Which of the following is a primary type of transaction that can create liabilities for a company?
E. All of the above.
When accounts payable-related liabilities are understated, purchases and inventory are often, or the financial statements don’t balance.
C. Understated.
Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because:
F. a, b, and c are correct.
The most common fraud involving car companies and the warranties they offer would most likely be:
obligations.
d. Not recording or under recording various
types of debt.
C. Not recording or under recording future obligations.
FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is:
B. Probable.
Analytical symptoms of accounts payable fraud most often relate to reported “accounts payable” balances that appear:
C. Too low.
Proactively searching for analytical symptoms related to financial statement fraud means that we are looking for accounts that appear:
D. All of the above
When focusing on changes, you should consider changes from period to period in:
D. Both a and b.
Overstating cash is usually difficult because:
a. Cash balances can be easily confirmed with
banks and other financial institutions.
b. Cash is hard to steal.
c. Cash is normally not a fraudulent account.
d. Cash is usually a small asset.
a. Cash balances can be easily confirmed with banks and other financial institutions.
Inadequate disclosure fraud usually involves:
C. Both a and b.
When examining whether a company has under-recorded accounts payable, each of the following ratios is helpful except:
C. Unearned revenue/Accounts payable.
Each of the following is a symptom relating to understatement of liability frauds except:
a. Original purchase-related records where
copies could exist.
b. Denied access to records, facilities, certain
employees, customers, vendors, or others
from whom audit evidence might be sought.
c. Last-minute adjustments by the entity that
significantly affect financial results.
d. Missing documents.
e. All of the above are documentary symptoms of understatement of liability fraud.
a. Original purchase-related records where copies could exist.
Each of the following assets is correctly linked with how it can be overstated except:
a. Inventory can be overstated by improperly
capitalizing these assets.
b. Marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities.
c. Fixed assets can be overstated by leaving
expired assets on the books.
d. Assets can be inflated in mergers, acquisitions, and restructurings by having the wrong entity act as the acquirer.
b. Marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities.
Which of the following factors does not make
fraud more difficult to detect?
a. Collusion with outsiders.
b. Forgery, which GAAS auditors are not
routinely trained to detect.
c. Off-book frauds in which no records on the
company’s books are fraudulent.
d. All of the above make fraud more difficult to detect.
d. All of the above make fraud more difficult to detect.
A form 1099 with missing withholdings (where they should be reported) may be a fraud symptom for which liability account?
C. Accrued Liabilities.
In liability fraud, liabilities are most often:
C. Understated.
Which of the following is usually the hardest fraud to detect?
D. Disclosure fraud.
You observe that a company’s current ratio is dramatically
increasing. This may indicate fraud in that:
a. Probable contingent liabilities that will settle
in the next year for an amount that can be
estimated are not recorded.
b. Accounts payable are understated.
c. Expenses have been inappropriately
capitalized as fixed assets.
d. Fixed assets are overstated.
e. Both b and c
e. Both b and c
Of the following, the most difficult account for
management to intentionally misstate is:
D. Cash.
Which of the following is not a way to under-record liabilities?
liabilities.
B. Claiming that existing debt has been forgiven by creditors.
When looking for accounting or documentary
symptoms of fraud when a merger occurs, one of the first steps should be to:
accounting standards.
D. Make sure that the accounting methods used were appropriate and consistent withaccounting standards.
Which of the following is a good place to look for inadequate disclosures?
inadequate disclosure.
E. All of the above are good places to look forinadequate disclosure.
Understatement of liability frauds:
A. can be accomplished by recording accruals in a later period.
Which of the following is not among the ways discussed in the text to understate accounts payable?
D. Understate purchase discounts.
All of the following are ways to understate liabilities except:
A. overstate unearned revenue.
Computing each liability as a percentage of total assets is known as:
C. common-size financial statements.
Which of the following is not discussed in the text as one of the ways to actively search for "accounting and documentary" symptoms of under-reporting of liabilities fraud?
D. All of the choices are discussed
Which of the following ratios was not discussed in the text as one useful in detecting understatement of liability fraud?a.Quick assets/current liabilities
b.Accounts payable/purchases
c.Accounts payable/net salesd.Current assets/current liabilities
