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SAINT PETERS UNIVERSITY DEPARTMENT OF ACCOUNTANCY Spring 2013 Graduate Exam Ch. 1-12 Professor Pogogeff Forensic Accounting Name: _____________________________________Date: _______________________ MULTIPLE CHOICE QUESTIONS ___ 1. Which accounting firm audited all of these companies: Sunbeam, Waste Management, Global Crossing, and Baptist Foundation of Arizona? a. KPMG. b. PriceWaterhouse. c. Deloitte & Touche. d. Arthur Andersen. e. None of the above. ___ 2. Who probably coined the phrase ''forensic accounting?'' a. Joe M. Baker. b. W.R. Forense. c. Robert Lindquist. d. Maurice E. Peloubet. e. None of the above. ___ 3. What was the smoking gun to convict Al Capone? a. An accountant's cash receipts ledger. b. Lavish lifestyle. c. Murdering a competitor. d. Wholesaling alcoholic beverages. e. None of the above. ___ 4. What is not an indirect IRS audit technique? a. Cash T. b. Net worth method. c. Finding an unreported real estate sale. d. Bank deposit method. e. None of the above. ___ 5. Forensic accountants need an understanding of: a. Accounting. b. Law. c. Criminology. d. Investigative auditing. e. All of the above. ___6. What would be a task of a litigation services practitioner? a. Issue identifications. b. Expert testimony. c. Mediation. d. Arbitration. e. All of the above. ___ 7. Which organization or group controls forensic accounting? a. ACFEI. b. Association of Certified Fraud Specialists. c. ACFE. d. NACVA. e. None of the above. ___ 8. Which certificate is provided by the American College of Forensic Examiners? a. CFE. b. CFA. c. CFFA. d. Cr.FA. e. None of the above. ___ 9. Which forensic certificate is provided by the National Association of Certified Valuation Analysts? a. CFE. b. Cr.FA. c. CFFA. d. FASNA. e. None of the above. ___ 10. Which task probably would not be required of a Certified Fraud Examiner? a. Gather evidence. b. Write reports. c. Assist in investigating fraud. d. Testify in the courtroom. e. All of the above may be required. ___ 11. Which is not a forensic-type certificate? a. FASNA. b. CFE. c. Cr.FA. d. CFFA. e. None of the above. ___ 12. The National Association of Certified Valuation Analysts does not provide the following certification: a. CVA. b. AVA. c. CFFA. d. CFA. e. None of the above. ___ 13. Which group is not one of the members of corporate governance in the six-legged stool as outlined by Professor Zab Razaee? a. Board of Directors. b. Audit Committee. c. Internal auditors. d. Employees of the company. e. All of the above are one of the six groups. ___ 14. Which quality or characteristic is not outlined in Statement of Financial Concepts No. 2? a. Relevance. b. Materiality. c. Timeliness. d. Transparency. e. All of the above is in the No. 2 statement. ___ 15. An example of ''channel stuffing'' would be: a. Keeping books open beyond the appropriate time. b. Combining restricted fund account with the general fund account. c. Booking income before receiving payments. d. Inflating revenues with phony software sales. e. None of the above. ___ 16. Under the KPMG categories of fraud, what would probably not be an external fraud? a. Check forgery. b. False invoices. c. Stock theft. d. Credit card fraud. e. All of the above are considered external fraud. ___17. Under the KPMG categories of fraud, what would probably not be an employee internal fraud? a. Lapping. b. Petty cash fraud. c. Kickbacks. d. Check forgery. e. All of the above are considered employee internal fraud. ___ 18. Under the KPMG categories of fraud, what would probably not be an employer internal fraud? a. False insurance claims. b. Ghost vendors. c. Check forgery. d. False financial statements. e. All of the above are considered employer internal fraud. ___ 19. Which item would not be a fraud identifier to spot fraudsters? a. Large ego. b. Gambling addiction. c. Hard worker. d. Takes few or no vacations. e. All of the above are fraud identifiers. ___ 20. Based upon KPMG studies, what factor is most likely to cause fraud? a. Management override. b. Employee collusion. c. High risk industry. d. Poor internal controls. e. Some other factor is most likely. ___ 21. Employee fraud can be discovered by considering: a. Behavioral habits. b. Employee stress factors. c. Lifestyle of the employee. d. Assets owned by the employee. e. All of the above. ___ 22. COSO suggests which of the following are major motives for fraud? a. To obtain national stock exchange listing status. b. To cover up assets misappropriated for personal gain. c. To increase stock prices and benefit inside traders. d. All of the above. ___ 23. Which of the following is a red flag for forensic accountants? a. Complex financial products. b. Recurring charges. c. Aggressive revenue recognition policies. d. Both a and c. e. None of the above. f. All of the above. ___ 24. Control risk is: a. A risk that a material error in the balance or transaction class will not be prevented or detected. b. The risk that an account or transactions contain material misstatements before the effects or the controls. c. The measure of whether something is significant enough to change