12 - Chapter 12 Multiple Choice 1. The most common...

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Chapter 12 Revenue- and Inventory-Related Financial Statement Frauds MULTIPLE CHOICE 1. Revenue-related financial statement fraud is prevalent for all of the following reasons except: a. There are numerous accounting methods for recognizing revenue. b. Revenue-recognition policies are unlikely to be reviewed by financial statement auditors. c. Net income can be easily manipulated by using revenue accounts. d. Judgment can significantly affect the amount of revenue recognized by an entity. ANS: B is correct since auditors spend a great deal of time reviewing revenue-recognition policies. 2. The practice of ____________ involves selling unused assets while promising to buy them back at roughly the same price a. Improper cutoff b. Refreshing transactions c. Channel stuffing d. Round-tripping e. None of the above ANS: D: Correct; this process is known as round-tripping. The practice involves little or no real eco- nomic benefit to the parties involved. 3. Which of the following is not a fraud scheme affecting the revenue accounts? a. Related-party transactions b. Side agreements c. Double counting d. Lapping ANS: C: Correct; this occurs when specific inventory items are counted twice. It is related to invent- ory, not revenue. 4. Which of the following are not revenue-related fraud symptoms? a. Analytical symptoms b. Lifestyle symptoms c. Control symptoms d. Tips and complaints e. All of the above are revenue-related fraud symptoms ANS: E: Correct; all of the above are fraud symptoms for all types of fraud. 5. Which of the following is not a typical analytical symptom of revenue fraud? a. Revenue appears too high b. Discounts appear too low c. Allowance for doubtful accounts appears too high d. Bad debt expense appears too low e. All of the above are typical analytical symptoms of revenue fraud ANS: C: Correct; a typical analytical symptom would be that the allowance is too low 6. Which of the following is not a typical behavioral or verbal symptom of revenue fraud? a. Inconsistent or vague responses from management arising from revenue inquiries b. Denied access to facilities, employees, or records related to revenue-related audit evidence
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c. Unusual delays by the entity in providing revenue-related information d. Untrue responses by management to queries about revenue-related accounts e. All of the above are typical symptoms ANS: E: Correct; all of the above are typical behavioral or verbal symptoms 7. Which of the following are ways to proactively search for fraud symptoms? a. Responding to customer complaints regarding sales terms. b. Investigating anomalies noticed when sampling transactions for routine control testing. c. Exploring claims of a disgruntled employee that were received in an exit interview. d.
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12 - Chapter 12 Multiple Choice 1. The most common...

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