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| True/False: Understated revenues and understated net income are among the most common types of financial statement fraud. |
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| True/False: Two of the reasons revenue-related financial statement fraud is so prevalent are because revenue recognition can be highly subjective and because revenue is so easily manipulated. |
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| True/False: Performing a horizontal analysis of the statement of cash flows is an excellent way to proactively search for revenue-related financial statement fraud. |
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| True/False: The most common accounts manipulated when perpetrating financial statement fraud are revenues and/or accounts receivable. |
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| True/False: An increase in gross margin and an increase in number of days' sales in inventory could be an indication of inflated inventory fraud. |
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| True/False: A "sales discounts" amount that appears too low could be a fraud symptom. |
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| True/False: Comparing financial results and trends of a company with those of similar firms is an ineffective way to look for fraud symptoms. |
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| True/False: Focusing on changes in financial statements from period to period can help identify analytical fraud symptoms. |
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| True/False: Controls over inventory should be closely examined when searching for fraud symptoms. |
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| True/False: The gross profit (margin) ratio is calculated by dividing gross profit by cost of goods sold. |
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| True/False: Working capital turnover ratio is calculated by dividing average working capital by sales. |
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| True/False: Accounts receivable turnover is one of the most widely used ratios to analyze revenues and is a measure of the efficiency with which receivables are being collected. |
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| True/False: One of the most practical ways to look for analytical symptoms of fraud are to focus on changes and comparisons within and from the financial statements. |
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Definition
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Term
| The most common account(s) manipulated when perpetrating financial statement fraud are: |
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Definition
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Term
| Why might a company want to understate net income? |
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Definition
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Term
| Reported revenue and sales account balances that appear too high are examples of: |
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Definition
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Term
| Horizontal analysis is a method that: |
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Definition
| b. Examines percent changes in account balances from period to period. |
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| Adding fictitious receivables will usually result in a(n): |
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Definition
| d. Increase in the number of days in receivables. |
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| Comparing recorded amounts in the financial statements with the real-world assets they are supposed to represent would be most effective in detecting: |
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Definition
| a. Cash and inventory fraud. |
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Term
| Lifestyle symptoms are most effective with: |
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Term
| Which of the following is not an inventory-related documentary symptom? |
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Definition
| d. All of the above are inventory-related documentary symptoms. |
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| When looking for inventory fraud, an important question to ask is: |
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Definition
| d. All are important questions to ask. |
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Term
| Which of the following ratios would not generally be used to look for inventory and cost of goods sold related frauds. |
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Definition
| a. accounts payable turnover. |
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Term
| In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except: |
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Definition
| d. The auditor should consider all of the above. |
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Term
| Last-minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of: |
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| Accounts that can be manipulated in revenue fraud include all of the following except: |
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Term
| Which financial ratio is not useful in detecting revenue-related fraud? |
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Definition
| d. All of the above are useful revenue-related fraud detection ratios. |
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Term
| The asset turnover ratio measures: |
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Definition
| c. Sales that are generated with each dollar of the assets. |
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Term
| The most common way to overstate revenues is to: |
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Definition
| c. Create fictitious revenues. |
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Term
| Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers? |
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Definition
| d. Avoid recording of returned goods from customers. |
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Term
| All of the following ratios are useful in detecting large revenue frauds except: |
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Definition
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| Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except: |
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Definition
| c. Don't write off uncollectible receivables--Sales returns, Sales Discounts |
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Term
| Identify which ratio is correctly linked to the information it could reveal about the company's potential for revenue fraud. |
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Definition
| d. Operating profit margin--a dramatic decrease in this ratio could indicate fraud. |
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Term
Which of the following is a common way to perform financial-statement analysis while searching for revenue-related analytical symptoms?
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Definition
| d. Both a and b are common ways to perform within-statement analysis while searching for revenue-related analytical symptoms. |
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Term
| Primarily occurring at the end of the year in an attempt to inflate sales, the practice of shipping more items to distributors than they can sell in a reasonable time period is known as: |
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