The fact that moral standards and generally accepted social behavior remain constant over time greatly assists in the ability to determine ethical rights and wrongs.
A. True
B. False
Which of the following must be acquired by fraud examiners for them to be in compliance with the ACFE Code of Professional Ethics?
A. Sufficient resources to obtain the training needed to become an expert on all facets of fraud examinations
B. An expert level of skill for every circumstance that might be encountered in a fraud examination
C. A team of experts on staff that can handle all fraud examination situations
D. Sufficient skill and knowledge to recognize when additional training or expert guidance is required
During the course of a fraud examination, Stefan, an employee of Acme Inc., approaches Marten, a Certified Fraud Examiner and fellow employee of Acme, and tells Marten that he knows of a major fraud being committed by the CFO. However, Stefan says he can only provide details if Marten promises him absolute confidentiality. How should Marten respond?
A. Tell Stefan that he will try to keep the information as confidential as possible
B. Not agree to the request for confidentiality
C. Agree that the information will be held in confidence, even though Marten knows it will not be
D. Take Stefan’s request straight to Acme Inc.’s management
Which of the following is NOT a recommended topic that should be included in an organization’s anti-fraud training program for employees?
A. How fraud occurrences hurt the organization
B. The exact procedures management uses to detect fraud
C. Examples of what is and is not acceptable behavior
D. The specific methods for reporting fraud
When trying to sell management on fraud prevention, one should downplay the potentially negative effect of fraud on the company’s public image.
A. True
B. False
Relevant experience is regarded as the essential factor that makes a leader’s authority effective.
A. True
B. False
Which of the following is NOT one of the initial recommendations made by the Treadway Commission to reduce the probability of fraud in financial reports?
A. Audit committee oversight of a reporting program
B. Adequate audit committee resources and authority
C. A mandatory independent audit committee
D. A written charter for the audit committee
Professional auditing standards suggest that auditors incorporate an “element of predictability” in the selection of auditing procedures to be performed so that they ensure the same areas are tested in the same manner during each audit.
A. True
B. False
The Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing require that internal auditors apply the care and skill of a(n) _____________.
A. Reasonably prudent and competent internal auditor
B. Expert whose primary responsibility is investigating fraud
C. Unbiased, infallible audit professional
D. Expert whose primary responsibility is detecting fraud
Employees should be kept unaware that management is watching for lifestyle and behavior changes in staff members that might indicate fraud.
A. True
B. False
Gregory, an internal auditor, and Brandon, the company’s purchasing manager, have had several heated disagreements over purchasing procedures and policies. Gregory has just been told that he will be the lead on the company’s fraud risk assessment. During the fraud risk assessment, Gregory should:
A. Automatically designate the purchasing function as a high-risk area.
B. Have someone else perform the fraud risk assessment work related to the purchasing function.
C. Confront Brandon about the disagreements and discuss how they increase the organization’s risk of fraud.
D. Include his disagreements with Brandon as a factor when assessing the risk of fraud in the purchasing function.
Which of the following statements regarding document retention practices is TRUE?
A. When establishing a document retention policy, management should consider any industry-specific rules for documenting and retaining records
B. Document retention policies do not need to include protocols for preserving electronic documents, as most IT systems automatically preserve copies of such data
C. An effective document retention policy permits the organization to continue the destruction of documents when faced with potential litigation
D. All of the above
Fraud risks related to corruption include all of the following EXCEPT:
A. Receipt of kickbacks
B. Espionage by competitors
C. Payment of bribes
D. Aiding and abetting vendor fraud
Which of the following is TRUE regarding the reporting of the fraud risk assessment results?
A. The fraud risk assessment report should contain a comprehensive list of the team’s suggested responses for each risk identified
B. The success of the fraud risk assessment process depends on how effectively the results are reported and what the organization then does with those results
C. A fraud risk assessment report should reflect the assessment team’s subjective opinions that were formed during the assessment engagement
D. All of the above
Which of the following is a detective anti-fraud control?
A. Independent reconciliations
B. Segregation of duties
C. Hiring policies and procedures
D. Fraud awareness training
Which of the following is NOT one of the three general approaches used to control corporate crime?
