Forensic Accounting Test Questions
Course Introduction
Forensic Accounting is an interdisciplinary course that explores the application of accounting principles and investigative skills to detect, investigate, and prevent financial fraud and white-collar crime. Students will learn to analyze financial records, identify irregularities, and understand legal frameworks pertaining to fraud investigations. The course covers topics such as fraud detection techniques, litigation support, evidence gathering, and courtroom procedures, equipping students with the knowledge and tools necessary for careers in forensic accounting, auditing, compliance, and law enforcement. Through case studies and practical exercises, students will develop critical thinking and analytical abilities essential for effective forensic analysis and ethical decision-making in professional practice.
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Forensic Accounting and Fraud Examination 2nd Edition by William S. Hopwood
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Chapter 1: Introduction to Forensic Accounting and Fraud Examination
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Q1) What is Defalcation?
A) The ruling of a judge to restore the assets wrongfully taken to their rightful owner.
B) The act of conspiring to commit perjury.
C) The process of finding stolen assets through financial statement analysis.
D) The appropriation of assets for the benefit of those who do not rightfully deserve them.
Answer: D
Q2) What does credentialing mean?
Answer: Some of the organizations that support forensic accounting will evaluate the forensic accountant's knowledge and experience based upon education, time in the field and written examinations. These organizations will then issue a credential based upon these criteria. This is similar to the CPA credential.
Q3) Some forensic accountants perform investigations much like financial private investigators.
A)True
B)False
Answer: True
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Chapter 2: The Forensic Accounting Legal Environment
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Q1) Double Jeopardy is when:
A) You can be tried for the same crime in both Federal and State courts.
B) You cannot be tried in the same court for the same crime once the trial begins.
C) You cannot be tried for the same crime in the same court if the judge dismisses the case.
D) All of the above are true.
Answer: D
Q2) The first major computer crimes act was:
A) The Sarbanes-Oxley (SOX) Act of 2002.
B) Computer Fraud and Abuse Act.
C) The Cyber Intrusion Detection Act of 1996.
D) Computer Detection Infiltration Act.
Answer: B
Q3) Compare and contrast 18 USC 96: Racketeer Influenced Corrupt Organizations (RICO), 15 USC 78dd: Foreign Corrupt Practices Act (FCPA) of 1977 and The Sarbanes-Oxley (SOX) Act of 2002.
Answer: The answer will contain some basic parameters that the codes/acts contain and describe how each of them is designed to cover illegal activities that occur in differing circumstances or industries.
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Page 4
Chapter 3: Fundamentals I: Accounting Information Systems
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Q1) How are internal control objectives and components different?
Answer: The objectives of internal control are concerned with the ensurance of compliance, integrity and reliability, and the components of internal control are the actual functional areas such as the control environment, risk assessment, control activities, information and communication, and monitoring.
Q2) Who has effect over the internal control of a business?
A) management.
B) board of directors.
C) key personnel within the business.
D) all of the above.
Answer: D
Q3) Every time cash changes hands within a business, it should be:
A) audited.
B) counted.
C) rebundled.
D) reconciled to a sales total.
Answer: B
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Page 5
Chapter 4: Fundamentals II: The Auditing Environment
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Q1) Which of the following is not a component of risk?
A) Acceptable Detection Risk.
B) Audit Risk.
C) Inherent Risk.
D) Control Risk.
Q2) Investors in a company often want assurance that the financial statements are true and accurate. They can achieve this assurance by using:
A) Auditors.
B) Internal controls.
C) Forensic accountants.
D) Ratio analysis.
Q3) A segment for the allocation of a preliminary judgment may be:
A) The income statement.
B) The balance sheet.
C) The accounts receivable and allowance for doubtful accounts.
D) The retained earnings statement.
Q4) What is an estimation of misstatement and comparison to tolerable misstatement?
Q5) What are tests of controls used for?
Q6) What two conditions must be met in order to issue a qualified statement?
Q7) Explain why there is a demand for auditing.
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Chapter 5: Fraud Prevention and Risk Management
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Q1) What is the best approach to data protection?
A) Firewalls.
B) Intrusion detection controls.
C) Risk Management Policies.
D) Layered Approach.
Q2) Which of the following best describes and Active Threat?
A) A flood destroying the Accounts Payable files.
