Chapter 02 ANSWER: FEEDBACK: a. Incorrect. Dual custody, or segregation of duties, is a control activity.

Transcription

1 1. Which of the following is NOT primry control procedure to minimize the occurrence of frud?. Dul custody b. Systems of uthoriztion c. Internl udit deprtment d. Documents nd records c. Incorrect. Dul custody, or segregtion of duties, is control ctivity. Systems of uthoriztion re control ctivity. c. Correct. Documents nd records re control ctivities--they produce n udit tril. Moderte Bloom's: Understnding 2. Which of the following is NOT common rtionliztion of frud perpetrtors?. The orgniztion owes me b. I'm only borrowing the money c. No one will get hurt d. No one will cre d. Incorrect. This is common rtionliztion for committing frud. This is common rtionliztion for committing frud. This is common rtionliztion for committing frud. d. Correct. Frud perpetrtors usully rtionlize their ctions by thinking I deserve more. LEARNING OBJECTIVES: LO: 2-7 Cengge Lerning Testing, Powered by Cognero Pge 1

2 3. Ech of the following is n exmple of n buse of control environment EXCEPT:. The HR deprtment filed to check n pplicnt's bckground nd hired someone who hd committed frud in the pst. b. A mnger instructs employees not to shre psswords, nd then shres her psswords with her immedite ssistnt. c. A compny hs estblished codes of conduct nd conducts trining meetings to tech employees to distinguish between cceptble nd uncceptble behvior. Attendnce is voluntry. d. The employees know who hs responsibility for ech business ctivity. Procedures to follow re in plce. d. Incorrect. d. Correct. A cler orgniztionl structure is n importnt frud-deterring element. It is esier to trck missing ssets nd money when ll employees know exctly who is responsible for ech business ctivity. Moderte Bloom's: Understnding 4. A frud perpetrtor uses the flot time between bnks to give the impression tht he hd money in his ccounts. Which crime is he committing?. Floting b. Strip c. Spinning d. Kiting d. Incorrect. d. Correct. Moderte LEARNING OBJECTIVES: LO: 2-5 Cengge Lerning Testing, Powered by Cognero Pge 2

3 5. Which is following observtions is TRUE?. Reserch shows tht only people with criminl mind set commit frud. b. Frud perpetrtors usully cn be distinguished from others on the bsis of psychologicl chrcteristics. c. Most frud perpetrtors hve profiles tht re similr to those of other people. d. When frud does occur, the most common initil rection by those involved in the frud is confession. c. Incorrect. Reserch shows tht nyone cn commit frud. Frud perpetrtors usully cn t be distinguished from other people on the bsis of demogrphic or psychologicl chrcteristics. c. Correct. When frud does occur, the most common rection by those round the frud is denil. LEARNING OBJECTIVES: LO: 2-1,6 - LO: When mngement frud occurs, compnies usully:. overstte ssets nd net income. b. understte ssets nd net income. c. overstte ssets nd understte net income. d. understte ssets nd overstte net income.. Correct. Usully, when mngement frud occurs, compnies overstte ssets on the blnce sheet nd net income on the income sttement. Usully, when mngement frud occurs, compnies overstte ssets on the blnce sheet nd net income on the income sttement. Usully, when mngement frud occurs, compnies overstte ssets on the blnce sheet nd net income on the income sttement. LEARNING OBJECTIVES: LO: 2-2 Cengge Lerning Testing, Powered by Cognero Pge 3

4 7. Which of the following is NOT one of the key elements common to ll fruds?. Perceived pressure b. Perceived inequlity c. Perceived opportunity d. Rtionliztion b. Incorrect. This is key element common to ll fruds. b. Correct. This is key element common to ll fruds. This is key element common to ll fruds. LEARNING OBJECTIVES: LO: Wht is the most importnt element in control environment?. Mngement's communiction b. Mngement's role nd exmple c. The hiring process d. The internl udit deprtment b. Incorrect. Although mngement communiction is criticl, it is not the most importnt element in the control environment. Mngement's role nd exmple re the most importnt elements becuse employees will follow wht mngement does more thn wht mngement communictes. b. Correct. The hiring process, lthough criticl, cnnot eliminte ll frud. Hiring only those with integrity cn still led to frud if the exmple nd role of mngement pushes employees into believing tht frud is oky. Also, the hiring process cnnot screen out ll dishonest employees. Internl uditors only detect bout 20% of employee frud. The internl uditors do dd deterrent effect; however, the internl uditors re not the most criticl element in the control environment. Chllenging Bloom's: Applying Cengge Lerning Testing, Powered by Cognero Pge 4