A. Consumer action to force change
B. Withdrawal of financial institution funding
C. Strong intervention of the government
D. Voluntary changes in corporate attitudes and structure
According to ISO 31000, an organization’s risk management program should focus only on the circumstances management knows for certain and should disregard areas where there is uncertainty.
A. True
B. False
Which of the following is NOT considered a conflict of interest that is prohibited under the ACFE Code of Professional Ethics?
A. Undertaking an engagement that decreases the fraud examiner’s ability to perform his duties for his full-time employer
B. Accepting an assignment to secretly infiltrate the fraud examiner’s employing organization and transmit inside information to another party
C. Accepting an assignment to evaluate the anti-fraud controls at an organization in which the fraud examiner is a shareholder, provided the fraud examiner’s ownership interest is disclosed
D. Undertaking engagements for both companies in a case of alleged vendor overbilling
Criminologist Charles McCaghy has stated that regulatory pressure is the single most compelling factor behind deviance by organizations.
A. True
B. False
Juan is evaluating the potential for fraud as part of analyzing threats to XYZ Corporation’s ability to meet its objectives. To which of the five components of COSO’s Internal Control—Integrated Framework does his evaluation pertain?
A. Control activities
B. Control environment
C. Monitoring
D. Risk assessment
According to the 2016 Report to the Nations, more frauds are uncovered by external audit than by any other form of detection.
A. True
B. False
In developing a corporate governance framework for an organization, directors and management must give consideration to which of the following?
A. The organization’s cultural environment
B. The organization’s legal and regulatory environment
C. The organization’s ethical environment
D. All of the above
According to the differential reinforcement theory, behavior is reinforced when positive rewards are gained or punishment is avoided.
A. True
B. False
Components necessary to develop, implement, and manage a comprehensive ethics program include:
A. Rewards for ethical behavior
B. An ethics task force or committee
C. An ethics communication strategy
D. All of the above
Personnel at all levels of the organization have responsibility for dealing with fraud risk.
A. True
B. False
Which of the following is FALSE regarding the discussion about the financial statements’ susceptibility to fraud that auditors are required to have under ISA 240?
A. The audit team should consider the potential for both material and immaterial misstatements due to fraud.
B. The audit team should discuss how management could conceal fraudulent financial reporting.
C. The audit team should consider whether the organizational culture might enable the rationalization of fraud.
D. The audit team should discuss how the company’s assets could be misappropriated.
Vivian, a CFE, accepted an assignment to conduct a fraud examination within a manufacturing company. Because she was in a hurry to complete the job, she overlooked key items of evidence and failed to uncover a major fraud. Vivian might have violated the ACFE Code of Professional Ethics.
A. True
B. False
Which of the following is FALSE regarding the fraud risk assessment team?
A. The team members should have experience in gathering and eliciting information.
B. The team should consist of individuals with diverse knowledge, skills, and perspectives.
C. The team size should be limited to a maximum of three individuals.
D. The team members might include both internal and external resources.
To ensure the effectiveness of the organization’s fraud risk management activities, staff-level employees should not be involved in the design or implementation of fraud control activities.
A. True
B. False
Smith, a retail sales manager, wants to decrease the level of cash register over-and-short discrepancies among his sales team. According to behaviorist theories, which of the following options would be the most effective way for Smith to encourage his team members to keep their cash drawers in balance?
A. Take away an hour of paid time off for each time the drawer is over or short.
B. Offer a bonus to anyone whose drawer reconciles perfectly for 60 days.
C. Demote employees who continue to have reconciliation discrepancies.
D. Publicly call out and criticize employees whose cash drawers are over or short.
Flowcharts displaying organizational and departmental hierarchies can be a helpful tool in preventing fraud.
A. True
B. False
The deployment of policies that establish what is expected and procedures that put policies into action is a principle related to which component of COSO’s Internal Control—Integrated Framework?
A. Risk assessment
B. Control activities
C. Monitoring
D. Control environment
According to Diane Vaughan, which of the following factors increases an organization’s inherent inclination toward committing crime?