B) A hacker destroying the Accounts Payable files.
C) A fire destroys the Accounts Payable files.
D) A computer malfunction destroying the Accounts Payable files.
Q3) Gap analysis focuses on identifying needed governmental controls that are not already in place.
A)True
B)False
Q4) How could Information security assurance (ISA) be implemented at your businesses or college?
Q5) What is Federal Information Processing Standard 140 (FIPS 140) and what does it define?
Q6) Describe the risk assessment three-step process.
Q7) Who are some types of individuals posing active and passive threats?
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Chapter 6: Fraud Detection
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Q1) In many cases fraud indicators lead to:
A) The need for additional auditors to be present for the audit.
B) Criminal or civil actions against the CEO or CFO of the Corporation.
C) The discovery of errors or unusual events that can reasonably be explained upon further examination.
D) .The discovery of loop holed in the IRS Tax Code that are left up to interpretation.
Q2) Describe the three step process under SAS 99, Consideration of Fraud in a Financial Statement Audit.
Q3) Total Fraud Costs (TFC) =
A) Personnel Costs + Auditing Costs + Potential Losses .
B) Prevention Costs + Detection Costs + Correction Costs + Losses.
C) Auditing Costs - Losses.
D) Prosecution Costs + Detection Costs + Correction Costs.
Q4) The fraud triangle will often times involve blackmail for adultery.
A)True
B)False
Q5) What are some additional elements that should be added to an organization if a Fraud Detection Hotline is going to be established?
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Chapter 7: The Fraud Investigation and Engagement
Processes
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Q1) There is a Constitutional Amendment that requires law enforcement to investigate all fraud allegations.
A)True
B)False
Q2) The first and primary objective in a fraud investigation is to punish the fraudster.
A)True
B)False
Q3) The incident report contains:
A) All evidence that will need to be turned over to the defense during discovery.
B) Detailed working papers to prove the fraud.
C) The initial information used to justify the investigation.
D) A bench warrant for the accused.
Q4) Which of the following is NOT a step in the fraud investigation process?
A) The in briefing process
B) The engagement process
C) The evidence collection process
D) The reporting process
Q5) Explain what a Unified Case File is and its three main purposes.
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Chapter 8: The Evidence Collection Process
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Q1) Apply the fraud theory approach to evidence collection
Q2) The risk of making less-than-optimal decisions in deciding what evidence to collect, and how to collect it, and how to interpret it is called:
A) Opportunity risk
B) Fraud risk
C) Investigation risk
D) Loss risk
Q3) In the absence of any pre-established protocols within a company, a fraud examiner must:
A) Find case precedence from a previous fraud of similar scope and use their protocols.
B) Work with law enforcement to establish protocols.
C) Develop a set of protocols prior to the specific investigation they are working on.
D) All of the above
Q4) The fraud scheme must answer the question "why" before charges can be filed.
A)True
B)False
Q5) Outline the steps in the evidence collection process
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Page 10
Chapter 9: Fraud Examination Evidence I: Physical,
Documentary, and Observational Evidence
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Q1) List the four ways documentary evidence is obtained.
Q2) The general principle of Benford's Law is that:
A) If fraud exists, the difference between horizontal analysis figures will be divisible by 9.
B) Ratios will be increased or decreased by one digit if fraud exists.
C) The likelihood that numbers 1, 2, 3, 4, 5, 6, 7, 8, and 9 will appear as the first digit in numbers occurring in a random data set conforms to a predictable pattern.
D) The likelihood that numbers 2, 4, 6, 8 and 10 will appear as the first digit in numbers occurring in a random data sets conforms to a predictable pattern.
Q3) Which of the following type of records can typically only be access by law enforcement?
A) Commercial Databases
B) Motor Vehicle Identification Number
C) Dealership vehicle records
D) UCC Filings
Q4) It is impossible to determine which printer printed a document.
A)True
B)False
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Chapter 10: Fraud Examination Evidence II: Interview and Interrogation Methods
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Q1) Interrogations are typically conducted by:
A) The forensic investigator
B) The District Attorney
C) Law Enforcement
D) The CEO or CFO of the company.
Q2) A difference between an interview and an interrogation is the Miranda rights being read.
