CIA CIA Fraud Examination & Prevention 2 — Questions and Answers
Question 1: Under the Sarbanes-Oxley Act (SOX), which section requires management to assess and report on the effectiveness of internal controls over financial reporting?
- Section 302
- Section 404 (Correct answer)
- Section 806
- Section 906
Correct answer: Section 404
SOX Section 404 requires management to include in the annual report an assessment of the effectiveness of internal controls over financial reporting.
Question 2: Which fraud detection method relies on the statistical principle that in naturally occurring datasets, leading digits follow a predictable distribution?
- Stratified sampling
- Benford's Law (Correct answer)
- Regression testing
- Parallel simulation
Correct answer: Benford's Law
Benford's Law states that the digit 1 appears as the leading digit roughly 30% of the time in natural datasets, and deviations may indicate manipulation.
Question 3: An employee who steals cash before it is recorded in the accounting system is committing which type of fraud?
- Lapping
- Skimming (Correct answer)
- Kiting
- Embezzlement via journal entry
Correct answer: Skimming
Skimming is an off-book fraud where cash is stolen before it is ever entered into the accounting records, making it harder to detect through normal reconciliations.
Question 4: Which element of the fraud diamond theory was added to expand upon the original fraud triangle?
- Motive
- Capability (Correct answer)
- Rationalization
- Pressure
Correct answer: Capability
The fraud diamond adds 'capability' to the original triangle's three elements, recognizing that the perpetrator must also have the skill and position to commit fraud.
Question 5: Which of the following is the most common initial detection method for occupational fraud according to the ACFE?
- External audit
- Internal audit
- Tips (Correct answer)
- Management review
Correct answer: Tips
According to the ACFE Report to the Nations, tips are the most common initial detection method, underscoring the importance of hotlines and whistleblower programs.
Question 6: What does the term 'tone at the top' refer to in fraud prevention?
- Volume of internal audit activity
- Management's commitment to ethical behavior and strong controls (Correct answer)
- Frequency of external audits
- Strength of IT security protocols
Correct answer: Management's commitment to ethical behavior and strong controls
Tone at the top refers to senior management's demonstrated commitment to ethics and compliance, which sets the ethical culture for the entire organization.
CIA CIA Fraud Examination & Prevention 2
Under the Sarbanes-Oxley Act (SOX), which section requires management to assess and report on the effectiveness of internal controls over financial reporting?