CFC Forensic Accounting & Fraud 3

Question 1

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:

Accepted Answer

Premature revenue recognition fraud

Answer

A side agreement granting an unconditional right of return negates the transfer of risks and rewards, making early revenue recognition fraudulent under ASC 606.

Question 2

The 'expenditures method' of proving fraud is most appropriate when:

Accepted Answer

Cash expenditures exceed known income sources

Answer

The expenditures method is used when a subject spends more cash than their legitimate income can explain, inferring unreported income from excess spending.

Question 3

In forensic accounting, 'teeladering' refers to which type of fraud scheme?

Accepted Answer

Stealing cash receipts and covering them with subsequent customer payments

Answer

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.

Question 4

Which of the following is a primary red flag for a Ponzi scheme during a forensic investigation?

Accepted Answer

Returns paid from new investor funds rather than legitimate profits

Answer

In a Ponzi scheme, early investors are paid returns using funds from new investors rather than actual investment profits, which is unsustainable and fraudulent.

Question 5

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:

Accepted Answer

Asset-based approach using restated balance sheet values

Answer

When earnings are unreliable due to manipulation, the asset-based approach using independently verified or restated asset values provides a more defensible valuation.

(CFC) Certified Forensic Consultant Practice Test

(CFC) Certified Forensic Consultant Practice Test

CFC Forensic Accounting & Fraud 3