True
A)True
B)False
Q3) When seeking an admission to a fraud, the interviewer will often make a direct accusation if the interviewer is almost certain the subject has committed the offense.
A)True
B)False
Q4) Expressing _________ with the subject can make confessing easier.
A) Justification
B) Disappointment
C) Empathy
D) Sympathy
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Chapter 11: Fraud Examination Evidence III: Forensic Science and Computer Forensics
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Q1) The Questioned Documents Unit examines what?
Q2) Who are criminalists and what do they do?
Q3) Describe some types of physical evidence.
Q4) If a computer that needs to be investigated is currently turned off, what should be done?
A) It should be turned on and investigative work should begin immediately.
B) It should be dismantled and the hard drive should be installed in a separate machine.
C) It should not be turned back on.
D) The main user of the computer should be made to turn it back on.
Q5) What is the wipe standard for the Department of Defense?
A) It states that media must be written over 7 times before it is considered erased.
B) It states that only a 7X power magnet can wipe out a hard drives contents.
C) A surface wipe with an ionic scope must be conducted prior to opening and removing any components.
D) The process of gathering the data stored in a computer's RAM.
Q6) What is the ultimate goal result of good physical evidence and when does it occur?
Q7) Explain Rule 702 of the Federal Evidence Rules.
Page 13
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Chapter 12: The Fraud Report, Litigation, and the Recovery Process
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Q1) By filing Form 3949-A with the IRS, what might this do for the owners of a company?
A) It can help delay interest and penalties on the taxes due.
B) It can help the IRS initiate proceedings against the fraudster
C) It can help bolster an argument that the owners and managers were victims.
D) All of the above
Q2) A fired employee who is denied unemployment compensation can typically demand an administrative hearing.
A)True
B)False
Q3) A good practice is for the investigator to discuss any doubtful wording with her insurance company before releasing it to the client.
A)True
B)False
Q4) What must the fraud investigator avoid in his report?
A) Any inferences of guilt.
B) Any financial data for the company.
C) The methods of proving fraud.
D) All of the above.
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Chapter 13: Employee, Vendor, and Other Frauds Against the Organization
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Q1) Which vendor fraud principle leads to $1,000 toilet seats?
A) short shipments.
B) balance billing.
C) cost-plus billing.
D) substandard goods.
Q2) Which of the following is NOT allowed when an employee is suspected of stealing corporate data?
A) Personally confronting them with the situation.
B) Reviewing their corporate E-mail history.
C) Monitoring their access and behavior at work.
D) Seizing their home computer without a court order.
Q3) What are some examples of corporate culture that might lead to employee fraud?
Q4) Check laundering typically only occurs in small businesses.
A)True
B)False
Q5) Which of the following is actually part of the audit trail?
A) fraud reporting and education
B) chain of custody
C) authorization and approval
D) physical security and monitoring
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Chapter 14: Financial Statement Fraud
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Q1) When Nortel announced that it was taking $18.4 billion in charges for restructuring costs, bad customer debts, and obsolete inventory, it was taking a(n):
A) Big bath.
B) One time write down.
C) Section 179 allowance.
D) All of the above.
Q2) By non-disclosure of bad news, management has:
A) Protected the company from bad stock valuation on the market.
B) Saved investors the embarrassment of holding declining stock.
C) Let those who have purchased stock on the market pay a higher price than they should have.
D) All of the above.
Q3) A CEO talks the CFO into depreciating new assets for 10 years instead of the 7 years it should be depreciated for. This is an example of:
A) Earnings manipulation.
B) Legitimate discretion.
C) Aggressive accounting techniques.
D) Ratio manipulation.
Q4) What are some legitimate discretion choices that management can make?
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Chapter 15: Fraud and Sox Compliance
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Q1) ISO 27002 has a specific topic of Asset Management. Which of the following is considered an Asset that needs to be safeguarded within a corporation?
A) Vehicles.
B) Office Furniture.
C) Information.
D) All of the above.
Q2) To whom do the rules within SOX apply to?
A) Corporations.
B) Partnerships with more than 10 partners.
C) Any Corporation required to file a 10-K with the SEc.
D) All of the above.
Q3) One of the mandated standards within Title I of SOX is that auditors must retain their working papers for a minimum of five years.
A)True
B)False
Q4) The United States Sentencing Commission bases its guidelines for sentencing upon the Guidelines Manual.
