ACFE Financial Statement Fraud 3

Question 1

Which liability omission scheme most directly understates a company's reported obligations?

Accepted Answer

Failing to accrue warranty liabilities

Answer

Failing to accrue known warranty obligations keeps liabilities artificially low and overstates net income by avoiding the related expense.

Question 2

In a bill-and-hold arrangement used fraudulently, the seller records revenue even though:

Accepted Answer

The goods have not been shipped and the buyer has no risk of ownership

Answer

Fraudulent bill-and-hold schemes book revenue while goods remain with the seller and the buyer bears no real risk, violating revenue recognition criteria.

Question 3

Which document is most useful for detecting fictitious vendor disbursements in a financial statement fraud scheme?

Accepted Answer

Vendor master file

Answer

The vendor master file reveals whether payees are legitimate, registered businesses with proper addresses, tax IDs, and contact information.

Question 4

A company discloses a contingent liability only in footnotes without accruing it, despite evidence the loss is probable and estimable. This violates:

Accepted Answer

ASC 450 contingency standards

Answer

ASC 450 (formerly SFAS 5) requires accrual of a loss contingency when it is probable that a liability has been incurred and the amount is reasonably estimable.

Question 5

Which ratio trend is most consistent with understated inventory write-downs used to inflate earnings?

Accepted Answer

Declining inventory turnover paired with rising gross margin

Answer

Keeping obsolete inventory on the books at inflated values artificially raises the gross margin while slowing inventory turns as stale goods linger.

(ACFE) Association of Certified Fraud Examiners Practice Test

(ACFE) Association of Certified Fraud Examiners Practice Test

ACFE Financial Statement Fraud 3