Fraud Examination 4th Edition By Albrecht – Test Bank

Multiple Choice 0 points
Question Identify an example of a perceived pressure that can motivate financial statement fraud.
Answer The ability to obfuscate the fraud behind complex transactions
Failure to meet Wall Street’s earnings expectations
Rationalizing that all companies use aggressive accounting practices
A weak board of directors Add Question Here
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Question Which of the following is an example of a perceived opportunity that can lead to financial statement fraud?
Answer Inability to compete with other companies
Independent audit and a strong board of directors
Thinking that fraud is good for the company
Inadequate internal controls
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Question There has been an auditor change at Company X. Which of the following situations may NOT signal a potential fraud problem?
Answer Failure to pay an audit fee
Auditee believing that the auditor’s fees are too high
Suspected fraud or other problems by the auditor
Auditor-auditee disagreement
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Question Which of the following statements is true?
Answer Most financial statement frauds occur in large historically profitable companies.
Most people who commit management fraud are first-time offenders.

An active board of directors or audit committee does little to deter fraud.
Perpetrating fraud is much easier in an organization with democratic leadership, where the decision making is spread among several individuals.
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Question Your firm has just acquired a new audit client. The new client is highly leveraged with borrowing from several institutions. It is planning to expand the business by obtaining additional debt finance in the near future. Based on these facts, which one of the following should be most carefully examined?
Answer Transactions that result in healthy revenues
Large market capitalization
Loans and other financing transactions between related entities
Dividend paid out in the previous year
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Question The study done by the Committee of Sponsoring Organizations (COSO) on financial statement frauds that occurred during the period from 1987–1997 had many key findings. Which of the following is NOT one among them?
Answer Frauds were most commonly perpetrated by improper revenue recognition, overstatement of assets, and understatement of expenses.
Most of these firms had audit committees that met at least four times a year.
Severe consequences were associated with companies who committed financial statement fraud.
Most companies were experiencing net losses or were just holding break-even positions in periods prior to the fraud.
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Question Your audit team working with a newly acquired client, discovers that there has been fraudulent financial reporting for the past 5 years. Who is most likely to have been involved in the fraud?
Answer Middle management in positions of trust

Disgruntled employees
Top management
The accountants in charge of preparing the financial statements
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Question Company XYZ had a long-standing relationship with a leading law firm. In fact, the law firm’s business with this company was one of its most profitable relationships. If the law firm decides that it no longer wants to conduct business with the company, this is:
Answer indicative that the company might have a lot of customer law suits against it.
not any sort of meaningful indicator of fraud activity. a large cause for concern that financial statement fraud may be occurring. an indication that the client has likely outgrown the law firm.
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Question While generally accepted accounting principles do allow flexibility, standards of _________, ________, and ________ must always prevail in the financial statements.
Answer subjectivity; integrity; validation

objectivity; integrity; judgement recording; reporting; accounting quality; excellence; and judgement
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Question Frauds are more likely to occur in:
Answer large, historically profitable companies.
companies with an active board of directors.
smaller companies where one or two individuals have almost all control in decision making.
any company, as the probability of a fraud does not change with the size of a company. Add Question Here