5. Per the Fraud Examiners Manual, which of the following best describes materiality?

A. the amount of an item is material if its omission or misstatement is greater than five percent of total assets or ten percent of income.

B. the amount of an item is material if its omission or misstatement would affect the judgement of a sophisticated investor who is relying on the financial statements.

C. the amount of an item is material if its omission or misstatement would affect the judgement of a reasonable person who is relying on the financial statements.

D. the amount of an item is material if its omission or misstatement would affect the judgement of any person who is relying on the financial statements.

6. A fraud examiner who is investigating the disappearance of $5,000 in cash funds finds a debit in the legal expense account and a corresponding credit in the cash accounting for $5,000 but cannot find genuine documentation for the charge. What can the fraud examiner infer?

A. the fraud examiner can conclude that a perpetrator has attempted to conceal the theft by labeling the misappropriated $5,000 as a legal expense.

B. the fraud examiner can be reasonably certain that a perpetrator has attempted to conceal the theft by labeling the misappropriated $5,000 as a legal expense.

C. the fraud examiner can reasonably suspect that a perpetrator might have attempted to conceal the theft by labeling the misappropriated $5,000 as a legal expense.

D. the fraud examiner cannot infer anything from the failure to find genuine documentation for the charge.

7. Per the Fraud Examiners Manual, what is one of the advantages provided by requiring a Statement of Cash Flows?

A. the Statement of Cash Flows shows the net increase (or decrease) in cash.

B. the Statement of Cash Flows shows the cash at the beginning of the year.

C. the Statement of Cash Flows shows the cash at the end of the year.

D. it is much harder to falsify the amount of cash that was received and paid during the year.