A. Management encourages employee loyalty through social functions
B. Rewards are given to employees who challenge the status quo
C. Management separates employee performance goals from company performance goals
D. All of the above
According to COSO’s Internal Control—Integrated Framework, there are five interrelated components of a company’s internal control. Which of the following is NOT among these five components?
A. Ethical culture
B. Monitoring
C. Risk assessment
D. Control activities
The geographical regions in which an organization operates influence the types of fraud risks it faces.
A. True
B. False
Which of the following is TRUE regarding corporate governance?
A. Effective corporate governance practices are most necessary in an organization in which the owners are also the individuals responsible for setting the corporate strategy.
B. An entity’s corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization.
C. Corporate governance’s primary purpose is to ensure the accuracy of the organization’s financial reports.
D. Fraud risk management is considered to be the foundation of effective corporate governance.
The objective of anti-fraud controls is to:
A. Reduce the inherent fraud risk to a level that is significantly smaller than the residual fraud risk.
B. Completely eliminate inherent fraud risk.
C. Reduce the residual fraud risk to a level that is significantly smaller than the inherent fraud risk.
D. Completely eliminate residual fraud risk.
Consistently punishing perpetrators is an important part of a fraud prevention program.
A. True
B. False
Which of the following is NOT a purpose served by a professional organization’s code of conduct?
A. It serves as a reference and benchmark for ethical guidance.
B. It facilitates practical enforcement and profession-wide internal discipline.
C. It provides more direct solutions to professional ethical dilemmas than might exist under general ethical principles.
D. It provides clear answers to all ethical dilemmas the organization’s members might face.
Management at ABC Corp. is assessing the company’s ethical tone and how it affects the organization’s fraud risk. To most effectively reinforce an anti-fraud culture, management should:
A. Create an environment in which employees are dissuaded from challenging management’s decisions
B. Use a checklist of initiatives to make sure all the elements of a strong tone at the top are in place
C. Visibly adhere to the same set of ethics policies that are required of all employees
D. All of the above
Which of the following is among the board of directors’ responsibilities related to fraud risk management?
A. Designing the fraud risk management program
B. Overseeing the organization’s fraud risk management activities
C. Implementing the fraud risk management program
D. Punishing fraud perpetrators discovered through fraud risk management activities
Which of the following is FALSE regarding the process of defining the objective of the fraud risk management program?
A. Management must balance the investment in anti-fraud controls with the benefit of those controls and the amount of risk it is willing to accept.
B. Management should examine previous fraud occurrences to determine how the ideal fraud risk management program would have prevented them.
C. Management must assign a quantitative measure to its risk appetite so that it can accurately measure the fraud risk management program’s effectiveness.
D. Management should tailor the detailed objectives of the fraud risk management program to the organization’s specific needs and goals.
Gray, an independent CFE, was hired by Green, president of the ABC Corporation, to investigate allegations that one of ABC’s employees is taking kickbacks. During the investigation, Gray learns that Green is involved in an unrelated fraud. Under the ACFE Code of Professional Ethics, Gray should:
A. Resign from the engagement.
B. Not disclose the information about Green.
C. Report Green to law enforcement.
D. Tell the company’s board of directors about Green.
Sue, a Certified Fraud Examiner, is hired by a client to conduct a fraud examination. She does so and finds nothing amiss. A year later, she receives a legal order from the local prosecutor’s office to provide the client’s file. Under the ACFE Code of Professional Ethics, she will not be able to respond to the legal order without her client’s authorization to do so.
A. True
B. False
Which of the following is a best practice to ensure a successful fraud reporting program?
A. Employees should be informed that, to the extent possible, their names will not be disclosed.
B. The company should require employees with information about potential fraud to report it directly only to their immediate supervisor.
C. Employees are held accountable for reporting tips that are not able to be substantiated.
D. The company should communicate that fraud, waste, and abuse are more likely to occur in large organizations than small ones.
