Forensic Accounting Final Exam Flashcards
(191 cards)
1
Q
What statement of auditing standards provides auditors with guidance on how to consider and respond to the risk of fraud in an audit?
A
SAS 82
2
Q
What is the expectation gap?
A
The difference between what someones expects to happen and what actually happens
3
Q
What statement of auditing standards that requires auditors to look for fraud throughout the entire audit process
A
SAS 99
4
Q
(T/F) SAS 99 is an update/extension of SAS 82
A
True
5
Q
______ _______ is a questioning mindset and critical evaluation of evidence, crucial for auditors to identify potential errors or fraud.
A
Professional Skepticism
6
Q
What act ensures auditor independence, enhanced financial disclosures, management assessment of internal controls, whistleblower protection, and increased penalties for violations?
A
Sarbanes-Oxley Act of 2002 (SOX)
7
Q
What is forensic accounting?
A
Action of identifying recording, settling, extracting sorting, reporting, and verifying past financial data or other accounting activities for settling current or prospective legal disputes.Or using such past financial data for projecting future financial data to settle legal disputes
8
Q
Forensic Accounting (Time)
A
Focuses on the past, although it may do so in order to look forward
9
Q
Forensic Accounting (Purpose)
A
Performed for a specific legal forum or in anticipation of presentation before a legal forum.
10
Q
Forensic Accounting (Peremptory)
A
May be employed in a wide variety of risk management engagements within business enterprise as a matter of right, without the necessity of allegations (Proactive)
11
Q
What are the two areas of forensic accounting according to the AICPA?
A
Investigative accounting and litigation services (bankruptcy, valuation, lost profits/damages, marital dissolutions, tax issues & analysis, and general consulting)
12
Q
What is fraud examination?
A
This follows up fraud predication to determine if fraud has occurred and if so by whom, for how much, in what ways, and where. This is the process of gathering evidence to either confirm or reject the fraud predication.
13
Q
Time perspective of Audit
A
Historical
14
Q
Time perspective of Fraud Examination
A
Historical
15
Q
Time perspective of Forensic Accounting
A
Future and historical
16
Q
Primary focus of audit
A
Periodic
17
Q
Primary focus of fraud examination
A
reactive
18
Q
primary focus of forensic accounting
A
proactive and ongoing
19
Q
Investigation Scope of Audit
A
Narrow
20
Q
Investigation Scope of fraud examination
A
Narrow
21
Q
Investigation scope of forensic accounting
A
Broad Ranging
22
Q
Main work product of audit
A
audit opinion
23
Q
Main work product of fraud examination
A
fraud case report
24
Q
main work product of forensic accounting
A
forensic audit report
25
main responsibility of audit is to
company and public
26
Main responsibility of fraud examination is to
the defrauded party
27
Main responsibility of forensic accounting is to
the concerned principal or third party
28
Guidelines for forensic accounting are
Principles-based
29
Guidelines for fraud examination are
principles-based; under audit rules, it is rule-based
30
Guidelines for audit are
Rules-based
31
Purpose of report for audit is
Ensure GAAP is followed
32
Purpose of report for fraud examination is
Identify perpetrator of fraud
33
Purpose of report for Forensic accounting is
Fraud risk assessment and strategic services
34
Professional stance of audit is
Non-adversarial
35
Professional stance of fraud examination is
Adversarial
36
Professional stance for forensic accounting is
Adversarial and non-adversarial
37
Difference between fraud auditor and forensic accountant
Fraud auditor is an accountant especially skilled in auditing who is generally engaged in auditing with a view toward fraud discover, documentation and prevention. While a forensic accountant is taking on fraud engagements and may be a fraud auditor, but will also use skills in broader engagements.
38
(T/F) Forensic Accountants knowledge base consists of all of the following: Law, Accounting, Investigative Auditing, and Criminology
True
39
What criminal investigations utilize accounting knowledge?
White Collar Crime
40
What are the types of auditing skills in regard to analysis?
Vertical Analysis, Horizontal Analysis, Ratio Analysis, and Reasonableness testing
41
42
What is the primary responsibility of financial statement auditors?
Determine whether financial statements present fairly, in all material respects, financial position, results of operations, and cash flows of the entity.
43
What does SAS 53 address?
The Auditor’s Responsibility to Detect and Report Errors and Irregularities.
44
What is SAS 82 focused on?
Consideration of Fraud in a Financial Statement Audit.
45
What are the fraud risk categories identified in SAS 99?
* Type
* Significance
* Likelihood
* Pervasiveness
46
What is the definition of forensic accounting?
