Financial Investigations & Data Analysis Flashcards
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Read the first 7 Financial Investigations & Data Analysis flashcards as text
Which analytical technique involves comparing a company's financial ratios to industry benchmarks to detect anomalies?
Answer: Ratio analysis
Ratio analysis compares a company's financial metrics against industry norms to flag unusual deviations that may indicate fraud.
In a fraud investigation, what does the term 'tracing' refer to?
Answer: Following funds through financial records to their source or destination
Tracing follows the movement of funds through financial records to establish where money came from or where it went.
Which data analysis method detects fraud by looking for numbers that appear too frequently or infrequently based on Benford's Law?
Answer: Digital analysis
Digital analysis applies Benford's Law to test whether the frequency distribution of leading digits in data matches expected patterns.
A fraud investigator notices that a vendor's invoices always end in round numbers. This is best described as a red flag for which type of fraud scheme?
Answer: Billing fraud with fictitious invoices
Round-number invoices are a classic red flag for fictitious billing schemes where fraudsters create fake invoices to divert company funds.
What is the primary purpose of a net worth analysis in a fraud investigation?
Answer: To detect unexplained increases in a suspect's wealth inconsistent with known income
Net worth analysis compares changes in a suspect's assets and liabilities over time against known income sources to identify unexplained wealth.
During a financial investigation, which type of subpoena compels a third party to produce documents and records?
Answer: Subpoena duces tecum
A subpoena duces tecum requires a third party to produce specified documents, records, or other tangible items for the investigation.
Which financial statement analysis technique expresses each line item as a percentage of a base figure within the same period?
Answer: Vertical analysis
Vertical analysis expresses each financial statement item as a percentage of a base figure (e.g., total assets or net sales) within the same reporting period.