Stevens, a Certified Fraud Examiner, was hired to conduct a fraud examination at ABC Company. His examination did not reveal any conclusive evidence that fraud had occurred or was occurring. Consequently, ABC management asked Stevens to state in his official examination report that the organization is free of fraud as a means of assuring the board of directors that the company’s anti-fraud controls were effective. Under the ACFE Code of Professional Ethics, Stevens is permitted to comply with management’s request based on the findings of his examination.
A. True
B. False
External auditors are ultimately responsible for the prevention and detection of fraud in an organization.
A. True
B. False
Which of the following is TRUE regarding the OECD Principles of Corporate Governance?
A. They are required to be implemented by all corporations in the jurisdictions that have officially adopted them.
B. They are intended to be applicable in developed economies, but not in emerging markets.
C. They state that an entity’s corporate governance framework should discourage active cooperation between corporations and stakeholders in creating wealth.
D. They state that an entity’s corporate governance framework should ensure the equitable treatment of all shareholders.
According to the authors of Crimes of the Middle Classes, all of the following factors have contributed to the rising problem of economic crime EXCEPT:
A. The increased constraints of the regulatory environment for businesses
B. The increased opportunity for wrongdoing as a result of advancing information technologies
C. The economy’s increased reliance on credit
D. The continued pressures of a culture that rewards affluence and success
Employee anti-fraud education should:
A. Be required for all employees within the organization, regardless of position
B. Be based on broad, generic anti-fraud messages
C. Be presented by organizational executives only
D. Be restricted to formal education mechanisms to reinforce the importance of the message
During a fraud risk assessment engagement, the assessment team should NOT consider the inherent limitations of internal controls.
A. True
B. False
Which of the following statements is FALSE regarding an organization’s fraud risk management program?
A. The program must include mechanisms to monitor and identify breaches in compliance.
B. Formal sanctions for intentional noncompliance should be well-publicized throughout the company.
C. The responsibility of handling suspected incidences of noncompliance should be delegated to someone outside of the company.
D. There should be measures in place to address failures in the design or operation of anti-fraud controls, as well as fraud occurrences.
According to International Auditing Standard (ISA) 240, the two types of intentional financial statement misstatements that are relevant to the auditor are:
A. Immaterial overstatements and material understatements
B. Misstatements resulting from asset manipulation and misstatements resulting from liability manipulation
C. Misstatements affecting management and misstatements affecting shareholders
D. Misstatements resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets
Which of the following is NOT included in the OECD Principles of Corporate Governance?
A. A request that governments have in place an appropriate framework to support good corporate governance practices
B. An emphasis on the importance of timely, accurate, and transparent disclosure mechanisms
C. A call for a corporate governance framework that protects the exercise of shareholders’ rights
D. Support for establishing stronger protection for foreign shareholders than for domestic shareholders
According to the 2016 Report to the Nations, ___________ schemes are the most common form of occupational fraud, while _________ schemes are the costliest form of occupational fraud.
A. Asset misappropriation; corruption
B. Asset misappropriation; financial statement fraud
C. Corruption; asset misappropriation
D. Financial statement fraud; corruption
An established risk management framework can be a useful starting point in developing a risk management program, but the program should be tailored to the organization’s specific circumstances.
A. True
B. False
According to Managing the Business Risk of Fraud, an organization’s fraud risk management program should include which of the following components?
A. Formal quality assurance procedures to evaluate the program’s effectiveness
B. Specific consequences for individuals who condone fraudulent activity
C. A mechanism for employees to self-disclose any conflicts of interest
D. All of the above
In identifying the fraud risks that could apply to the organization, the fraud risk assessment team should discuss:
A. The organization’s incentive programs
B. Risks to the organization’s reputation
C. The possibility of management’s override of controls
D. All of the above
The internal auditor’s fraud-related responsibilities include which of the following?
A. Evaluating indicators of fraud and deciding whether any further action is necessary or whether an investigation should be recommended
B. Obtaining reasonable assurance that the organization’s financial statements are free of material misstatements caused by fraud
C. Overseeing management’s actions to manage fraud risks
D. Establishing and maintaining effective anti-fraud controls at a reasonable cost
Which principle of corporate governance pertains to the disclosure of all material matters that the shareholders need to make timely and informed decisions regarding their investment in the company?
