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
In the context of financial fraud investigations, 'chain of custody' refers to:
Answer: The documented sequence of possession and control of evidence
Maintaining chain of custody ensures evidence integrity by documenting who collected, handled, and transferred evidence, which is critical for legal admissibility.
Which type of fraud involves a company purchasing its own products through an intermediary to create artificial revenue?
Answer: Round-tripping
Round-tripping creates the appearance of revenue by selling assets or products to a counterparty who then sells them back, with no real economic substance.
When conducting a forensic investigation, interviewing a subject using the 'cognitive interview technique' is designed to:
Answer: Enhance memory retrieval without leading the subject
Cognitive interviewing uses memory-enhancement techniques like mental reinstatement of context to elicit more complete and accurate information from witnesses.
A forensic accountant reviewing bank statements notices multiple checks just below the approval threshold. This pattern is known as:
Answer: Threshold avoidance or 'just below' scheme
Deliberately keeping transactions just below authorization or reporting thresholds to avoid scrutiny is a common fraud technique called threshold avoidance.
Which financial statement fraud scheme involves manipulating the classification of operating expenses as capital expenditures?
Answer: Expense capitalization fraud
Capitalizing expenses that should be expensed immediately inflates current period earnings and overstates assets, as seen in the WorldCom scandal.
The 'fraud triangle' element of 'rationalization' refers to:
Answer: The mental justification a fraudster uses to excuse their misconduct
Rationalization is the self-justification that allows a perpetrator to reconcile their fraudulent behavior with their self-image, such as believing they are 'just borrowing' the money.
Which procedure best addresses the risk of accounts payable fraud involving fictitious invoices?
Answer: Confirming a sample of vendor balances directly with suppliers and verifying vendor master file changes
Direct vendor confirmation and scrutinizing changes to the vendor master file help identify fraudulent vendors and unauthorized payment diversions.