5 9. Which of the following sttements bout ccounting systems is incorrect?. An effective ccounting system provides n udit tril tht llows fruds to be discovered. b. An effective ccounting system mkes concelment difficult. c. An effective ccounting system cn effectively prevent "kickbcks." d. Without good ccounting system, it is often difficult to distinguish between ctul frud nd unintentionl error. c. Incorrect. This sttement is true. This sttement is true. c. Correct. This sttement is true. A good ccounting system ensures tht recorded trnsctions re vlid, properly uthorized, complete, properly clssified, reported in the proper period, properly vlued, nd summrized correctly. Moderte Bloom's: Understnding 10. Greed, living beyond one's mens nd high bills ll describe wht type of frud-relted pressure?. Finncil b. Peer c. Environmentl d. Work-Relted. Correct. These re finncil pressures. LEARNING OBJECTIVES: LO: 2-2 Cengge Lerning Testing, Powered by Cognero Pge 5

6 11. An effective ccounting system is designed to provide which of the following to help discover frud?. An udit tril b. Mtching of expenses to revenues c. Set of controls d. Set of ccounting procedures. Correct. Accounting systems do mtch expenses with revenues, but this does not help discover frud. Controls re used to prevent frud, not to discover frud. Accounting procedures help set up the ccounting system, not vice vers. LEARNING OBJECTIVES: LO: When frud occurs, the most common rection to those ffected by the frud is:. Anger b. Acceptnce c. Denil d. Retribution c. Incorrect. c. Correct. LEARNING OBJECTIVES: LO: 2-1,6 - LO: 2-1 Cengge Lerning Testing, Powered by Cognero Pge 6

7 13. Which of the following is NOT n element of good control environment?. Trust b. Modeling c. Approprite hiring d. Mngement's communiction. Correct. Regrettbly this is not positive chrcteristic of the control environment. Exmples of mngement strongly influence employees. Bsic screening cn help prevent hiring frudsters. Employees need to receive cler communiction from mngement tht frud will be proctively looked for nd punished when found. Bloom's: Understnding 14. The frud tringle includes ll of the following EXCEPT:. Vlidtion b. Perceived opportunity c. Rtionliztion d. Perceived pressure. Correct. This is prt of the frud tringle. This is prt of the frud tringle. This is prt of the frud tringle. LEARNING OBJECTIVES: LO: 2-3 Cengge Lerning Testing, Powered by Cognero Pge 7

8 15. Poor credit could become tht could led to frud.. Finncil pressure b. Socil pressure c. Fmily pressure d. Finncil thret. Correct. LEARNING OBJECTIVES: LO: 2-5 Bloom's: Understnding 16. Modeling nd lbeling re sub-components of which frud-relted element of n orgniztion?. Control environment b. Accounting system c. Audit procedures d. Review procedures. Correct. Cengge Lerning Testing, Powered by Cognero Pge 8

9 17. requires every public compny to hve code of ethics to help deter wrongdoing.. The Glss Stegll legisltion b. The Srbnes-Oxley legisltion c. The Securities Act d. Generlly Accepted Auditing Stndrds b. Incorrect. b. Correct. LEARNING OBJECTIVES: LO: 2-1,6 - LO: Which of the following is NOT possible control ctivity?. Hving seprte uthoriztion, bookkeeping, nd custody functions. b. Protecting ccess to importnt informtion with pssword. c. Requiring two individuls to work on the sme tsk. d. Supervisory review of ech tsk completed by employees. d. Incorrect. By seprting uthoriztion, bookkeeping, nd custody functions, key duties re segregted. Protecting ccess to importnt informtion with pssword is considered system of uthoriztion nd is possible control ctivity. Requiring two individuls to work on the sme tsk is similr to segregtion of duties in tht multiple people re doing one job. d. Correct. Moderte Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 9

