CFE Financial Statement Fraud 4

Question 1

Under ASC 606, revenue is recognized when:

Accepted Answer

Performance obligations are satisfied

Answer

ASC 606 requires revenue recognition when (or as) performance obligations are satisfied by transferring control of promised goods or services to customers.

Question 2

Which of the following best describes the 'Ponzi scheme' impact on financial statements?

Accepted Answer

Assets are overstated because investor funds are recorded as operating revenue

Answer

Ponzi scheme operators typically misrepresent financial statements by recording investor deposits as revenue, overstating assets and hiding the true liability to investors.

Question 3

A company uses bill-and-hold arrangements to accelerate revenue. For such revenue to be legitimate under U.S. GAAP, which condition must be met?

Accepted Answer

The buyer must have requested the arrangement and have a genuine business reason for it

Answer

Under U.S. GAAP and ASC 606, bill-and-hold revenue is only appropriate if the customer has requested it for a substantive business reason and bears the risks of ownership.

Question 4

Which of the following is a primary financial statement red flag indicating potential asset overstatement through capitalization fraud?

Accepted Answer

Capital expenditures growing significantly faster than revenue or industry peers

Answer

When capital expenditures grow much faster than revenue or industry norms, it may indicate that operating expenses are being improperly capitalized to inflate assets.

Question 5

In a financial statement fraud investigation, which of the following would be the LEAST useful source of evidence when evaluating revenue recognition?

Accepted Answer

The company's own accounts receivable subsidiary ledger without corroboration

Answer

The company's own accounts receivable ledger is an internal record that can be manipulated by fraudsters, making it the least reliable source without independent corroboration.

Certified Fraud Examiner Exam Practice Test

Certified Fraud Examiner Exam Practice Test

CFE Financial Statement Fraud 4