The action of identifying, recording, settling, extracting, sorting, reporting, and verifying past financial data for legal disputes.
47
What are the two broad areas of forensic accounting according to AICPA?
* Investigative accounting
* Litigation services
48
What does fraud examination involve?
Following up on fraud predication to determine if fraud is or has occurred.
49
What are the key differences between auditing and forensic accounting?
* Time perspective: Historical vs. Future and historical
* Primary focus: Periodic vs. Proactive and ongoing
* Investigation scope: Narrow vs. Broad ranging
* Main work product: Audit opinion vs. Forensic audit report
50
What is a fraud auditor?
An accountant especially skilled in auditing with a view toward fraud discovery, documentation, and prevention.
51
What skills are essential for a forensic accountant?
* Accounting knowledge
* Auditing skills
* Investigative knowledge/skills
* Legal knowledge
* Criminology
* Information technology knowledge
* Communication skills
52
What are the types of evidence in fraud examination?
* Physical
* Testimonial
* Documentary
* Demonstrative
53
What is the burden of proof in civil proceedings?
Preponderance of the evidence.
54
What are the sources of law relevant to forensic accounting?
* Constitutional law
* Statutory or codified law
* Case law
* Administrative law
55
What is the purpose of the Sarbanes-Oxley Act of 2002?
Ensure auditor independence and corporate responsibility for financial reports.
56
What does forensic accounting focus on?
The past, although it may do so in order to look forward.
57
What are the types of expert reports in forensic accounting?
* Fact-oriented report
* Opinion-oriented report
58
What does the term 'criminology' refer to?
The study of crime and deviant behavior.
59
What are the key components of the fraud triangle?
* Incentive and pressure
* Opportunity
* Rationalization
60
What is one method of preserving evidence?
Maintaining the chain of custody.
61
What is the function of computer forensics?
Recover 'hidden' evidence from electronic media for use in court.
62
Fill in the blank: Forensic accounting is performed for a specific _______.
[legal forum]
63
True or False: Forensic accountants primarily focus on future financial projections.
False
64
What is the main difference between a forensic accountant and a fraud auditor?
A forensic accountant uses broader accounting, consulting, and legal skills beyond fraud auditing.
65
What are the types of criminal proceedings in legal knowledge?
* Investigation
* Formal trial
66
What are the key auditing skills for forensic accountants?
* Analysis of financial information
* Understanding documentation
* Risk assessment and internal controls
67
What is the significance of the 'trusted persons become trust violators' concept?
It explains how individuals rationalize their fraudulent actions when facing financial problems.
68
What is the purpose of real-time issuer disclosures under the Sarbanes-Oxley Act?
To enhance transparency in financial reporting.
69
What are the kinds of evidence in fraud examination?
* Physical
* Testimonial
* Documentary
* Demonstrative
70
What is the role of whistleblower protection in the Sarbanes-Oxley Act?
To protect individuals who report fraudulent activities.
71
Which of the following is a preventative control? -Segregation of duties.
-Reconciliations.
-Surprise cash count.
-Surprise inventory count.
-All of the above.
Segregation of duties
72
Employee fraud can be discovered by considering:
-Behavioral habits.
-Employee stress factors.
-Lifestyle of the employee.
-Assets owned by the employee.
-All of the above.
All of the above.
73
(T/F) Abusive earnings management is an intentional and material misrepresentation of financial results according to the SEC.
True
74
(T/F) Behavioral psychologists call rationalizing white collar crime “reframing.”
True
75
(T/F) An exact profile has been developed of a potential fraudster by several large CPA firms.
False
76
Which characteristic would not indicate a forensic accounting investigation?
-Principles-based
-Narrow investigation scope
-Proactive and ongoing
-future and historical
-None of the above
Narrow investigation scope
77
(T/F) Forensic accounting and fraud auditing are synonymous
False
78
(T/F) Peremptory refers to the fact that a forensic accountant can be proactive
True
79
(T/F) A forensic accountant uses interviews and leveraging techniques designed to elicit sufficient information to prove or disprove a hypothesis
True
80
(T/F) A fraud examination tends to be proactive
False
81
(T/F) The forensic accounting field is broader than the fraud auditing
True
82
(T/F) A forensic accountant can normally assume that the books and records are true and correct
False
83
(T/F) Data driven forensic techniques will always detect fraud schemes including bribery and kickbacks
False
84
Which statement is false?