an investor's investment decision is a prime consideration in how the audit is conducted. d. The risk that audit procedures will not turn up material error when it exists. e. None of the above. ___ 25. The collapse of Enron was caused by: a. Special-purpose entities. b. Conflicts of interest. c. Unconsolidated subsidiaries. d. Off-balance sheet financing. e. All of the above. ___ 26. If an internal auditor finds fraud, what communication step should not be taken? a. Notify management or the Board of Directors. b. A written report should be prepared. c. Draft of written report should be submitted to legal counsel for review. d. Report the offense to the appropriate authority. e. None of the above. ___ 27. What best describes auditing that occurs when there are reasons to suspect that fraud may have occurred and appropriate audit steps are taken? a. Internal auditing. b. Top down auditing. c. Reactive auditing. d. Proactive auditing. e. Items b and d. ___ 28. Which would not be considered an analytical procedure? a. Comparison with other operating information. b. Vertical analysis. c. Variance analysis. d. Ratio analysis. e. All of above are analytical procedures. ___ 29. Which of the following is a type of brainstorming? a. Open brainstorming. b. Closed brainstorming. c. Lightning brainstorming. d. All of the above. ___ 30. Which of the following ratios work well as red flags for reporting problems and financial performance? a. Return on assets and price earnings. b. Return on assets and return on equity. c. Gross margins and return on equity. d. None of the above. ___ 31. Which of the following is not a company involved in a recent fraud scandal? a. Enron b. Tyco c. Mattel d. Sunbeam ___ 32. A company using this method is not trying to hide liabilities. a. Trading Security method. b. Treating leases as operating leases. c. Netting of the projected benefit obligation and the pension asset. d. Synthetic lease. e. None of the above. ___ 33. What is not considered one of the three phases of fraud? a. The act itself. b. The concealment. c. Conversion of the stolen asset to personal use. d. Searching for the fraudster. e. None of the above. ___ 34. The most common method of detecting occupational fraud is: a. External auditors. b. Internal auditors. c. Accident. d. Tips. e. Some other method. ___ 35. Which technique is considered to be an ''off-book'' fraud? a. Skimming. b. Unrecorded sales. c. Understated sales. d. Theft of incoming checks. e. All of the above. ___36. Which scheme is considered to be skimming? a. Unrecorded sales. b. Understated sales. c. Theft of incoming checks. d. Swapping checks for cash. e. All of the above. ___37. Building up balances in bank accounts based upon floating checks drawn against similar accounts in other banks is best called: a. Skimming. b. Kiting. c. Money laundering. d. Lapping. e. None of the above. ___38. Skimming can be caught by: a. Gross profit analysis. b. Comparing receipts with deposits. c. Surprise cash counts. d. Investigating customers' complaints. e. All of the above. ___ 39. What is a red flag of kiting? a. Frequent deposits and checks in the same amount. b. Large deposits on Fridays. c. Short time lag between deposits and withdrawals. d. Only a and c. e. Items a, b, and c. ___40. What audit step would be most appropriate for finding accounts receivables fraud? a. A bank reconciliation audit. b. Gross profit analysis. c. Reviewing customer complaints. d. Surprise cash counts. e. All of the above. ___ 41. A person on the payroll who does not work for that company is generally called: a. Lapping. b. Ghost employee. c. Missing employee. d. Kiting. e. None of the above. ___ 42. A person finds land, buys it, increases the price, and sells it to his company. What is this scheme? a. A ghost scheme. b. Land flip. c. Ponzi scheme. d. Bid rigging. e. All of the above. ___ 43. Which is a bankruptcy for municipalities? a. Chapter 9. b. Chapter 11. c. Chapter XI. d. Chapter 7. e. Both b and c. ___44. Forensic accountants should compare travel and expense vouchers to employment records and tax records in order to find: a. Kiting schemes. b. Lapping. c. Layering schemes. d. Ghost employees. e. All of the above. ___ 45. You should trace bank transfers for the latter part of an audit period and the early part of the subsequent period to determine whether: a. The cash balances were overstated because of kiting. b. The cash receipts journal was held open for a few days after the end of the year. c. Any unusual payments to or receipts from related parties occurred. d. The last checks recorded before the year-end were really mailed by year-end. e. None of the above. ___ 46. What audit procedures would not be highly effective for detecting fraud in the sales and collection cycle? a. Ascertain appropriate segregation of duties. b. Review monthly bank reconciliations. c. Verify accounts receivable balances. d. Observe the actual distribution of payroll checks to employees. e. None of the above. ___ 47. Which would not be a direct IRS method for reconstructing taxable income? a. Newspaper articles. b. Checking deed records of real estate