opportunities to commit fraud

Answer 4

T

Question 5

TF 5

The internal control system of an organization is comprised of the control environment, the accounting system, and the control procedures (activities).

Answer 5

T

Question 6

TF 6

Analytical fraud symptoms are the least effective way to detect fraud

Answer 6

F

Question 7

TF 7

Most people who commit fraud use the embezzled funds to save for retirement

Answer 7

F

Question 8

TF 8

As fraud perpetrators become more confident in their fraud schemes, they usually steal and spend increasingly larger amounts

Answer 8

T

Question 9

TF 9

First-time offenders usually exhibit no psychological changes

Answer 9

F

Question 10

TF 10

Psychopaths feel no guilt because they have no conscience

Answer 10

T

Question 11

TF 11

It is safe to assume that fraud has not occurred if one or more elements of the fraud triangle cannot be observed

Answer 11

F

Question 12

TF 12

The three elements of a typical fraud consist of concealment, conversion, and completion

Answer 12

F

Question 13

TF 13

Auditors can best help detect fraud at the conversion stage

Answer 13

F

Question 14

TF 14

Some complaints and tips turn out to be unjustified

Answer 14

T

Question 15

TF 15

Fraud is a crime that is seldom observed

Answer 15

T

Question 16

TF 16

Because of the nature of fraud, auditors are often in the best position to detect its occurrence

Answer 16

F

Question 17

TF 17

Most people who commit fraud feel a perceived financial pressure

Answer 17

T

Question 18

TF 18

Studies have found that the most common internal control problem when frauds occur is having a lack of proper authorizations

Answer 18

F

Question 19

TF 19

Fraud perpetrators who manipulate accounting records to conceal embezzlements often attempt to balance the accounting equation by recording expenses

Answer 19

T

Question 20

TF 20

Employee transfers, audits, and mandatory vacations are all ways to provide independent checks on employees

Answer 20

T

Question 21

TF 21

New whistle-blowing laws have helped make tips and complaints more effective

Answer 21

T

Question 22

TF 22

Co-workers are usually in the best position to detect fraud

Answer 22

T

Question 23

TF 23

Fraud perpetrators often live beyond their means since their income does not support their lifestyle

Answer 23

T

Question 24

TF 24

Nearly all individuals and organizations are subject to real or perceived pressures and can rationalize

Answer 24

T

Question 25

MC 1 Which of the following is true regarding fraud? a. It is easily identified b. It is seldom observed c. When a fraud occurs, there is no question whether or not a crime has been commuted d. Many witnesses are usually available when fraud occurs

Answer 25

b. It is seldom observed

Question 26

MC 2 Which of the following is not a fraud symptom related to source documents? a. Duplicate payments b. Missing documents c. A tip from an employee d. Photocopied documents

Answer 26

c. A tip from an employee

Question 27

MC 3 Which of the following is a fraud symptom related to an internal control weakness? a. Lack of proper authorization b. Lack of independent checks c. Inadequate accounting system d. Lack of physical safeguards e. All of the above are fraud symptoms related to internal controls

Answer 27

e. All of the above are fraud symptoms related to internal controls

Question 28

MC 4 In the three elements of fraud (theft act, concealment, conversion), who is usually in the best position to detect the fraud? a. Co-workers and managers b. Customers c. Owners d. Vendors

Answer 28

a. Co-workers and managers

Question 29

MC 5 When a person commits a crime: a. He or she usually becomes engulfed by emotions of fear and guilt b. He or she will experience no changes in behavior c. He or she usually becomes friendly and nice d. He or she experiences a lower stress level

Answer 29

a. He or she usually becomes engulfed by emotions of fear and guilt

Question 30

MC 6 Most people who commit fraud: a. Use the embezzled funds to increase their savings accounts b. Give the embezzled funds to charity c. Experience no change in their lifestyle d. Use the embezzled funds to improve their lifestyle

Answer 30

d. Use the embezzled funds to improve their lifestyle

Question 31

MC 7 Which of the following is not a reason why people are hesitant to come forward with knowledge or suspicions of fraud? a. They often think that squealing on someone is wrong b. They fear reprisal for being a whistle-blower c. it is usually impossible to know for sure that a fraud is taking place d. People who report fraud are not rewarded monetarily

Answer 31

d. People who report fraud are not rewarded monetarily

Question 32

MC 8 Which of the following is not one of the categories of employee fraud symptoms? a. Accounting anomalies b. Analytical anomalies c. Tips and complaints d. Firm structure

Answer 32

d. Firm structure

Question 33

MC 9 Embezzlement of assets reduces the left side of the accounting equation. To conceal the theft, the embezzler must find a way to reduce the right side of the accounting equation. A perpetrator would most likely reduce the right side of the equation by: a. Reducing accounts payable b. Paying dividends c. Increasing expenses d. Altering stock accounts

Answer 33

c. Increasing expenses

Question 34

MC 10 Which of the following is not a fraud symptom related to journal entries? a. Unexplained adjustments to receivables, payables, revenues, or expenses b. Journal entries that do not balance c. Journal entries without documentary support d. Journal entries made near the beginning of accounting periods

Answer 34

d. Journal entries made near the beginning of accounting periods

Question 35

MC 11 Which of the following is not a common internal control fraud symptom or problem? a. Lack of segregation of duties b. Unexplained adjustments to receivables, payables, revenues, or expenses c. Lack of independent checks d. Overriding of existing controls

Answer 35

b. Unexplained adjustments to receivables, payables, revenues, or expenses

Question 36

MC 12 Once in a while, someone commits fraud or another crime and does not feel stress. Such people are referred to as: a. Psychopathic b. Altruistic c. Philanthropic d. Magnanimous

Answer 36

a. Psychopathic

Question 37

MC 13 Fraud is usually detected by recognizing and pursuing: a. Synonyms b. Symptoms c. Equity d. Legends

Answer 37

b. Symptoms

Question 38

MC 14 A letter is most likely to be fraudulent if: a. It is signed by only one person b. It is addressed to an individual, rather than a department c. It is a photocopy of an original letter d. It is written on outdated company letterhead

Answer 38

c. It is a photocopy of an original letter

Question 39

MC 15 If a perpetrator has stolen assets, which of the following is the easiest method for concealing the theft? a. Reduce liabilities (such as payables) b. Manipulate dividend or stock accounts c. Increase other assets (such as receivables) d. Increase expenses

Answer 39

d. Increase expenses

Question 40

MC 16 Which of the following is a common fraud symptom relating to ledgers? a. A ledger that does not balance b. A ledger that balances too perfectly c. Master account valances that do not equal the sum of the individual customer or vendor balances d. Both a and c

Answer 40

d. Both a and c

Question 41

MC 17 Which element is not a common element of fraud? a. Concealment b. Coercion c. Conversion d. Theft act e All of the above are common elements of fraud

Answer 41

b. Coercion