Detecting Accounting Fraud Before It’s Too Late

Detecting Accounting Fraud

Before It’s Too Late

#7755EXAM MATERIAL

7755 Final Exam • 1

DETECTING ACCOUNTING FRAUD BEFORE IT’S TOO LATE (COURSE #7755)

COURSE DESCRIPTION

This course offers a comprehensive guide to corporate fraud and manipulation. It is filled with facts, insights, and helpful suggestions for understanding and preventing corporate malfeasance before it takes hold in an organization. It contains an exploration of the warning signs that accounting fraud may be taking place and details some proven techniques for identifying, preventing, and addressing fraud. You’ll find descriptions of both legal and illegal practices, as well as explanations of the role corporate governance plays in mitigating these fraudulent practices. No prerequisites. Course level: Basic. Course #7755 – 6 CPE hours.

LEARNING ASSIGNMENTS AND OBJECTIVES

As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment.

ASSIGNMENT 1: SUBJECTFraud and Accounting ManipulationsAccounting Fraud: An Ancient PracticeProblems with Legislation and Those Involved in the Financial InformationWhy are Accounts Manipulated?

Study the course materials from pages 1 to 54Complete the review questions at the end of each chapterAnswer the exam questions 1 to 11

Objectives:

• To recognize different types of business fraud• To recognize how fraud has been a part of history• To identify the institutions involved with regulating accounting standards• To recognize the components that can lead to fraud

2 • 7755 Final Exam

ASSIGNMENT 2: SUBJECTLegal Accounting ManipulationsIllegal Accounting ManipulationsEthical Considerations and Economic Consequences of ManipulationsPersonal Warning Signs


Objectives:

• To identify factors involved in legal manipulations• To recognize where and when illegal accounting can occur• To recognize the consequences for those involved with committing fraud• To recognize the clear warning signs of fraud

ASSIGNMENT 3: SUBJECTOrganizational Warning Signs and Nonfinancial IndicatorsWarning Signs in the AccountsSome Suggestions to Improve the Current Situation


Objectives:

• To identify the motives behind corporate fraud• To recognize the warning signs of fraud on an income statement• To identify some suggested regulations that could curb accounting fraud

ASSIGNMENT 4:• Complete the Answer Sheet and Course Evaluation and submit to PES


NOTICE

This course and test have been adapted from supplemental materials and uses the materials entitled Detecting Accounting Fraud Before it’s too Late © 2019 by Oriol Amat. Displayed by permission of the publisher, John Wiley & Sons, Inc., Hoboken, New Jersey.

Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2019

Program Publication Date 6/17/2019

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DETECTING ACCOUNTING FRAUD BEFORE IT’S TOO LATE (COURSE #7755)

EXAM INFORMATION

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within ONE YEAR from the date of purchase.

TEST FORMAT: The following final exam, consisting of 30 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test.

LICENSE RENEWAL INFORMATION: The Detecting Accounting Fraud Before It’s Too Late course (#7755) qualifies for 6 CPE hours.

PROCESSING: You must score 70% or better to pass. If you mail or fax your exam, when you pass, your Certificate of Completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this. When completing your exam online, grading is instantaneous. Upon achieving a passing score, the completion certificate is immediately available in your account under “My Completed CPE.” Please note: failed exams may be retaken. Per NASBA and AICPA guidelines, missed questions cannot be indicated until after you pass.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. If mailing or faxing, make sure to fill out your Answer Sheet completely prior to submitting it.

• ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. Once all answers have been selected, click the “Submit/Grade Answers” button at the bottom of the page for instant grading and certification. If you do not see the exam listed, click on “My CPE in Progress.” Click on the “Add Exam to Account” button and follow the instructions.

• MAIL – Your exam will be graded and your certificate of completion mailed to you within one business day. Your certificate will be dated according to the postmark date. Please mail your Answer Sheet to:

Professional Education Services, LP4208 Douglas Blvd., Ste 50

Granite Bay, CA 95746

• FAX – Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) 791-4099.