10 19. Finncil sttement frud is typiclly committed by:. Employees with ccess to compny ssets b. Top mngement c. Customers d. Vendors b. Incorrect. Employees usully commit frud ginst the orgniztion, not for the orgniztion. b. Correct. Top mngement is usully responsible for frud committed on behlf of the orgniztion. Customers usully commit frud ginst the orgniztion. Vendors usully commit frud ginst the orgniztion. LEARNING OBJECTIVES: LO: 2-1,6 - LO: An employee who hs the responsibilities of both writing checks nd mking bnk deposits would hve.. Finncil pressure b. Perceived opportunity c. Rtionliztion b. Incorrect. A finncil pressure is when person feels need for money tht he does not hve. b. Correct. Rtionliztion occurs when perpetrtors justify their frudulent cts s cceptble. Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 10

11 21. Most frud perpetrtors hve profiles tht look like:. Those of other honest people b. Those with criminl records c. Those who re uneducted d. Those who use lcohol nd drugs. Correct. Frud perpetrtors fit the profile of those who re educted nd pper to hve good trits tht orgniztions look for when hiring employees. LEARNING OBJECTIVES: LO: 2-1,6 - LO: According to the Srbnes-Oxley legisltion, current chnges to, or wivers of codes of ethics should be disclosed in:. Form 10-K. b. Form c. Form 8-K. d. Form 10-Q. c. Incorrect. c. Correct. Moderte LEARNING OBJECTIVES: LO: 2-2 Cengge Lerning Testing, Powered by Cognero Pge 11

12 23. Wht is the strongest fctor in deterring future frud ctivity?. Legl prosecution. b. Snctions. c. Termintion. d. Counseling.. Correct. When frud perpetrtors re prosecuted others in the orgniztion understnd tht frud is serious crime. Snctions crry no public scrutiny; hence, perpetrtors cn concel their crimes from fmily nd commit frud gin in the future. This cn ctully help perpetrtors build n impressive resume; it does not deter future frud. This is "distrcter" nswer; counseling ws not listed in the text s possible fctor in deterring future frud. LEARNING OBJECTIVES: LO: 2-1,6 - LO: Which of the following is NOT true sttement?. Almost every frud involves rtionliztion. b. All fruds involve finncil or vice-relted pressures. c. Perceived opportunity diminishes when frud perpetrtors re prosecuted. b. Incorrect. This sttement is true. b. Correct. Not every frud involves finncil or vice-relted pressures. There my exist work-relted pressures, or pressures from spouse. This sttement is true. Perceived opportunity diminishes when frud perpetrtors re prosecuted. Prosecution lso benefits the perpetrtor in the long term. LEARNING OBJECTIVES: LO: 2-3 Cengge Lerning Testing, Powered by Cognero Pge 12

13 25. A smrt frudster usully mnipultes which finncil record in order to better void n udit tril?. Income sttement. b. Blnce sheet. c. Sttement of csh flows. d. Sttement of retined ernings.. Correct. Income sttements report on ctivity only for certin period. At the end of tht period ccounts re closed to zero, thus ersing the udit tril. Blnce sheets crry over numbers from period to period, mking it hrder to concel frud. The sttement of csh flows lso crries over finncil dt from period to period, mking it hrd to concel the frud over the long term. Moderte LEARNING OBJECTIVES: LO: 2-1,6 - LO: 2-1 Bloom's: Understnding 26. Which of the following fctors cretes n opportunity for frud?. Greed b. Living beyond one's mens c. Lck of n udit tril d. The orgniztion owes it to me c. Incorrect. c. Correct. Opportunity is the second fctor of the frud tringle. It consists of severl items including the lck of n udit tril. Cengge Lerning Testing, Powered by Cognero Pge 13

