CFE Financial Statement Fraud 2

Question 1

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

Accepted Answer

Pressuring distributors to accept excess inventory to boost reported sales

Answer

Channel stuffing involves pressuring distributors or customers to accept more inventory than they need, artificially inflating sales figures.

Question 2

A company capitalizes routine maintenance costs as long-term assets rather than expensing them. This scheme primarily results in:

Accepted Answer

Overstated net income and overstated assets

Answer

Capitalizing expenses that should be expensed defers cost recognition, overstating both current net income and the asset base on the balance sheet.

Question 3

Under the ACFE's classification of financial statement fraud schemes, which category includes understating the allowance for doubtful accounts?

Accepted Answer

Improper asset valuations

Answer

Understating the allowance for doubtful accounts is an improper asset valuation scheme because it overstates the net realizable value of accounts receivable.

Question 4

Which analytical procedure would most likely detect fictitious sales recorded near a fiscal year-end?

Accepted Answer

Analyzing days sales outstanding (DSO) trends over time

Answer

A spike in DSO indicates that receivables are growing faster than sales, a red flag for fictitious revenues that are never collected.

Question 5

The 'cookie jar reserve' technique involves a company:

Accepted Answer

Overstating reserves in good years and releasing them in bad years to smooth earnings

Answer

Cookie jar reserves involve building up excess reserves during profitable periods and releasing them during poor periods to report artificially steady earnings.

Certified Fraud Examiner Exam Practice Test

Certified Fraud Examiner Exam Practice Test

CFE Financial Statement Fraud 2