- Fraud courses are increasing in the US
- Practitioners rank litigation services higher than educators
- finding fraud is not easy
- The fraud triangle is not helpful in identifying who the bad person is
- None of the above
The fraud triangle is not helpful in identifying who the bad person is
85
Why is the use of computer software more common in financial statement audits and fraud examinations?
- Key word searches can help identify fraud
- It is more comprehensive
- majority of information is stored digitally
86
The burden of proof in a criminal proceeding is:
Beyond a reasonable doubt
87
What is the burden of proof in a civil proceeding?
Preponderance of the evidence
88
What are the seven areas of knowledge and skillsets that affective forensic accountants have?
1.Accounting knowledge
2. auditing skills
3. investigative knowledge/skills
4. legal knowledge
5. criminology
6. IT knowledge
7. communication skills
89
(T/F) Theft is similar to embezzlement
False
90
(T/F) Accounts Receivables are the favorite target of fraudsters
False; they prefer cash, as it is less traceable
91
(T/F) Most cases go to trial, and pre-trial activities can be a significant opportunity for a forensic accountant
False; Most cases do not go to trial, the second part of the statement is true
92
(T/F) Larceny is the taking of money or property lawfully in ones possession.
False; this is embezzlement
93
What is larceny?
Example: Walking down the street and steeling something you see
94
(T/F) Lapping is sometimes called "robbing peter to pay paul"
True
95
(T/F) Write-Offs to bad debts can conceal inventory thefts and kickback schemes.
True
96
The most common method of detecting occupational fraud is:
Tips
97
Building up balances in bank accounts based upon floating checks drawn against similar accounts in other banks is best called:
Kiting
98
What audit step would be most appropriate for finding accounts receivables fraud?
Reviewing customer complaints
99
Joseph Wells believes that the most powerful audit technique is:
Diligent Inquiry
100
Which of the following auditors is least interested in the materiality concept?
Forensic Auditors
101
Forensic Accountants should compare travel and expense vouchers to employment records and text records in order to find what?
Ghost employees
102
Which is a unique factor for solving a white collar crime?
- Tracing of assets
- availability of witness
- desires of victims
- financial losses
- Both b & c
Tracing of assets
103
A fraud investigation should not be commenced without proper ____?
Predication
104
What is predication?
the initial suspicion or reasonable belief that a fraud has occurred, is occurring, or will occur. This is a justification for initiating an investigation, ensuring the work is warranted.
105
Which industry had the highest instances of fraud?
Financial institutions
106
(T/F) Skimming is an "off-book" technique to remove cash before a company records the receipts
True
107
According to PWC surveys, which is the highest non-monetary damage from a fraud?
- Business valuations
- Employee morale
- organizations reputation
- decrease in share price
- relations with regulators
Employee morale
108
Cash fraud, inventory fraud, fixed asset fraud, payable and disbursement fraud, and payroll fraud are all examples of:
Misappropriation of assets
109
In 2009 a PWC survey, which was the top action taken against fraudsters by companies?
Dismissal
110
Which statement is false?
- employees often steal more than shoplifters
- embezzled funds are taxable to a thief in the year the funds are stolen
- a self-employed fraudster would report the illegal income on schedule C
- a fraudster may report restitution amounts as a deduction for AGI
- None of the above are false
A fraudster may report restitution amounts as a deduction for AGI
111
Based upon KPMG studies as well as the ACFE 2024 Report to the Nations, what factor is most likely to cause fraud?
- management override
- employee collusion
- high risk industry
- lack of or poor internal controls
- some other factor is most likely
Lack of or poor internal controls
112
An example of rationalization, an essential element of fraudulent activity (e.g. the fraud triangle), would be:
"borrowing" the petty cash fund on a temporary basis
113
What is not considered one of the phases of fraud?
- the act itself
- the concealment
- the conversion of the stolen asset to personal use
- searching for the fraudster
- none of the above
Searching for the fraudster
114
Which level of criminal intent is commonly required in the prosecution of a white collar crime?
Knowingly
115
Once a fraud is discovered, what is probably not a likely action?
- Pursue criminal prosecution
- bring civil action against the perpetrator
- internal disciplinary action
- pursue an insurance claim
116
If an internal auditor finds fraud, what communication step should not be taken?
Report the offense to the appropriate authority (law enforcement)
117
(T/F) In SAS 99, brainstorming is now required to generate ideas about how fraud might be committed and concealed within an entity
True
118
(T/F) A CPA forensic investigator is required to follow both the statement of standards for consulting services and the code of professional conduct
True
119
What topped the list as to the perceived root cause of misconduct in a KPMG 2016 survey?