14 27. Which of the following is NOT common finncil pressure ssocited with frud?. Living beyond one's mens b. High bills or personl debt c. Personl finncil losses d. Desire to hurt employer finncilly d. Incorrect. This is common finncil pressure ssocited with frud. This is common finncil pressure ssocited with frud. This is common finncil pressure ssocited with frud. d. Correct. LEARNING OBJECTIVES: LO: Generlly, internl controls re implemented in corportion to help prevent which element of the frud tringle?. Perceived opportunity b. Perceived pressure c. Rtionliztion d. Authoriztion. Correct. Internl controls re generlly implemented to help prevent perceived opportunity. Cengge Lerning Testing, Powered by Cognero Pge 14

15 29. Which rcil group is most likely to commit frud?. Cucsin b. Africn Americn c. Asin d. Hispnic e. People of every rce commit frud e. Incorrect. e. Correct. LEARNING OBJECTIVES: LO: 2-1,6 - LO: According to the study mentioned in the text, which of the following is true bout frud perpetrtors compred to property offenders?. Frud perpetrtors re more likely to be cught thn property offenders b. Frud perpetrtors re more educted thn property offenders c. Frud perpetrtors re more likely to be men thn property offenders d. Frud perpetrtors re much younger thn property offenders b. Incorrect. b. Correct. When compred to other property offenders, frud perpetrtors re much more educted. Moderte LEARNING OBJECTIVES: LO: 2-1,6 - LO: 2-1 Cengge Lerning Testing, Powered by Cognero Pge 15

16 31. Which of the following cretes opportunities for frud?. Requirement to chnge psswords on regulr bsis b. Inbility to judge qulity of performnce c. Controls tht prevent or detect frud d. Segregtion of duties b. Incorrect. This is deterrent to frudulent behvior. b. Correct. This is deterrent to frudulent behvior. This is deterrent to frudulent behvior. Bloom's: Understnding 32. Which of the following people is most likely to hve opportunities to commit frud?. Rob is convicted bnk robber who hs been out of jil for 7 yers nd is working for smll firm whose mnger knows bout Rob s criminl bckground. b. Jne is recent high school grdute who loves shopping. She is on the look out for job. c. Steve ws just hired by his compny but he is lwys cting suspicious d. 62 yer old Dve hs loylly worked up his compny's corporte ldder for the pst 24 yers d. Incorrect. As convicted felon, Rob's opportunity to commit frud will be limited--especilly if his employer is wre tht he is convicted felon. Frud perpetrtors hve usully worked for the compny for severl yers. More controls will be in plce for Steve becuse he is not trusted. d. Correct. Dve will be given the most opportunities. Moderte LEARNING OBJECTIVES: LO: 2-1,6 - LO: 2-1 Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 16

17 33. According to the study mentioned in the text, people who commit frud re most similr to which of the following groups?. Property offenders b. College students c. Convicted felons d. Animl lovers b. Incorrect. Frudsters re not generlly property offenders. b. Correct. Frudsters tend to differ only slightly from typicl college students. Frudsters don't generlly hve criminl records. 34. The theory behind is tht if people know their work or ctivities will be monitored by others, the opportunity to commit nd concel frud will be reduced.. documenttion b. segregtion of duties c. system of uthoriztions d. independent checks d. Incorrect. d. Correct. LEARNING OBJECTIVES: LO: 2-2 Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 17

18 35. Which of the following is usully the most expensive of ll control procedures?. Documents nd records b. Segregtion of duties c. System of uthoriztions d. Independent checks b. Incorrect. b. Correct. Moderte 36. Segregtion of duties, s control procedure, is most often used. when the tsk involved is complex. b. when it is impossible for one person to complete tsk. c. when pprisls re conducted. d. when csh is involved. d. Incorrect. d. Correct. Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 18