transactions. c. Discussions with third parties. d. Checking public records. e. All of the above are direct methods. ___ 48. Which is not an indirect method of reconstructing income of a taxpayer? a. Net worth. b. Bank deposit. c. Cash T. d. Unreported mark-up. e. None of the above. ___ 49. Which of the following is an example of a proactive approach to fraud detection? a. Logging of exceptions. b. Intelligence gathering. c. Reviewing variances. d. Effective internal controls. e. All of the above. ___ 50. Which of the following is an example of a reactive approach to fraud detection? a. Effective internal controls. b. Intelligence gathering. c. Logging of exceptions. d. Suspicion. e. None of the above. ___ 51. Which of the following is a public resource that can be accessed by the Internet? a. Police and sheriff records of arrests. b. Wills. c. Drivers licenses. d. All of the above. ___ 52. A first step in a money laundering operation is to: a. Obtain legal money. b. Deposit illegal money into the banking system. c. Open a correspondent account. d. Send a money wire transfer to another country. e. None of the above. ___ 53. The reason most money laundering schemes seem to be uncovered is due to: a. Forensic accountants. b. Bank officials. c. The FBI. d. A squealer about the operation. e. Both b and d. ___ 54. Banks must file which of the following forms when they become aware of suspicious customer activity related to possible money laundering? a. Currency Transaction Report. b. Over-Currency Report. c. International Transportation of Currency and Money Report. d. None of the above. ___ 55. The difference between an off-shore bank and a shell bank is that: a. The shell bank has a physical presence in the country in which it is licensed whereas the offshore bank does not. b. The off-shore bank specifically cannot carry on business in the jurisdiction in which it is licensed whereas such restrictions do not specifically affect shell banks. c. Only shell banks use correspondent services. d. U.S. banks have more access to client account information in a shell bank than in an offshore bank. e. None of the above. ___ 56. Which one of the following businesses would a money launderer most want to acquire? a. Travel agency. b. Broker. c. Series of newspaper/magazine stands. d. Gas station. e. None of the above. ___ 57. Which one of the following is the easiest to falsify? a. Web logs. b. Paper documents. c. Wire transfer reports. d. Hard drive files. ___ 58. One of the most important legislative acts restricting the activities of money launderers in recent years are the: a. Bank Secrecy Act. b. Currency Transportation Act. c. International Money Laundering Abatement and Financial Anti-Terrorism Act. d. Bankers' Money Laundering Act. e. None of the above. __ 59. In a family trust, if the trust documents provide for the automatic transfer of the trust to another jurisdiction if the trust comes under investigation, such a clause is called the: a. Escape clause. b. Removal clause. c. Flee clause. d. Nondemential excel clause. e. None of the above. ___ 60. Money launderers prefer to establish business relationships with a company whose operations are characterized by: a. Being located in a foreign country. b. Large cash flows. c. Low inventories. d. Being run by one entrepreneur. e. None of the above. ___ 61. Which of the following activities would not be considered a likely ''red flag'' to possible money laundering activities? a. Payments made with several different currencies. b. Making a large number of bank deposits ... all under $10,000. c. Dividends paid to non-company stockholders. d. A large number of foreign country stamps in a passport. e. All of the above. ____ 62. Which statement is false? a. Independence from a client is not required when a CPA performs litigation services without a related attestation service. b. Accountants are sometimes appointed by the court as a special master or court-appointed expert. c. Independence is a factor used to determine whether a CPA performing litigation services has a conflict of interest. d. Any actual conflict of interest should be disclosed. e. None of the above is false. _____ 63. Which statement is false? a. An expert witness may be asked to answer hypothetical questions only on deposition. b. Normally a non-expert witness cannot give an opinion. c. A forensic accountant should be hired directly by the attorney. d. Confidential communication between client and lawyer is considered a protective privilege. e. None of the above is false. _____ 64. Which statement is true? a. The Frye standard is used in federal courts. b. The Daubert rule is not used in state courts. c. The Frye standard may be used in some state courts. d. North Carolina follows the Frye rule. e. None of the above is true. _____65. An expert would probably not be able to: a. Give an opinion that embraces an ultimate issue to be decided by the trier of facts. b. State that my opinion is based on a reasonable degree of scientific certainty. c. An expert testifies regarding his opinion without first testifying to the underlying facts or data. d. An expert bases his opinion on