Term
| Financial statement fraud |
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Definition
| A type of fraud where an individual or individuals purposefully misreport financial information about an organization in order to mislead those who read it |
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Term
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Definition
| Type of financial statement fraud in which an individual exaggerates a company's assets or revenues to meet certain objectives |
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Definition
| Type of financial statement fraud in which an individual minimizes a company's liabilities or expenses to meet certain objectives |
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Term
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Definition
| Recognition and measurement concepts that have evolved over time and have been codified by the Financial Accounting Standards Board and its predecessor organizations. The standards serve to guide regular business practices and deter financial statement fraud |
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Term
| Comparability and consistency |
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Definition
| Secondary qualitative characteristics that state that a company's information must be presented with the same consistent method from year to year, in order for it to be useful for analytical purposes in decision making |
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Term
| Relevance and reliability |
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Definition
| Primary qualitative characteristics of financial reports as they relate to usefulness for decision making. |
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Term
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Definition
| A "time period" assumption, which deems that economic activity be divided into specific time intervals, such as monthly, quarterly, and annually |
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Definition
| A standard for financial reporting that states that any material deviation from GAAP must be explained to the reader of the financial information |
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Term
| b) Senior management (p 268) |
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Definition
Which group of people is most likely to commit financial statement fraud?
a) Organized criminals
b) Senior management
c) Mid-level employees
d) Lower-level employees |
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Term
| d) all of the above are reasons that senior managers commit financial statement fraud (p 268) |
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Definition
Which of the following are reasons that senior managers commit financial statement fraud?
a) to conceal true business performance
b) to preserve personal status/control
c) to maintain personal income/wealth
d) all of the above are reasons that senior managers commit financial statement fraud |
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Term
| d) a), b), and c) (p 269) |
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Definition
Which of the following is not a reason for senior management to overstate business performance to meet certain objectives?
a) to increase the amount of financing available from asset-based loans
b) to meet personal performance criteria
c) to show a pattern of growth to support a planned securities offering or sale of the business
d) a), b), and c)
e) b) and c) only |
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Term
| d) all of the above are ways to commit financial statement fraud (p 270) |
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Definition
Financial Statement fraud is normally committed by:
a) playing the accounting system
b) beating the accounting system
c) going outside the accounting system
d) all of the above are ways to commit financial statement fraud |
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Term
| c) sales are recorded prematurely (p 270) |
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Definition
Which of the following is characteristic of "playing the accounting system"?
a) fictitious sales recorded to legitimate or phony customers
b) the fraudster produces financial statements using a personal computer
c) sales are recorded prematurely
d) a) and c) only |
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Term
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Definition
The assumption that advises that economic activity be divided into specific time intervals, such as monthly, quarterly, and annually
a) periodicity
b) monetary unit
c) economic entity
d) going concern |
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Term
| d) the historical or acquisition cost is the least reliable method for recording assets |
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Definition
Which of the following statements is false?
a) the net realizable value of an asset is the amount of money that would be realized upon the sale of the asset, less the costs to sell it
b) GAAP requires that assets be recorded on the financial statements at the price established by the exchange transaction
c) if inventory is worth less than its cost, the lower value must be reported on the financials
d) the historical or acquisition cost is the least reliable method for recording assets |
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Term
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Definition
The most common reason fraudulent statements are used is to increase the apparent prosperity of the organization in the eyes of potential and current investors.
a) True
b) False |
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Term
| f) all of the above are financial statements (p 276) |
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Definition
Which of the following is not considered to be a financial statement?
a) summary of operations
b) statement of operations by product lines
c) statement of cash receipts and disbursements
d) registration statement disclosures
e) a), b), and c) only
f) all of the above are financial statements |
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Term
| d) it developed standards and procedures related to listed company audit committees (p 277) |
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Definition
Which of the following is not in relation to the Sarbanes-Oxley Act of 2002?
a) it developed severe civil and criminal penalties for corporate wrongdoers
b) it established new protections for corporate whistleblowers
c) it created an independent regulatory framework for the accounting profession
d) it developed standards and procedures related to listed company audit committees |
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Term
| c) it consists of five persons, all of which are CPAs (p 281) |
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Definition
Which of the following statements is false about the PCAOB?
a) it enforces compliance with the Sarbanes-Oxley Act, the rules of the Board, professional standards, and securities laws relating to public company audits
b) it is appointed and overseen by the SEC
c) it consists of five persons, all of which are CPAs
d) only some members of the PCAOB are CPAs |
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Term
| b) Sarbanes-Oxley Act (p 283) |
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Definition
Which of the following requires CEOs and CFOs to take responsibility for their companies' financial statements.
a) PCAOB
b) Sarbanes-Oxley Act
c) SEC
d) none of the above |
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Term
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Definition
The conservatism constraint requires that, when there is any doubt, we should avoid overstating assets and income.
a) true
b) false |
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Term
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Definition
One of the most significant changes effected by the Sarbanes-Oxley Act is the requirement that the CEO and CFO of public companies personally certify annual and quarterly SEC filings.
a) true
b) false |
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Term
| a) true (p 284). They are only required to certify that to their knowledge the financials are accurate and not misleading |
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Definition
CEOs and CFOs are not required by the Sarbanes-Oxley Act to certify that the financials are accurate or that there is no misstatement
a) true
b) false |
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Term
| b) false (p 284). Auditors must report to the audit committee, not management |
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Definition
The Sarbanes-Oxley Act requires auditors to report directly to management; and the audit committee is responsible for resolving disputes between management and the auditors.
a) true
b) false |
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Term
| e) all of the above activities are prohibited (p 285) |
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Definition
Public accounting firms are prohibited from performing which of the following on behalf of their audit clients?
a) bookkeeping services
b) financial information systems design and implementation
c) actuarial services
d) internal audit outsource services
e) all of the above activities are prohibited |
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Term
| b) false (p 285). Prohibited by Sarbanes-Oxley |
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Definition
Public accounting firms can serve as a broker or dealer, investment advisor, or provide investment banking services for their audit clients
a) true
b) false |
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Term
| a) Financial statement frauds (p 290) |
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Definition
Which of the following types of occupational fraud was the least common in terms of frequency?
a) Financial statement frauds
b) Corruption
c) Asset Misappropriations
d) Conflicts of interest |
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Term
| c) concealed liabilities (most frequent) e) timing differences (least frequent) (p 291) |
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Definition
Which of the following types of financial statement frauds was committed most frequently? Least frequently?
a) Asset misappropriations
b) improper disclosures
c) concealed liabilities
d) fictitious revenues
e) timing differences |
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