CFA Financial Investigations & Data Analysis 2

Question 1

Which analytical technique involves comparing a company's financial ratios to industry benchmarks to detect anomalies?

Accepted Answer

Ratio analysis

Answer

Ratio analysis compares a company's financial metrics against industry norms to flag unusual deviations that may indicate fraud.

Question 2

In a fraud investigation, what does the term 'tracing' refer to?

Accepted Answer

Following funds through financial records to their source or destination

Answer

Tracing follows the movement of funds through financial records to establish where money came from or where it went.

Question 3

Which data analysis method detects fraud by looking for numbers that appear too frequently or infrequently based on Benford's Law?

Accepted Answer

Digital analysis

Answer

Digital analysis applies Benford's Law to test whether the frequency distribution of leading digits in data matches expected patterns.

Question 4

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?

Accepted Answer

Billing fraud with fictitious invoices

Answer

Round-number invoices are a classic red flag for fictitious billing schemes where fraudsters create fake invoices to divert company funds.

Question 5

What is the primary purpose of a net worth analysis in a fraud investigation?

Accepted Answer

To detect unexplained increases in a suspect's wealth inconsistent with known income

Answer

Net worth analysis compares changes in a suspect's assets and liabilities over time against known income sources to identify unexplained wealth.

CFA Practice Test

CFA Practice Test

CFA Financial Investigations & Data Analysis 2