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1 QUESTION 1 Financial statement fraud prompted such federal legislation as the Dodd-Frank Act and the Sarbanes-Oxley Act. True False 5 points 1 QUESTION 2 Maintaining accurate and complete accounting records, having effective separation of duties, providing comprehensive physical security and control of assets and other resources, and providing strong supervision of employees are all ways to help reduce the opportunity to commit financial statement fraud. True False 5 points 1 QUESTION 3 Establishing effective corporate governance with a proper "tone at the top", avoiding unrealistic financial goals, and ensuring that compensation plans are fair are all examples of ways to reduce pressures to commit financial fraud. True False 5 points 1 QUESTION 4 Ratio analysis is an analytical tool that could possibly help raise red flags that might require additional investigation into a possible fraud. True False 5 points 1 QUESTION 5 Incentives to commit fraud, opportunity to commit fraud, and attitudes to justify fraudulent behavior are part of the fraud triangle but are also referred to in this chapter as "fraud risk factors." True False 5 points 1 QUESTION 6 A subsequent event is an event that occurs after the close of the accounting period but should be disclosed with the financial statements if it is significant. True False 5 points 1 QUESTION 7 When "revenue expenses" are capitalized, net income will be overstated. This is a common way to manipulate earnings fraudulently. True False 5 points 1 QUESTION 8 A sale is made to a customer on terms 2/10 net 30 and the customer has very very poor credit. There is no evidence that the customer can make good on the payment however, delivery is made and there is a contract. This is a very large sale and should be booked. True False 5 points 1 QUESTION 9 The receivable turnover ratio tells you the number of days it takes to collect an accounts receivable. True False 5 points 1 QUESTION 10 The expression of the relationship or percentage of component part to a specific base such as cash as a percentage of total assets or accounts payable as a percentage of total liabilities is horizontal analysis. True False 5 points 1 QUESTION 11 Improper asset valuations usually involve the cash account, start-up costs, and fictitious assets. True False 5 points 1 QUESTION 12 Related party transactions are inherently fraudulent. True False 5 points 1 QUESTION 13 Expensing an on item only on the tax return that should be capitalized for tax purposes and for financial statements (such as the purchase of equipment which should be depreciated over its useful life and not expensed) will decrease net income. True False 5 points 1 QUESTION 14 You shouldn't report revenue if the shipment was sent to a seller's agent or to an installer as opposed to the ultimate purchaser as the delivery of product has not yet occurred. True False 5 points 1 QUESTION 15 Fraudulent financial statements can be used to sell stock or bonds to investors or to obtain loans and other forms of credit and to show financial results that improve management compensation and bonuses. True False 5 points 1 QUESTION 16 Intentional omission of disclosures or presentation of inadequate disclosures regarding accounting principles and related financial amounts is a type of financial statement fraud. True False 5 points 1 QUESTION 17 Financial statement fraud involves embezzlement. True False 5 points 1 QUESTION 18 A company has a signed contract for a credit sale of product to a customer but has not specified a price to be charged. The product has been delivered and therefore the company book the revenue. True False 5 points 1 QUESTION 19 Channel stuffing should be looked at with a very skeptical eye by auditors because the buyer does not take delivery. True False 5 points 1 QUESTION 20 Match the fraudulent financial statement action with the harm it does. Lots of financial statement fraud covered in the news. Public has great concerns over the financial data that it consumes. A. Adverse affect on economic growth. B. Undermining the reliability, quality, transparency, and integrity of the financial reporting process. C. Huge litigation cost and contingent liabilities. D. Erosion of public confidence and trust in the accounting profession. E. Jeopardizing the integrity and objectivity of the auditing profession. Executives encourage the manipulatoon of earnings so as to meet financial goals. Corporation and auditors are being brought to court as a result of class action suits brought by small and large investors who have been misled. The accountant's responsibilities also include providing information that is comparable so that investors can select among alternative investments. When that duty is not met and misleading information is released the efficiency of our capital markets suffers. Auditors should be watchdogs making sure that financial statements are free from material misstatements but sometimes auditors fail terribly in that role