Forensic Accounting & Financial Fraud Investigation Flashcards

Which financial statement fraud scheme involves recording fictitious revenues to inflate a company's reported income?

Answer: Fictitious revenue scheme

Fictitious revenue schemes involve recording sales or revenue that never actually occurred in order to inflate reported financial results.

The Fraud Triangle, developed by criminologist Donald Cressey, identifies which three elements present in most fraud cases?

Answer: Pressure, Opportunity, and Rationalization

Cressey's Fraud Triangle consists of Pressure (the perceived need), Opportunity (the ability to commit fraud), and Rationalization (the mindset justifying the act).

In forensic accounting, what does the term 'benford's law' refer to?

Answer: A mathematical pattern predicting the frequency distribution of leading digits in natural datasets

Benford's Law describes the expected frequency of leading digits in naturally occurring datasets; deviations from this distribution can indicate data manipulation or fraud.

Which type of asset misappropriation scheme involves an employee manipulating accounts receivable records to conceal the theft of customer payments?

Answer: Lapping

Lapping is a scheme where an employee steals a customer payment and covers it by applying a subsequent customer's payment to the first account, creating a rotating shortage.

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

Answer: To estimate unreported income by comparing changes in net worth to known income sources

A net worth analysis compares increases in a subject's net worth against known legitimate income sources; unexplained increases suggest unreported income from fraud.

Which document examination technique involves comparing ink or paper characteristics to determine whether a document was altered after original signing?

Answer: Questioned document examination

Questioned document examination uses forensic techniques including ink dating, paper analysis, and handwriting comparison to detect alterations or forgeries.

Under ACFE standards, which category of occupational fraud typically results in the highest median loss to organizations?

Answer: Financial statement fraud

Financial statement fraud, while the least common category, causes the highest median loss because it typically involves large-scale manipulation of reported financial results.