05 - Chapter 5 Recognizing the Symptoms of Fraud MULTIPLE...

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Chapter 5 Recognizing the Symptoms of Fraud MULTIPLE CHOICE 1. Of the elements of fraud, which is usually least likely to be detected by auditors? a. Theft act b. Concealment c. Conversion d. Personal pressures ANS: A A: The actual act is hardest for an auditor to see. the nature of fraud is just that, to deceive people D: Auditors usually don't get to know auditees well enough to know their pressures but these are prob- ably more likely to be seen than the act itself. 2. Auditors usually detect fraud in which element of the crime? a. Theft act b. Concealment c. Conversion d. Rationalization ANS: B A: Auditors usually are not present when the theft act is committed B: Auditors are able to detect fraud when the perpetrator conceals the theft act. C: Auditors usually are not present when the perpetrator converts the assets into cash or other assets. D: Rationalization takes place in the perpetrator’s mind and is not usually observable. 3. It is discovered that a bank does not require two signatures on cashier's checks exceeding $500,000. This is an example of: a. Analytical anomalies. b. Accounting anomalies. c. Faulty journal entries. d. Internal control weaknesses. ANS: D A: Incorrect - These are relationships that are too unusual to be believable; the bank procedure in- volves a control, not a specific unrealistic transaction. B: Incorrect - These would include problems with source documents, faulty journal entries, and inac- curacies in ledgers; the signatures don't involve these categories. C: Incorrect - As mentioned above, this is an example of an accounting anomaly. D: Correct - The signature problem could be a lack of segregation of duties or lack of independent checks - both examples of internal control weakness. 4. One of the most effective ways to prevent fraud is to implement a system of independent checks. Which of the following is not a common independent check? a. Employee Transfers b. Audits c. Mandatory vacations d. Surveillance ANS: D A, B, and C are common independent checks.
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5. Which of the following is an analytical anomaly that could be related to fraud? a. Journal entries that lack documentation b. Late charges that are incurred on Accounts Payable c. Increased scrap d. The fraud perpetrator increases his smoking habit ANS: C A: This is an accounting anomaly. B: This is an accounting anamoly. C: Correct. D: This is a change in lifestyle. 6. Which type of account would most likely be used to conceal fraud? a. Common Stock b. Revenues c. Liabilities d. Expenses ANS: D A: It is an account without a lot of transactions, so embezzlers stay away from this and other equity ac- counts B: Revenue does have adjustments, but they would need to be up and would quickly draw attention C: Embezzlers steal assets, not liabilities and decreasing liabilities is not a good way to conceal-it can be easily discovered D: In order to balance the accounting equation after stealing assets, this is the best way to do it, espe-
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This note was uploaded on 03/04/2012 for the course AC 572 AC 572 taught by Professor Online during the Spring '11 term at Keller Graduate School of Management.

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05 - Chapter 5 Recognizing the Symptoms of Fraud MULTIPLE...

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