19 37. Documents nd records re n importnt control ctivity. Which of the following sttements concerning this ctivity is true?. They serve s excellent preventive controls. b. Adequte ccountbility cn exist even in their bsence. c. The entire ccounting system serves s documentry control. d. They re poor detective controls. c. Incorrect. c. Correct. Moderte 38. Which of the following is n exmple of n uthoriztion control procedure?. Pssword protection b. Periodic job rottion c. Csh checks d. Supervisor review. Correct. Bloom's Remembering Cengge Lerning Testing, Powered by Cognero Pge 19

20 39. Who do criminologists compre frudsters to in reltion to repet offenses nd why?. Rpists. They repet their crimes becuse they re not severely punished. b. Shoplifters. They stel goods frequently nd in smll quntities until they re confronted. c. Bnk Robbers. They stel lot of money from welthy sources. d. Bnk Tellers. They hve ccess to lrge mount of resources nd they re perceived to be trustworthy people.. Correct. Frudsters repet offenses becuse they re not severely punished. LEARNING OBJECTIVES: LO: Studies show tht in dvnced countries, levels of honesty re:. Generlly stble b. Incresing c. Decresing c. Incorrect. c. Correct. Levels of honesty re decresing. LEARNING OBJECTIVES: LO: 2-1 Cengge Lerning Testing, Powered by Cognero Pge 20

21 41. Every frud is comprised of ll the following elements EXCEPT:. The theft ct b. Concelment c. Conversion d. Assult d. Incorrect. This is n element tht comprises frud. This is n element tht comprises frud. This is n element tht comprises frud. d. Correct. This is not usul element of frud. Moderte 42. According to Mx Weber, is the probbility tht person cn crry out his or her own will despite resistnce.. power b. persusion c. prejudice d. potency. Correct. Moderte LEARNING OBJECTIVES: LO: 2-8 Cengge Lerning Testing, Powered by Cognero Pge 21

22 43. is the bility of the frud perpetrtor to mke n individul perceive punishment if he or she does not prticipte in the frud.. Expert power b. Coercive power c. Legitimte power d. Rewrd power b. Incorrect. b. Correct. LEARNING OBJECTIVES: LO: A frud perpetrtor is ble to convince potentil victim tht he will receive lrge bonus if he supports him in frud scheme. Which type of power is the frud perpetrtor using?. Expert power b. Coercive power c. Legitimte power d. Rewrd power d. Incorrect. d. Correct. LEARNING OBJECTIVES: LO: 2-8 Cengge Lerning Testing, Powered by Cognero Pge 22

23 45. Individuls often prticipte in frud becuse they believe tht by not prticipting in the frud scheme, they my lose their job. Which type of power is t ply here?. Expert power b. Legitimte power c. Coercive power d. Rewrd power c. Incorrect. c. Correct. LEARNING OBJECTIVES: LO: Wilm prticiptes in frud scheme by executing some derivtive trdes becuse she believed tht senior nlyst knew more bout complex derivtive trnsctions thn she did. These trnsctions were frudulent in nture. Which type of power ws employed to deceive Wilm?. Expert power b. Referent power c. Coercive power d. Rewrd power. Correct. LEARNING OBJECTIVES: LO: 2-8 Cengge Lerning Testing, Powered by Cognero Pge 23

24 47. is the bility of the perpetrtor to relte to the potentil co-conspirtor.. Expert power b. Legitimte power c. Referent power d. Rewrd power c. Incorrect. c. Correct. LEARNING OBJECTIVES: LO: Mny individuls, when persuded by trusted friend to prticipte in frud, will rtionlize the ctions s being justifible. Which type of power is being employed in such situtions?. Referent power b. Legitimte power c. Coercive power d. Rewrd power. Correct. Moderte LEARNING OBJECTIVES: LO: 2-8 Cengge Lerning Testing, Powered by Cognero Pge 24

