Financial Statement Fraud 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 Statement Fraud flashcards as text
Which of the following best describes financial statement fraud?
Answer: Intentional misrepresentation or omission of material information in financial reports
Financial statement fraud involves the deliberate misrepresentation or omission of material facts in financial reports to mislead users such as investors and creditors.
The Sarbanes-Oxley Act (SOX) Section 302 requires corporate officers to:
Answer: Certify the accuracy and completeness of their company's financial reports
SOX Section 302 mandates that CEOs and CFOs personally certify the accuracy and completeness of financial statements, increasing executive accountability.
Which financial statement manipulation technique involves recording revenue before it is actually earned?
Answer: Premature revenue recognition
Premature revenue recognition records revenue before the earnings process is complete, overstating income in the current period.
What is 'channel stuffing' in the context of financial statement fraud?
Answer: Shipping excess inventory to distributors to inflate reported sales
Channel stuffing involves pushing excessive product to distributors near period-end to inflate sales figures, with the expectation that goods will be returned.
Which ratio is most useful for detecting potential revenue overstatement in a company's financial statements?
Answer: Days Sales Outstanding (DSO)
A rising Days Sales Outstanding (DSO) can indicate that reported revenue is not being collected, a common signal of premature or fictitious revenue recognition.
In the Beneish M-Score model, which index primarily measures changes in revenue relative to receivables?
Answer: Days Sales in Receivables Index (DSRI)
The Days Sales in Receivables Index (DSRI) measures whether receivables are growing faster than revenues, which can signal fraudulent revenue inflation.
What is a 'cookie jar reserve' scheme?
Answer: Overstating reserves in good years to release them later and smooth earnings
Cookie jar reserves involve building up excess reserves during profitable periods and releasing them during downturns to artificially smooth reported earnings.