ACFE Financial Statement Fraud 5

Question 1

Which type of financial statement fraud involves management using aggressive estimates to overstate pension plan assets?

Accepted Answer

Improper asset valuation

Answer

Overstating pension asset returns or discount rates is an improper asset valuation scheme that reduces reported pension obligations and improves reported earnings.

Question 2

In assessing financial statement fraud risk, which combination of factors most elevates concern?

Accepted Answer

Rapid revenue growth, management override of controls, and performance-based bonuses

Answer

Rapid growth pressure, unchecked management override, and incentive-heavy pay structures are classic red flags that align all three fraud triangle elements.

Question 3

A forensic accountant notices that Days Sales Outstanding (DSO) has risen sharply while revenue also increased. The most suspicious explanation is:

Accepted Answer

The company recorded fictitious sales that are not being collected

Answer

Fictitious revenue produces receivables that never convert to cash, causing DSO to balloon even as reported revenues climb.

Question 4

Which disclosure requirement under SEC Regulation S-K is most relevant to detecting executive-level financial statement fraud?

Accepted Answer

Item 303 — Management's Discussion and Analysis (MD&A)

Answer

MD&A (Item 303) requires management to discuss results of operations, liquidity, and known trends; fraudulent statements in the MD&A can directly mask underlying financial manipulation.

Question 5

Which internal control is most effective at preventing top-management financial statement fraud?

Accepted Answer

An independent, empowered audit committee with financial expertise

Answer

Because top management can override many operational controls, an independent audit committee that oversees financial reporting and the external auditor is the strongest check.

(ACFE) Association of Certified Fraud Examiners Practice Test

(ACFE) Association of Certified Fraud Examiners Practice Test

ACFE Financial Statement Fraud 5