ACFE - Association of Certified Fraud Examiners Legal Elements of Fraud Questions and Answers

Question 1

Which of the following is an essential element required to prove a claim of common law fraud?

Accepted Answer

Justifiable reliance by the victim on the misrepresentation

Answer

A fiduciary relationship between the plaintiff and defendant

Answer

A written contract outlining the transaction

Answer

Proof of negligence on the part of the defendant

Question 2

A car salesman tells a potential buyer that a used car is "the best deal in town." The buyer purchases the car and later finds a similar car for a lower price elsewhere. Why would a fraud claim based on the salesman's statement likely fail?

Accepted Answer

The statement was an opinion, not a misrepresentation of a material fact.

Answer

The buyer suffered no financial damages.

Answer

The salesman did not have a duty to disclose competitor pricing.

Answer

The buyer did not sign a statement of reliance.

Question 3

In the context of legal fraud, what does the term 'scienter' refer to?

Accepted Answer

The perpetrator's knowledge of the statement's falsity and intent to deceive.

Answer

The financial loss suffered by the victim.

Answer

The causal link between the misrepresentation and the damages.

Answer

The victim's reasonable reliance on the false statement.

Question 4

A company's CFO knowingly inflates the value of inventory in the financial statements to secure a bank loan. The bank, relying on these false statements, approves the loan. The company later defaults. Which legal element of fraud is best demonstrated by the bank approving the loan based on the false financials?

Accepted Answer

Justifiable reliance

Answer

Material misrepresentation

Answer

Scienter

Answer

Damages

Question 5

For a misrepresentation to be considered an element of fraud, it must be about a 'material' fact. A fact is considered material if it:

Accepted Answer

Would likely influence the decision-making of a reasonable person.

Answer

Is communicated in writing rather than orally.

Answer

Is completely unknown to the public.

Answer

Results in a financial loss greater than a specific statutory amount.

Question 6

Which of the following scenarios lacks the essential element of 'damages' for a successful civil fraud claim?

Accepted Answer

An investor is told a company's stock will double, buys it, but sells it a week later for a small profit before the fraud is revealed.

Answer

A person invests in a company based on fraudulent financial statements and loses their entire investment.

Answer

A homeowner pays a contractor for expensive repairs that were never actually performed.

Answer

A buyer is induced by a false statement to purchase a worthless piece of land.