evidence not admissible in evidence if of a type reasonably relied upon by experts in the particular field. e. An expert can do all of the above. _____66. Which is not one of the Daubert factors? a. Whether the theory existed before litigation began. b. Whether the theory or technique in question can be and has been tested. c. The theory's known or potential error rate. d. The theory has attracted widespread acceptance. e. All are Daubert factors. _____ 67. An expert witness: a. Loses confidentiality. b. Must be objective. c. Can be examined by the other side. d. Is required under Fed. Rules of Civ. Proc. 26 to provide a written report providing details of the testimony expected to be given. e. All of the above. _____68. Which would not be a subject matter expertise under Fed. Rul. 702 of Evidence? a. Special knowledge. b. Special skills. c. Special training. d. Special education. e. All of the above are subject matter expertise. _____ 69. Which item is not required in an expert's report? a. List of cases that the expert has testified or been deposed in the past 10 years. b. All opinions to be expressed. c. The exhibits to be used. d. List of all publications within the past 10 years. e. All of the above. _____70. What is not a major phase of litigation? a. Discovery. b. Cross-complaint. c. Pleadings. d. Outcome. e. None of the above. _____71. Which is not a situation which would cause an expert to be ejected? a. Frye challenge. b. Spoliation. c. Ghost written report. d. Conflict of interest. e. None of the above. _____72. Which would not be a type of evidence? a. Testimony of a lay witness. b. Testimony of an expert witness. c. A particular document. d. A computer. e. All of above are types of evidence. _____73. Taxpayer communications made to federally authorized tax practitioners are privileged, including: a. Matters involving criminal matters. b. Tax advice regarding the promotion of tax shelters. c. The amount of charitable contributions. d. Investigations by regulatory agencies. e. None of the above. _____74. Which would not be considered privileged evidence? a. Physician/patient. b. Attorney/client. c. Attorney/litigation consultant. d. Attorney/expert witness. e. All of the above are privileged. _____75. In a criminal case, the burden of proof is normally: a. Beyond a reasonable doubt. b. More likely than not. c. Preponderance of the evidence. d. Presumption of guilt. e. None of the above. _____76. Which is an inductive approach? a. Digital analysis. b. Discovery sampling. c. Generic data mining. d. Custom data mining. e. All of the above are inductive. ____77. In order for damages to be assessed, the court must find: a. There is liability in the case. b. One of the parties is really bad. c. Criminal violations have occurred. d. Both a and c. e. None of the above is correct. _____78. Deposition testimony occurs during the: a. Discovery phase of the case. b. Trial stage of the case. c. Initial pleadings in the case. d. Closing arguments in the case. _____79. Cost behavior refers to: a. How managers behave in response to cost data. b. How costs change with respect to management decisions. c. How businesses behave in connection with cost changes. d. How costs change with respect to changes in the volume of activity. _____80. Fixed costs are costs that: a. Never change. b. Remain constant on a per unit basis as volume goes up and down. c. Go up and down on a per unit basis as volume decreases and increases. d. Increase directly and proportionately with volume. _____81. In analyzing cost behavior data for cases, most experts find that the most effective and defensible analysis method is: a. High-low. b. Correlation-regression. c. Scatter diagram. d. Experienced employee information. _____82. Deposition testimony: a. Is given under oath. b. Requires both direct testimony and cross-examination testimony. c. Is taken during the discovery period of the case. d. Is given in lieu of trial testimony. e. Both a and c. ___ 83. Antitrust laws were enacted to: a. Hold down company profits. b. Put nasty executives in jail. c. Eliminate anti-competitive practices. d. All of the above. ___ 84. One of the most famous recent antitrust cases filed by the United States Justice Department was one against: a. Enron. b. WorldCom. c. Waste Management. d. Microsoft Corporation. e. All of the above. ___ 85. In antitrust cases, forensic accountants may be asked to evaluate whether or not a company: a. Engaged in predatory pricing. b. Sold its products for a loss. c. Engaged in any illegal accounting practices. d. Violated the Foreign Corrupt Practices Act. ___ 86. When evaluating whether or not a company engaged in predatory pricing, the forensic accountant must determine if the company: a. Sold its products or services below total cost. b. Ever incurred a loss during the period of time covered by the case. c. Engaged in any illegal activities. d. Sold its products or services below its average variable costs. e. None of the above is correct. ___ 87. The most powerful and useful method of cost behavior analysis available to the forensic accountant is: a. The high-low method. b. Regression-correlation