Financial Statement Fraud Flashcards
7 cards from real CFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Statement Fraud flashcards as text
Which of the following best describes 'channel stuffing' as a financial statement fraud technique?
Answer: Pressuring distributors to accept excess inventory to boost reported sales
Channel stuffing involves pressuring distributors or customers to accept more inventory than they need, artificially inflating sales figures.
A company capitalizes routine maintenance costs as long-term assets rather than expensing them. This scheme primarily results in:
Answer: Overstated net income and overstated assets
Capitalizing expenses that should be expensed defers cost recognition, overstating both current net income and the asset base on the balance sheet.
Under the ACFE's classification of financial statement fraud schemes, which category includes understating the allowance for doubtful accounts?
Answer: Improper asset valuations
Understating the allowance for doubtful accounts is an improper asset valuation scheme because it overstates the net realizable value of accounts receivable.
Which analytical procedure would most likely detect fictitious sales recorded near a fiscal year-end?
Answer: Analyzing days sales outstanding (DSO) trends over time
A spike in DSO indicates that receivables are growing faster than sales, a red flag for fictitious revenues that are never collected.
The 'cookie jar reserve' technique involves a company:
Answer: Overstating reserves in good years and releasing them in bad years to smooth earnings
Cookie jar reserves involve building up excess reserves during profitable periods and releasing them during poor periods to report artificially steady earnings.
A company records a sale at the time a contract is signed, even though delivery won't occur for six months and the buyer has a full right of return. This is an example of:
Answer: Premature revenue recognition
Recording revenue before delivery and before the right of return expires violates revenue recognition principles and constitutes premature recognition.
Which document would an examiner most likely review to detect the understatement of accounts payable near fiscal year-end?
Answer: Subsequent disbursements after year-end
Reviewing cash disbursements made shortly after year-end can reveal invoices that existed at year-end but were not recorded, indicating understated payables.