CFA Financial Audit & Forensic Trails 3

Question 1

Which concept describes the practice of recording revenue before it is earned to inflate financial results?

Accepted Answer

Premature revenue recognition

Answer

Premature revenue recognition records sales before the earnings process is complete, violating matching principles and inflating reported income.

Question 2

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:

Accepted Answer

Understating bad debt expense to inflate net income

Answer

Declining reserves despite worsening receivable aging is a classic sign of manipulating bad debt expense to artificially boost earnings.

Question 3

The term 'lapping' in fraud refers to:

Accepted Answer

Concealing cash theft by applying later receipts to earlier accounts

Answer

Lapping is a cash embezzlement scheme where funds stolen from one customer's account are covered by subsequent payments from other customers.

Question 4

Which forensic technique involves analyzing patterns in electronic metadata such as file creation times, modification dates, and author names?

Accepted Answer

Digital forensics and metadata examination

Answer

Examining document metadata can reveal whether records were backdated, altered after creation, or created by someone other than the claimed author.

Question 5

Under the AICPA's SAS No. 99, auditors are required to:

Accepted Answer

Consider fraud risks and design audit procedures to address them

Answer

SAS No. 99 requires auditors to identify and assess fraud risks and tailor audit procedures accordingly, including brainstorming sessions among audit team members.

CFA Practice Test

CFA Practice Test

CFA Financial Audit & Forensic Trails 3