A. Responsibility
B. Fairness
C. Transparency
D. Accountability
A report by a fraud examiner may be privileged from disclosure in certain circumstances, but it does not have an absolute legal privilege.
A. True
B. False
Which of the following is NOT explicitly prohibited by the ACFE Code of Professional Ethics?
A. Engaging in behavior that is against the law
B. Acting in a way that could be deemed unethical by the industry
C. Drawing conclusions based upon evidence
D. Participating in an activity where there is a conflict of interest
Which of the following is NOT an effective method of increasing the perception of detection?
A. Conducting surprise audits
B. Limiting employee vacation time
C. Requiring thorough management oversight
D. Rotating employee duties
Which of the following statements regarding white-collar defendants is TRUE?
A. They are less likely to insist on a trial than other offenders
B. The lower the offenders’ social status, the more likely they are to be imprisoned
C. They are more likely to be fined than to face prison terms as punishment
D. All of the above
For its compliance program to be effective, an organization must promote the program through appropriate incentives for compliance.
A. True
B. False
Which of the following is FALSE regarding the characteristics of white-collar criminals?
A. They often appear outwardly successful.
B. The typical white-collar crime offender is a male with a moderate social status.
C. An individual’s social status has no effect on his ability to commit white-collar crime.
D. They often carry a large amount of personal debt.
If a Certified Fraud Examiner engaged in an illegal activity, but did not know at the time that the activity was illegal, Article II of the ACFE Code of Professional Ethics will protect the fraud examiner from legal liability.
A. True
B. False
Marco conducted a fraud examination that led to a valid confession of guilt from Rutledge. In Marco’s verbal report to his superiors, he stated that, in his opinion, “Rutledge is guilty of embezzlement.” Marco has just violated the ACFE Code of Professional Ethics.
A. True
B. False
Which of the following is TRUE regarding the communication of the fraud risk assessment process?
A. The communication should be made in a format that is most appropriate for the culture of the organization
B. The communication should be visibly disseminated throughout the business
C. The more personalized the communication, the more effective it will be in encouraging employees to participate
D. All of the above
International Standard on Auditing 240 establishes auditors as being primarily responsible for the prevention and detection of fraud within an organization.
A. True
B. False
The IOSCO Principles for Auditor Oversight state that auditor oversight should involve a regular review process designed to ascertain whether audit firms adhere to quality control policies and procedures.
A. True
B. False
According to modern criminological studies, which of the following is the determinant aspect of white-collar crime?
A. Social class
B. Organizational opportunity
C. Criminal history
D. Cultural ties
Green, a CFE, conducted a fraud examination into a financial statement manipulation that resulted in the dismissal of Warren, Chief Financial Officer. During the examination, Green uncovered several material internal control deficiencies unrelated to the specific fraud being investigated. Under the ACFE Code of Professional Ethics, Green can only discuss information he was hired to investigate and should therefore not mention his findings regarding the internal control deficiencies in his report to management.
A. True
B. False
A detailed anti-fraud policy can make it more difficult to investigate and punish employees who commit fraud and dishonest acts.
A. True
B. False
Which of the following statements about the fraud risk assessment process is MOST ACCURATE?
A. To ensure the independence of the team members, a fraud risk assessment must be conducted by a consultant or other external party.
B. The fraud risk assessment is most effective when management’s influence on the process is limited.
C. If the individuals conducting the fraud risk assessment truly believe that fraud could not happen at the organization, the assessment process should reflect that belief.
D. The assessment team must be perceived as independent and objective by others for the assessment to be effective.
According to the INTOSAI fundamental principles for public-sector audits, the auditor must exercise skepticism, professional judgment, and due care throughout the audit engagement.
A. True
B. False
Which of the following theories suggests that, when considering the possibility of violating a law, people are likely to ask themselves, “What would my family and friends think if they find out?”
