Chapter 1 Test

Forensic Accounting

By Mary-Jo Kranacher, CPA/CFF, CFE Chapter 1 Core Foundation Related to Fraud Examination and Financial Forenic LEARNING OBJECTIVES 1-1 1-2 1-3 1-4 1- 1-! 1-" 1-# 1-$ 1-1%

!e"ine "raud and identi"y a potentially "raudulent ituation# !i""erentiate $et%een "raud and a$ue# !e"ine "inancial "orenic and identi"y an appropriate methodolo&y "or a &i'en "inancial "orenic "act pattern# !i""erentiate the role o" auditin&, "raud examination, and "inancial "orenic# Explain the theory o" the "raud trian&le# (it the le&al element o" "raud# )denti"y common "raud cheme# *i'e example o" non"raud "orenic and liti&ation ad'iory en&a&ement# !ecri$e the "raud examiner/"inancial "orenic pro"eional+ approach to in'eti&ation# Explain "raud examination methodolo&y#

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1-/F 1# 1# Fraud or a "raudul "raudulent ent act i i one that caue caue it it 'ictim 'ictim to u""er u""er an economic lo only# Fale

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1-/F # # An immateria immateriall "ale "ale tatement tatement i i a le&al le&al element element o" "raud# "raud# F

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1-/F 0# 0# he ar$ane23x ar$ane23xley ley Act Act 4356 4356 o" 77 i i aimed at accounti accountin& n& ta"", ta"", auditin& "irm, corporate &o'ernance, executi'e mana&ement 4CE3 and CF36, o""icer, and director# F

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1-/F 8# 8# All intanc intance e o" micon miconduct duct in the the %or9place %or9place amount amount to "raud# F

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1-/F :# he di""erence $et%een a$ue and "raud may $e the di""erence in cone;uence 2 $ein& reprimanded or $ein& "ired $y the company and proecuted  $y the # Forenic and (iti&ation Ad'iory er'ice 4F(A6 pro"eional may either %or9 to $olter 4i" hired $y the de"endant6 or to undercut 4i" hired $y the  plainti""6 a cae# F

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1-/F ?# ince "orenic accountin& %or9 %ith "act a documented $y le&al record the report eldom add an ad'erarial nature to the en&a&ement, and  pro"eional can expect that their %or9 %ill $e accepted $y the oppoin& ide# F

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1-/F @# he "raud examiner or "orenic accountant can eaily identi"y the aumption that he/he ha made %hile thin9in& out o" the $ox# F

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1-/F 17# nder &enerally accepted auditin& tandard 4*AA6 auditor are not currently reponi$le "or plannin& and per"ormin& auditin& procedure to detect immaterial mitatement, re&ardle o" %hether they are caued $y error or "raud# 

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1-/F 11# Dhen "raudter collude, the loe to the 'ictim or&aniation increae more than "our"old# 

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1-/F 1# (ine employee are the principle perpetrator in approximately 0@ percent o" cheme, yieldin& company loe o" approximately 1:7,777# F

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1-/F 10# he three le& o" the "raud trian&le are opportunity, percei'ed $ene"it, and rationaliation# F Page 2 of 18

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1-/F 18# Fraud preure can arie "rom "inancial pro$lem, uch a li'in& %ithin one+ mean, &reed, hi&h de$t, medical $ill, in'etment loe, or educational expene# F

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1-/F 1:# Rationaliation mut occur $e"ore the act o" a$ue or "raud# 

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1-/F 1=# Money and e&o are the t%o mot commonly o$er'ed moti'ation "or "raud and a$ue# 

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1-/F 1># Dhen dicuin& the cot o" "raud and other liti&ation, $y the time a "ormal in'eti&ation i launched and the alle&ation are addreed %ithin the le&al arena, the partie ha'e already incurred u$tantial cot# 

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1-/F 1?# he dichotomy o" "raud i it cannot occur %ithout trut, $ut commerce can occur %ithout trut# F

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1-/F 1@# he iue addreed $y a "orenic accountant durin& liti&ation mut $e central to the alle&ation made $y the plainti""+ or de"ene attorney# F

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1-/F 7# 3ne o" the $et %ay to ruin an in'eti&ation, "ail to &ain a con'iction, or loe a ci'il cae i to $ae in'eti&ati'e concluion on lo&ic and con# he t%o primary "unction o" "inancial "orenic are. A# liti&ation ad'iory er'ice and in'eti&ati'e er'ice# B# liti&ation ad'iory er'ice and expert %itne er'ice# C# pot e'ent auditin& er'ice and in'eti&ati'e er'ice# !# pot e'ent auditin& er'ice and expert %itne er'ice# A

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1-M/C ?# A# B# C# !# B

Dhich o" the "ollo%in& act %ould not $e conidered an a$ue or a$ui'eG ur" the )nternet %hile at %or9# Remo'e mall amount o" cah "rom the cah re&iter till# a9in& a lon& lunch or $rea9# in& ic9 lea'e to ee a child+ play at chool#

Auditin& i reponi$le "or. liti&ation upport and redemption# ri9 aement and internal control# ri9 aement and calculation o" dama&e# $uine 'aluation and ri9 aement#

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1-M/C @# he interrelationhip amon& auditin&, "raud examination, and "inancial "orenic i. A# eta$lihed and maintained $y le&al tructure and  C# 0=-0? !# :7-: C

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1-M/C 1# Dhich o" the "ollo% i not a reaon %hy mall $uinee ha'e hi&h loe to "raudG A# maller $uinee ha'e "e%er peronnel doin& more