25 49. Which of the following is NOT perceived pressure tht cn led to employee frud?. experiencing high medicl bills becuse of illness in fmily b. frustrtion with co worker c. nticipted ctul finncil reports tht re below published expecttions d. chllenge to bet the system c. This is n exmple of employee frud. b. This is n exmple of employee frud. c. This is n exmple of finncil sttement frud. d. This is n exmple of employee frud. Moderte LEARNING OBJECTIVES: LO: Which of the following is true regrding the frud tringle?. The three elements of the frud tringle re inter ctive. b. Rtionliztion for the frud ct is thought of fter the frud hs been committed. c. The perceived bility to concel the frud ct concerns the rtionliztion side of the frud tringle. d. A finncil pressure to commit frud is the strongest pressure of the three frud tringle elements.. Correct b. Incorrect c. Incorrect s concelment is prt of perceived opportunity. d. Incorrect Moderte LEARNING OBJECTIVES: LO: 2-3 Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 25

26 51. Some reserchers hve dded fourth element to the frud tringle mking it frud dimond. Wht is tht element?. propensity towrd illegl cts b. lck of self respect c. greed d. cpbility d. Incorrect b. Incorrect c. Incorrect d. Correct LEARNING OBJECTIVES: LO: Which of the following is true sttement regrding the frud scle depicted in the text?. The greter the perceived opportunity to commit frud, the less rtionliztion is tkes to commit frud. b. The more dishonest person is, the higher the need to rtionlize the frud ct. c. When the finncil pressure increses, even low perceived opportunity is sufficient to commit frud. d. As the 'need' to gmble increses, rtionliztion to commit frud becomes esier.. Correct b. Incorrect--less rtionliztion would be necessry c. Incorrect, personl integrity nd rtionliztion would lso influence the decision to commit frud. d. Incorrect, the need to rtionlize my increse, but it wouldn't necessrily be esier. Moderte LEARNING OBJECTIVES: LO: 2-4 Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 26

27 53. Studies revel tht honesty levels in dvned countries re decresing. Wht do these findings indicte for the future regrding frud?. Rtionliztions will become more sophisticted. b. Pressures to commit frud will increse. c. Less perceived opportunity will hve to be present. d. Honesty tests in the workplce will increse. c. Incorrect, the need to rtionlize will be lower. b. Incorrect, the pressures to commit frud will not necessrily increse. c. Correct, becuse of the decresing levels of honesty, the opportunity level cn be lower. d. Incorrect, this my or my not be the cse. LEARNING OBJECTIVES: LO: Which of the following is n exmple of vice pressure?. expensive extrmritl reltionship(s). b. n extrvgnt life style. c. needing to pper successful. d. being offered bribe.. Correct b. Incorrect, this is finncil pressure. c. Incorrect, this is not vice pressure. d. Incorrect, this is not vice pressure. Moderte LEARNING OBJECTIVES: LO: 2-5 Cengge Lerning Testing, Powered by Cognero Pge 27

28 55. Which of the following is NOT work relted pressure?. fer of losing one's job b. wnting to pper successful c. getting overlooked for promotion d. insufficient/little recognition for work performnce b. Correct b. Incorrect, this is work pressure. c. Incorrect, this is work pressure. d. Incorrect, this is work pressure. LEARNING OBJECTIVES: LO: Which of the following bout rtionliztion is NOT true?. Rtionliztion is form of self justifiction. b. Rtionliztion is wy to lie to one's self. c. People who rtionlize feel they re bsiclly honest people. d. Rtionlizing is unnecessry when there re multiple opportunities present to commit frud. d. Incorrect, s it is true sttement. b. Incorrect, s it is true sttement. c. Incorrect, s it is true sttement. d. Correct, rtionliztion is still prt of the decision to commit frud. LEARNING OBJECTIVES: LO: 2-7 Cengge Lerning Testing, Powered by Cognero Pge 28

29 57. Which of the following sttements is flse?. Hlf truths re often prt of rtionliztion. b. The bigger the frud ct, the more believble the rtionliztion. c. Mny frud perpetrtors believe their rtionliztions to be true. d. Perceived rtionliztions re prt of the frud tringle. b. Correct sttement b. Flse sttement c. Correct sttement d. Correct sttement LEARNING OBJECTIVES: LO: 2-7 Bloom's: Understnding Cengge Lerning Testing, Powered by Cognero Pge 29