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 a financial statement fraud investigation, 'channel stuffing' most commonly affects which account?
Answer: Accounts receivable and revenue
Channel stuffing involves pushing excess product to distributors to prematurely record revenue, inflating both sales and accounts receivable.
Which of the following best describes 'skimming' in occupational fraud?
Answer: Intercepting cash before it is entered into the accounting records
Skimming is an off-book scheme where cash is stolen before it is recorded, making it the hardest type of cash theft to detect through traditional records.
A forensic accountant is asked to perform a 'net worth analysis' on a fraud suspect. This technique involves:
Answer: Comparing changes in personal net worth to known legitimate income sources
Net worth analysis uncovers unexplained wealth by measuring whether a person's asset growth exceeds their reported income, suggesting undisclosed proceeds.
Which financial audit standard specifically requires the auditor to communicate fraud findings to those charged with governance?
Answer: AU-C Section 240
AU-C Section 240 requires auditors who identify or suspect fraud to communicate findings to the appropriate level of management and those charged with governance.
The use of 'data analytics' in forensic accounting primarily helps investigators:
Answer: Identify anomalies and patterns across large transaction datasets that manual review would miss
Data analytics tools allow forensic accountants to test entire populations of transactions for outliers, duplicates, and suspicious patterns far more efficiently than sampling.
When a suspect destroys evidence during an active investigation, this action is legally known as:
Answer: Spoliation of evidence
Spoliation refers to the intentional destruction or alteration of evidence, which can result in adverse inference instructions, sanctions, or criminal obstruction charges.
Which element must a forensic accountant establish to prove financial statement fraud in a civil lawsuit?
Answer: Materiality, scienter, reliance, and damages
To prevail in securities fraud civil litigation, plaintiffs must prove a material misstatement, scienter (intent or recklessness), reliance on the statement, and resulting damages.