analysis. c. The scatter-diagram method. d. The experienced employee method. ___ 88. In correlation analysis, the coefficient that describes the percentage of explained variance is: a. The correlation coefficient. b. The standard error of the estimate. c. The coefficient of nondetermination. d. The coefficient of determination. e. None of the above is correct. _____ 89. As a general rule it can be stated that: a. Association and causation are two terms that mean the same thing as regression-correlation analysis. b. Correlation shows association but does not prove causation. c. Regression analysis shows causation and correlation analysis proves causation. d. All of the above are correct. ___ 90. Qui tam suits are brought by: a. The government against violators of the Federal False Claims Act. b. A corporation against another corporation under the Federal False Claims Act. c. A private citizen on behalf of the federal government. d. Employers against former employees. ___ 91. A simple but potentially useful method of estimating cost behavior is the: a. Regression-correlation method. b. High-low method. c. Scatter-diagram method. d. By gut and by golly method. ___ 92. In a Federal False Claims Act case, if the court finds fraud: a. The corporate executives will go to jail. b. The damages that are found may be tripled. c. The whistle-blower may also be in trouble with the court. d. The whistle-blower will get nothing for his or her trouble. ___ 93. In a personal injury case, the time period covered by the damage period is typically: a. Determined by the circumstances of the case and the time period during which the victim is affected by the injury. b. Fixed by statutory law. c. Covered by the contract. d. Provided by various government publications. ___ 94. A financial expert witness must determine information about the degree of injury in personal injury cases. Therefore, financial experts must: a. Make as reliable an estimate of the victim's injuries as possible so that the damage estimates will be as accurate as possible. b. Ignore the extent of injuries of the victim and concentrate on financial issues. c. Rely on the expertise of others such as doctors so that the financial expert can incorporate that information into the damage model. d. Wait until the extent of the victim's injuries can be determined completely so that the case can proceed. ___ 95. Doctors and occupational therapists are often called upon in determining the degree of injury or disability in a personal injury case. In such instances, the financial expert witness should: a. Use the information provided in consultation with the attorney to arrive at the most accurate damage estimate possible. b. Make his or her own assessment of the degree of injury because the financial expert's reputation is at stake in rendering an opinion in the case. c. Prepare a wide range of possible damage estimates to take into account the many different views of the extent of the injuries to the victim. d. Ignore any information on the extent of the victim's injuries and just stick to the financial issues in the case. ___ 96. In a wrongful discharge case, common components of the damage measurement would include: a. Lost wages, employer's FICA payments, vacation and holiday pay, and health insurance. b. Lost wages, the value of lost household services, and employee education programs. c. Lost wages, health and life insurance payments by the employer, and overtime premium on scheduled weekly overtime and the value of lost household services. d. Lost wages, health insurance payments by the employer, employer paid educational programs, and employer paid recreation programs. ___ 97. The need to discount to their present value the calculated stream of damage amounts over a period of years covered by the damage period satisfies the concept of: a. The right of free trade. b. Proper rules of evidence. c. Wage growth rates. d. The time value of money. ___ 98. The time value of money refers to the concept that: a. Money is worth more in the future than it is today. b. Money is worth more today than it is in the future. c. Money has no intrinsic value and we must assign value to it. d. If you discount payments now, the total will be its value in the future. ___99. In determining damages in a wrongful discharge case, the concept of mitigation of wages refers to: a. A plaintiff's requirement to seek new employment which would mitigate or reduce the amount of damages caused by the wrongful discharge. b. The average wage earned in the geographic area in which the plaintiff worked. c. A legal term for fringe benefits. d. Does not apply to wrongful discharge cases. ___ 100. One reason for using a litigant's tax returns in preparing an expert's damage report is that: a. It is required by law. b. There can never be any errors in tax returns. c. Tax returns include a significant amount of financial data about a person or some other entity for a specified time period, and tax returns are signed documents filed with an agency of the federal government. d. There are no other reliable sources of financial information in personal damages cases