THANK YOU FOR USING PROFESSIONAL EDUCATION SERVICES.


DETECTING ACCOUNTING FRAUD BEFORE IT’S TOO LATE (COURSE #7755) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. A PricewaterhouseCoopers global survey identified which of the following as the most frequent type of business fraud:

A. cybercrimeB. theft of assetsC. corruptionD. accounting manipulation

2. According to the Association of Certified Fraud Examiners (ACFE), the different types of business frauds cost companies around ____________ of their sales figure.

A. three percentB. five percentC. seven percentD. nine percent

3. Which of the following terms is used to refer to manipulations done to make the figures at the end of the year the best possible:

A. window dressingB. trojan horseC. big bathD. income smoothing

4. Around 400 BC, which of the following civilizations used a rudimentary form of auditing:

A. ancient RomeB. ancient GreeceC. ancient ChinaD. ancient Egypt

5. Which of the following is considered one of the first multinational companies in the world:

A. Coca-ColaB. the Spanish Expeditionary CompanyC. the Dutch East India CompanyD. the British Tea Consortium

6. Which of the following events led to the obligation to audit accounts and to provide the audit report:

A. the collapse of the Glasgow BankB. the stock market crash of 1929C. the McKesson & Robbins’ scandalD. the Bar Chris Construction scandal

7. Which of the following controls the quality of the companies that audit listed companies:

A. the Financial Accounting Standards Board (FASB)

B. the Governmental Accounting Standards Board (GASB)

C. the Public Company Accounting Oversight Board (PCAOB)

D. the Auditing Standards Board (ASB)

8. The Enron scandal led to the demise of which of the following auditing companies:

A. Arthur AndersenB. KPMGC. Ernst & YoungD. Deloitte & Touche


9. Which of the following is correct regarding rating agencies:

A. the opinions of rating agencies are foolproofB. rating agencies are becoming less and less

necessary over timeC. rating agencies are an example of an oligopolyD. Standard & Poors is the leading rating agency

in the world, accounting for 75 percent of all ratings

10. Which of the following is not a component of the Triangle of Fraud:

A. rationalizationB. motivationC. opportunityD. the fraudster’s profile

11. CEOs and/or general directors intervene in which of the following percentages of accounting frauds:

A. 40 percentB. 50 percentC. 60 percentD. 70 percent

12. Which of the following is identified by the author as leading to wide margins of accounting flexibility:

A. the ability for companies to change accounting criteria used from one year to another

B. the use of subjective estimates about future events when accounting for transactions

C. no guidelines allowing for quantifying when a topic is important or not

D. all of the above

13. Which of the following went bankrupt in 2008 after a $50 million accounting scandal became known:

A. Lehman BrothersB. Goldman SachsC. Morgan StanleyD. Merrill Lynch

14. All of the following are legal manipulations used to increase tangible fixed assets except:

A. valuate assets higher in a mergerB. amortize moreC. increase the work done for fixed assetsD. apply the revalued value rather than the

historical cost

15. Which of the following is considered by the author to be one of the most widespread accounting frauds:

A. the concealment of assetsB. the inflation of debtC. inflated expensesD. the posting of fictitious sales

16. Which of the following countries is often the location of the European headquarters for multinational companies like Apple, Facebook, and Amazon:

A. Ireland B. FranceC. BelgiumD. Sweden

17. Which of the following is an illegal accounting manipulation used to reduce noncurrent assets:

A. amortize noncurrent assets more than prescribed by regulation

B. increase fictitiously the value of noncurrent assets

C. incorporate inexistent assets such as goodwill

D. activate expenses fraudulently


18. Which of the following is correct regarding accounting manipulation and fraud:

A. all account manipulation is considered fraudB. legal accounting manipulation is an indicator

of corporate troublesC. unlike fraud, legal accounting manipulation

does not intend to misleadD. legal accounting manipulations are generally

considered both ethical and acceptable

19. Which of the following accounting manipulations was used the most by the British supermarket chain Tesco from 2011 to 2014 in order to inflate profits:

A. creating fictitious incomeB. fraudulently reducing defaulting customersC. artificially overvaluing inventoryD. fraudulently reducing depreciations

20. According to Olcina and ACFE, which of the following is the leading cause of fraud discovery:

A. discovered by the controls of the company’s management

B. discovered after a tipoffC. discovered through internal auditD. discovered by chance

21. Which of the following is generally true regarding the people that commit accounting fraud:

A. statistically, they are more likely to be womenB. statistically, they are more likely to be

between 44 and 63 years oldC. statistically, they are more likely to work in

the affected companyD. all of the above

22. According to Lillian Glass, all of the following are signs to alert people that an individual is lying except:

A. they touch their mouths when they talkB. they move their feetC. they blink moreD. they breathe more deeply

23. According to PricewaterhouseCoopers, which of the following is the main reason that managers commit frauds in companies:

A. to curry favorB. to receive a promotionC. for personal financial gainD. to receive a bonus

24. All of the following are sectors and countries that are more prone to accounting frauds except:

A. low-volatility sectors where technology’s role is limited

B. companies that operate in tax havensC. companies that receive government

subsidies to cover lossesD. concession companies, where prices are set

by the government

25. Which of the following is a sign of potential fraud that can be found on the income statement:

A. noncurrent assets kept for saleB. excess accounting notes at the end of the

yearC. assets for deferred tax for high amountsD. significant sales to companies that do not

make much sense based on the activity they perform


26. When calculating the ________________, a value greater than .10 is a warning sign of possible manipulations.

A. ratio of difference between profit and cashB. ratio of difference between cash flow and

cash flow generated by operationsC. liquidity ratioD. z-score formula

27. Which of the following is not a profitability and margin ratio:

A. net profit / equityB. cost of materials / salesC. earnings before interest and taxes / assetsD. liabilities / assets

28. Which of the following is not one of the four ratios identified that enables the detection of companies with a higher probability of having manipulated their accounts:

A. index of debt to assetsB. index of customers to inventoryC. index of inventory to cost of salesD. index of depreciations compared to property,

plant, and equipment

29. Which of the following is represented by the 80 in the 10-80-10 rule used by criminologists:

A. the percentage of people that will never commit frauds

B. the percentage of people that will always try and commit fraud, regardless of how hard it is

C. the percentage of people that will not commit fraud due to strong regulations, controls, and punishments

D. the percentage of people that have committed fraud in their lifetime

30. Which of the following is an author recommendation for improving regulations in order to combat accounting fraud:

A. reduce mandatory informationB. limit operations with tax havensC. reduce the flexibility of the accounting

standardsD. all of the above

Congratulations –

you’ve completed the exam!


DETECTING ACCOUNTING FRAUD BEFORE IT’S TOO LATE #7755 (6 CPE HOURS) ANSWER SHEET (6/19)

IMPORTANT NOTE: For certification, this answer sheet must be completed and submitted to PES for grading within ONE YEAR from the date of purchase. Please use BLACK INK and PRINT for quicker processing – thank you.

Full Name (as it appears on your license) _______________________________________________________________________________

Address (□ Home □ Work ) ___________________________________________________________________________________

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License Number ______________________ State _______ Exp Date: ____/____ Are you a: □ CPA □ CFP □ EA (check all that apply)

PTIN Number (if applicable) ______________________________________________________________________________________

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PLEASE INDICATE YOUR ANSWER BY FILLING IN THE APPROPRIATE CIRCLE

Please complete the attached course evaluation - your opinion is extremely valuable!


DETECTING ACCOUNTING FRAUD BEFORE IT’S TOO LATE #7755 COURSE EVALUATION

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Detecting Accounting Fraud Before It’s Too Late

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