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Fraud_HW_2_-_Chapters_4-5.11_Answer_Key - Homework#2...

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Homework #2 Name: _______________________ Chapters 4 – 5, 11 Section: ___________________ True/False 1. F Not prosecuting fraud perpetrators is cost-effective both in the short run and the ` long run [4] 2. T Employee transfers, audits, and mandatory vacations are all ways to provide independent checks on employees [5] 3. F Because of the nature of fraud, auditors are often in the best position to detect its occurrence [5] 4. F According to the 1999 COSO study of fraudulent financial reporting, the most common method used to perpetrate financial statement fraud includes overstating of liabilities [11] 5. T The Chief Executive Officer (CEO) of a company is most likely to be the perpetrator of financial statement fraud [11] Multiple Choice 1. C The “tone at the top” is an important element in fighting fraud. This tone at the top involves: [4] a) Doing a good job of integrity risk assessment b) Having a positive organization where effective fraud teaching and training is conducted c) Setting a proper example or modeling appropriate management behavior d) Both b and c 2. B is usually the single most effective tool in preventing and detecting fraud [4] a) Monitoring employees b) Having a good system of internal controls c) Having a well-written company code of ethics d) Strict hiring procedures
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3. E Which of the following is a fraud symptom related to an internal control weakness [5] 4. C 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: [5] 5. D Many indicators of fraud are circumstantial; that is, they can be caused by nonfraud factors. This fact can make convicting fraud difficult. Which of the following types of evidence would be most helpful in proving that someone committed fraud? [11] Short Answers 1. What is the harm in not prosecuting a fraud perpetrator beyond terminating his/her employment? [4] It sends a message to other employers that fraud is tolerated and that the worst thing that happens to perpetrators is termination , so fraud may reoccur in the organization.
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