CFC Forensic Accounting & Fraud 2

Question 1

Which financial ratio is most useful in detecting revenue overstatement through fictitious sales?

Accepted Answer

Days sales outstanding (DSO)

Answer

An abnormally low or declining DSO relative to peers may indicate fictitious sales that are never actually collected.

Question 2

In a check tampering scheme, an employee intercepts and cashes a company check made out to a vendor. This is best described as:

Accepted Answer

Forged endorsement scheme

Answer

A forged endorsement scheme involves stealing a legitimately issued check and forging the payee's endorsement to divert funds.

Question 3

The 'net worth method' used in fraud investigations estimates unreported income by:

Accepted Answer

Calculating the increase in net worth plus non-deductible living expenses

Answer

The net worth method computes the change in net worth during a period and adds known living expenses to estimate total income, revealing unreported amounts.

Question 4

Which of the following best describes 'channel stuffing' as a form of financial statement fraud?

Accepted Answer

Shipping excess product to distributors to recognize revenue prematurely

Answer

Channel stuffing involves pushing excess inventory onto distributors near period-end to book revenue that will likely be returned, artificially inflating reported sales.

Question 5

A forensic accountant discovers that a company's cost of goods sold margin has decreased significantly while revenue remained flat. This pattern most likely suggests:

Accepted Answer

Inventory theft or shrinkage

Answer

A declining gross margin with stable revenue often signals inventory shrinkage, theft, or unrecorded cost of goods sold.

(CFC) Certified Forensic Consultant Practice Test

(CFC) Certified Forensic Consultant Practice Test

CFC Forensic Accounting & Fraud 2