- For personal financial gain and greed
- code of conduct not taken seriously
- lack of resources to get job done without cutting corners
- pressure to do whatever it takes to meet business target
- believes policies easy to bypass or override
For personal financial gain and greed
120
(T/F) External auditors take a big picture, macro view of the books and records of a company
True
121
(T/F) Forensic accountants take a micro view of business
True
122
(T/F) Recounts of inventory and unannounced visits to locations are forensic techniques
True
123
(T/F) Forensic accountants look for small errors and irregularities
True
124
What are the four major elements of fraud?
1. False representation or willful omission regarding a material fact
2. The fraudster knew the representation was false
3. The target relied on this misappropriation
4. The victim suffered damages or incurred a loss
125
A taxpayer has the burden of proving the existence of a cash hoard
True
125
Can someone be convicted if one of the 4 elements of fraud cannot be proved?
No
126
(T/F) IRS agents often use the expenditure approach when a taxpayer is purchasing assets or investments, rather than spending lavishly
False; they invest in assets and investments
127
(T/F) One can be convicted of money laundering for laundering money represented to be the proceeds from a specified unlawful activity, even if the funds are not actually proceeds from a specified unlawful activity.
True
128
(T/F) The direct method should be used when a taxpayer has inadequate books and records
False; use indirect method
129
(T/F) An IRS agent may conduct a LEXIS search to determine if a person purchases real estate during the year
True
130
(T/F) An indirect method may be appropriate when there is a significant increase in year to year net worth
True
131
(T/F) A Cash T is an analysis of all of the cash received by a person and all of the cash spent by a person over a period of time
True
132
What is the direct method?
Using source documents such as canceled checks, etc.
133
Which of the existing federal statutes for charging money laundering is easier to prove?
Title 18, USC Section 1957
134
(T/F) all money laundering techniques have the overall objective to disguise the origin of the funds
True
135
(T/F) A number of universities were caught illegally using money laundering techniques to convert federal grant monies into discretionary spending
False; was not illegal, but unethical
136
(T/F) The US Department of Treasury requires banks to file CTR's about transactions above $5,000 and SAR's for transactions as noticed by bank personnel.
False; CTR's are for over $10,000.
137
(T/F) Smurfing is a money laundering technique in which confederates of the money launderer deposit random amounts of less than $10,000 into variously named accounts at a number of different banks
True
138
The first step in a money laundering operation is to:
Deposit illegal money into the banking system
139
To avoid detection by law enforcement authorities, money launderers will only send a maximum money transfer that is less than $____?
$10,000
140
Title III of the patriot act amended which of the following statutes?
- Bank secrecy act of 1970
- International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001
- Money Laundering Control Act of 1986
- Both A and C
- Both A and B
- A, B and C
Both A and C
141
In the money laundering process, layering is:
- Depositing money into a bank account
- Selling high end expensive cars
- Transferring monies from one bank account to another
- Investing illegal monies into real estate
Transferring monies from one bank account to another
142
In money laundering, "structuring" can refer to the process of:
Sequencing a series of cash withdrawals that fall below the $10,000 criteria to trick a financial institution into not reporting the withdrawals to the federal authorities
143
A hawala is a form of an underground banking system:
- that is located in major financial centers of Europe
- that is located in the Hawaiian Islands
- that allows for the transfer of funds between individuals who record the transactions and which are conducted off the grid
- used to make illegal loans to small businesses as start up capital
that allows for the transfer of funds between individuals who record the transactions and which are conducted off the grid
144
Block chain is essentially a _____ ______
Ledger System
145
(T/F) Car washes and casinos are businesses that are attractive operations for money laundering
True
146
(T/F) Timestamps cannot be altered
False
147
(T/F) When forensic investigations go beyond computers, it is called digital forensics
True
148
(T/F) PCAOB Auditing Standard No. 2 (now AS 5) outlines in detail the steps necessary to achieve proper internal IS controls needed to prevent financial fraud
False
149
(T/F) Mirror imaging software makes a bitstream, read only image of a computer disk
True
150
(T/F) If a computer is simply powered off using the normal Windows shutdown procedures, cached memory contents, volatile in-transit data, and state of network connection information disappear.
True
151
What is residual data?
Slack Space
152
All the following will destroy electronic evidence for courtroom purposes, except:
- Copying the document
- imaging the document
- improperly controlling its use
- Normal shutdown of a computer containing electronic evidence
- All will destroy evidence for the courtroom
Imaging the document
153
Comparing the hash code on two files shows:
They are identical
154
How is slack space created?