A)True
B)False
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Chapter 16: Tax Fraud
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Q1) What are the three elements of IRC § 7201 that must be proven before a charge under this section is sustained?
Q2) If a taxpayer is to be charged with committing tax fraud, the taxpayer must have committed a(n):
A) Affirmative indicator and have violated the law willingly.
B) Affirmative act and have violated the law either willingly or unwillingly.
C) Affirmative act or indicator and have violated the law willingly.
D) Affirmative act and have violated the law willingly.
Q3) What does the U.S. Corporate Tax applicable to?
A) Dividends distributed.
B) Gross Income of the Corporation.
C) Gross Income of the management.
D) Retained Earnings of the Corporation.
Q4) According to 18 USC § 2, any person who commits an offense against the IRS statutes and codes has also committed a crime against the _________ and will be punished as a principle.
A) United States.
B) U.S. District Court.
C) Criminal Code of the United Stated.
D) All of the above.
Page 18
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Chapter 17: Bankruptcy, Divorce, Identity Theft
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Q1) If there is fraud suspected in the bankruptcy proceedings, who is the case turned over to?
A) U.S. District Court.
B) Department of Justice.
C) U.S. Attorney's Office.
D) Securities and Exchange Commission.
Q2) Who causes the largest amount of identity theft in the United States?
A) Organized Crime.
B) Gangs.
C) Individuals on the internet.
D) Corporations.
Q3) Due to its complexity, the forensic accountant cannot perform a complete cash flow analysis for the individual or entity under investigation.
A)True
B)False
Q4) Which two chapters are most frequently used by individuals?
A) Chapters 7 and 9.
B) Chapters 13 and 15.
C) Chapters 11 and 13.
D) Chapters 7 and 13.
Page 19
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Chapter 18: Organized Crime, Counterterrorism, and Anti-Money Laundering
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Q1) Who accepts bets for the numbers game?
A) Any local convenience store clerk.
B) The owners of the bars that run the numbers game.
C) A bookie.
D) The local state authority.
Q2) The ROC, unlike the modern day LCN, continues to kill reporters, government officials and law enforcement personnel.
A)True
B)False
Q3) How are the numbers for the numbers game derived?
A) From an unpredictable financial figure that is published daily in the newspaper.
B) From the State gambling authority.
C) From the head of the local organized crime organization.
D) Through a complex mathematical formula.
Q4) How does the LCN hide its cash assets?
A) Money Market accounts.
B) Investment portfolios.
C) Offshore bank accounts.
D) Large assets in other people's names.
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Chapter 19: Business Valuation
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Q1) Projected free cash flow to equity before debt payment is sometimes called:
A) Projected free cash flow available to equity.
B) Debt-free cash flow available to equity.
C) Equity-free cash flow available to debt.
D) Pre-debt cash flow available to equity.
Q2) Under the market approach, the value of the asset is what the asset can be sold for in an open market within some reasonable time period.
A)True
B)False
Q3) Projected free cash flow available to equity (FCFE), is defined as the amount of cash available to shareholders after:
A) All liabilities are paid.
B) All assets are liquidated.
C) All expenses, reinvestment, and debt and preferred dividend payments.
D) All of the above.
Q4) Under the income approach, the value of the asset is the present value of the future economic income associated with the asset.
A)True
B)False
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Chapter 20: Dispute Resolution Services
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Q1) What is evaluative mediation?
A) A dispute resolution method that involves a neutral third-party neutral third-party who is empowered to issue findings that can be binding on the disputants, in cases of binding arbitration. In cases of non-binding arbitration, the neutral person's findings serve as recommendations.
B) Court-annexed arbitration programs (CAAPS) are usually mandatory but non-binding. In federal courts, CAAPS are governed by the Federal ADR Act. Each state may have its own laws governing CAAPS in state courts.
C) Part of an organization's overall dispute resolution system. Dispute risk analysis focuses on identifying possible disputes and their possible impact on the company.
D) A style of mediation in which the mediator actively expresses opinions about the facts of the case and the reasonableness of the participants' negotiating positions.
Q2) How does on-line dispute resolution work and what are its benefits?
Q3) Interest Arbitration involves resolving conflicting demands, typically in labor contract negotiations.
A)True
B)False
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