Financial Audit & Forensic Trails Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Audit & Forensic Trails flashcards as text
Which concept describes the practice of recording revenue before it is earned to inflate financial results?
Answer: Premature revenue recognition
Premature revenue recognition records sales before the earnings process is complete, violating matching principles and inflating reported income.
A forensic accountant discovers that a company's allowance for doubtful accounts has decreased significantly while accounts receivable days outstanding increased. This pattern most likely suggests:
Answer: Understating bad debt expense to inflate net income
Declining reserves despite worsening receivable aging is a classic sign of manipulating bad debt expense to artificially boost earnings.
The term 'lapping' in fraud refers to:
Answer: Concealing cash theft by applying later receipts to earlier accounts
Lapping is a cash embezzlement scheme where funds stolen from one customer's account are covered by subsequent payments from other customers.
Which forensic technique involves analyzing patterns in electronic metadata such as file creation times, modification dates, and author names?
Answer: Digital forensics and metadata examination
Examining document metadata can reveal whether records were backdated, altered after creation, or created by someone other than the claimed author.
Under the AICPA's SAS No. 99, auditors are required to:
Answer: Consider fraud risks and design audit procedures to address them
SAS No. 99 requires auditors to identify and assess fraud risks and tailor audit procedures accordingly, including brainstorming sessions among audit team members.
A 'shell company' is most commonly used in fraud schemes to:
Answer: Create fictitious vendors or hide asset transfers and money flows
Shell companies with no real operations are frequently used to create fake vendors, launder proceeds, or conceal related-party transactions.
Which ratio would a forensic accountant most likely use to detect potential inventory fraud?
Answer: Inventory turnover ratio compared to industry benchmarks
An abnormally low inventory turnover compared to industry peers may indicate overstated inventory balances used to inflate assets and reduce cost of goods sold.