Forensic Accounting & Fraud Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Forensic Accounting & Fraud flashcards as text
A company records a sale and immediately enters into a side agreement granting the buyer an unconditional right of return. Under US GAAP, this transaction most likely represents:
Answer: Premature revenue recognition fraud
A side agreement granting an unconditional right of return negates the transfer of risks and rewards, making early revenue recognition fraudulent under ASC 606.
The 'expenditures method' of proving fraud is most appropriate when:
Answer: Cash expenditures exceed known income sources
The expenditures method is used when a subject spends more cash than their legitimate income can explain, inferring unreported income from excess spending.
In forensic accounting, 'teeladering' refers to which type of fraud scheme?
Answer: Stealing cash receipts and covering them with subsequent customer payments
Lapping (teeladering) involves stealing a customer's payment and covering it with the next customer's payment, creating a rotating shortfall that conceals the theft.
Which of the following is a primary red flag for a Ponzi scheme during a forensic investigation?
Answer: Returns paid from new investor funds rather than legitimate profits
In a Ponzi scheme, early investors are paid returns using funds from new investors rather than actual investment profits, which is unsustainable and fraudulent.
A forensic accountant is asked to value a business in a fraud case where financial statements have been manipulated. The most appropriate valuation approach given unreliable earnings is:
Answer: Asset-based approach using restated balance sheet values
When earnings are unreliable due to manipulation, the asset-based approach using independently verified or restated asset values provides a more defensible valuation.
Under FinCEN regulations, which financial institution employees are required to file a Suspicious Activity Report (SAR)?
Answer: Designated compliance staff after internal review
SARs must be filed by the institution through its compliance function after internal review identifies transactions meeting BSA suspicious activity thresholds.
When interviewing a fraud suspect, the forensic accountant should generally present the most incriminating evidence:
Answer: Near the end of the interview
Presenting the strongest evidence late in the interview allows the investigator to first establish rapport, gather baseline responses, and prevent the subject from tailoring early denials.