There is leftover data in a cluster that has been re-used for storing new data by the operating system
155
(T/F) Internet protocols (IP) refer to those rules allowing different operating systems and machines to communicate with one another over the internet
True
156
(T/F) A motion in limine may be used to exclude certain evidence
True
157
(T/F) Expert testimony must be based upon sufficient facts or data
True
158
(T/F) Direct evidence is always more compelling than circumstantial evidence
False; not always
159
(T/F) The holder of a privilege is usually the person who should have the right to complain if the allegedly privileged information is disclosed
True
160
(T/F) Accountants have accountant-client privilege
False
161
(T/F) A report is excepted from the hearsay rule if made at or near the time by, or from information transmitted by, a person with knowledge, was kept in the course of regularly conducted business activity, and was the regular practice of the business activity to make the report
True
162
(T/F) Expert opinions are not evidence
False
163
(T/F) For circumstantial evidence to be considered relevant, it must be supported by a logical inference
True
164
(T/F) An expert can base his or her opinion on business records reviewed only if these records are place into evidence
False; they do not have to be
165
Which relationship would not be considered privileged?
- Physician/patient
- Attorney/client
- Attorney/litigation consultant
- Attorney/expert witness
- All of the above are privileged
Attorney/expert witness
166
which of these is not one of the five major phases of litigation?
- Discovery
- Pleadings
- Outcome
- Trial
- Cross examination
Cross examination
167
What is the work product rule?
Protects certain documents and tangible items prepared in anticipation of litigation from discovery by the opposing party in legal proceedings.
168
What are the two types of evidence?
Direct Evidence and Circumstantial Evidence
169
What is a motion in limine
A motion to exclude evidence (defense)
170
Considerations for evidence admissibility in a trial?
- Must be relevant
- Probative value: evidence which is sufficiently useful to prove something in a trial
- Unfairly prejudicial: suggests a decision on an improper basis; confuse the issues; mislead the jury; bias
Weight: Probative value vs. Undue delay/waste of time/needless presentation
171
When is evidence relevant?
If it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence
172
What are the requirements for relevance of evidence?
Circumstantial evidence - must be supported by a
logical inference.
■ Inflammatory evidence - evidence used for purpose
that is improper (bias against a party).
■ Evidence about plaintiff’s character - generally
inadmissible to prove conduct on a specific occasion.
■ Evidence of habit - routine practice; might be used
to authenticate business records.
■ Exclusionary rules - rules based on policies
determined by the courts to promote justice
173
What are the exclusionary rules?
Evidence of:
■Offers of compromise or settlement
■Settlements
■Plea bargaining
■Discussions or negotiations relating to settlement
or compromise
...are inadmissible
174
(T/F) Accountants acting as consultants (who will not testify) are not protected from disclosure under the attorney work product doctrine
False; consultants are, expert witnesses are not
175
(T/F) An accountant may testify as a lay witness or an expert witness
True
176
(T/F) Generally, non-expert witnesses cannot give opinions
True; unless lay witness is asked a question to give opinion
177
(T/F) A majority of states have adopted Daubert
True
178
(T/F) An expert's report must include the compensation to be paid
True
179
(T/F) Much of the work a forensic accountant does is in the trial stage
False; pre-trial phase
180
(T/F) An expert witness cannot testify about hearsay evidence
False; they use the information provided to them for hearsay
181
(T/F) Depositions are a method of discovery
True; opportunity for the other side to ask questions
182
(T/F) The daubert standard does not apply to nonscientific testimony
False; is more applicable for nonscientific testimony
183
An expert would probably not be able to:
- give an opinion that embraces an ultimate issue to be decided by the trier of facts
- state that his/her opinion is based on a reasonable degree of scientific certainty
- an expert testifies regarding his/her opinion without first testifying to the underlying facts or data
- an expert bases his/her opinion on evidence not admissible in evidence if of a type of reasonably relied upon by experts in the particular field
- an expert can do all of the above
an expert can do all of the above
184
(T/F) The frye standard is used in federal courts
False
185
(T/F) The daubert rule is not used in state courts
False
186
(T/F) The Frye standard may be used in some state courts
True
187
(T/F) Louisiana follows the Frye rule
False
188
One of the weaknesses that experts have is that they _____
- Have to rely on assumptions and worry about the facts they do not know
189
What are the subject matters of expertise under Fed Rule 702 of Evidence?
- Special knowledge
- Special skills
- Special training
- Special education
190
Which is not a situation which would cause an expert to be rejected by the court?
- Frye challenge
- not licensed in the state of the trial
- spoilation
- ghost written report
- conflict of interest
Not licensed in the state of the trial