A. Cognitive theory
B. Routine activities theory
C. Behavioral theory
D. Social control theory
Sofia, a CFE, took an introductory class in computer forensics. When a client thought there might be evidence of a crime on his hard drive, Sofia decided to conduct a forensic examination of the hard drive even though she had no experience or advanced training in this area. Sofia’s conduct would likely be a violation of the ACFE Code of Professional Ethics.
A. True
B. False
Which of the following statements is TRUE regarding how fraud examiners should exercise professional skepticism during a fraud examination engagement?
A. Fraud examiners should not relax their skeptical attitudes even if there are no signs of fraudulent activity.
B. Fraud examiners should form the engagement hypothesis without regard to the nature of the assignment.
C. Professional skepticism involves maintaining a mindset that no fraud has occurred.
D. Professional skepticism can be dispelled only by evidence.
Where permitted by law, management should run a background check on any existing employee who is being promoted to a position that includes access to sensitive or valuable company resources, even if a background check was run on the individual at the time of hire.
A. True
B. False
Which of the following is NOT one of the core principles of sound corporate governance?
A. Accountability
B. Transparency
C. Responsibility
D. Prosperity
According to The Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing, which of the following should an internal auditor evaluate in his assessment of the risk management process?
A. The organization’s risk exposures relating to the sale of assets
B. The materiality of the organization’s financial statements
C. The organization’s fraud risk management initiatives
D. All of the above
Which of the following is among the IOSCO Principles for Auditor Oversight?
A. A mechanism to require that auditors are independent of the enterprises that they audit
B. A mechanism to require auditors to be subject to the discipline of an independent oversight body
C. A body that oversees the implementation of auditing, independence, and ethical standards
D. All of the above
Which of the following is NOT one of the primary factors that organizations should consider when designing the components of their compliance and ethics programs?
A. Recurrence of similar conduct
B. Applicable industry size and practice
C. Organization size
D. Monetary sanctions for violations
Black, a Certified Fraud Examiner, was hired to conduct a fraud examination. He did not find fraud, but in Black’s opinion, the controls he examined were deficient. Under the ACFE Code of Professional Ethics, Black is not permitted to express his opinion on the deficient controls.
A. True
B. False
An effective system of internal controls:
A. Focuses more on detective controls than preventive controls
B. Decreases the perception that fraud will be detected
C. Does not completely eliminate the risk of fraud
D. Focuses more on preventive controls than detective controls
COSO defines _____________ as “a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.”
A. Internal control
B. Corporate compliance
C. Enterprise risk management
D. Risk assessment
The primary foundation of the INTOSAI professional framework for auditing in the public sector is the call for supreme audit institutions to develop their own independence standards.
A. True
B. False
In a company with all of the following parties, who should have primary responsibility for the oversight of the organization’s compliance program?
A. The chief ethics officer
B. General council
C. Internal audit
D. The board of directors
A corporation can generally be held criminally responsible for criminal acts committed by its employees even if those in management had no knowledge of or participation in the underlying events.
A. True
B. False
he findings of the 2016 Report to the Nations on Occupational Fraud and Abuse include all of the following EXCEPT:
A. More occupational frauds are committed by women than by men.
B. The median losses caused by executives are higher than those caused by staff-level employees.
C. The most commonly reported red flag displayed by fraud perpetrators prior to the detection of their crime is living beyond their means.
D. The majority of employees who commit occupational fraud are first-time offenders.
Which of the following is TRUE regarding proactive fraud auditing procedures?
A. Analytical review of the financial statements is best used to uncover small frauds that might be missed by other detection methods.
B. Implementing proactive fraud audit procedures demonstrates the organization’s intention to aggressively seek out possible fraudulent conduct.
C. Fraud assessment questioning techniques are most appropriately used when attempting to determine who might be responsible for a particular fraud scheme.
D. Surprise audit procedures are an effective fraud detection mechanism, but they do not help prevent fraud.
Risk management is focused on balancing the organization’s _________ with its ____________.
A. Risk appetite; ability to meet its objectives
B. Internal controls; financial reporting model
C. Objectives; resources
D. Regulatory requirements; risk appetite
During a fraud risk assessment, the assessment team is seeking information on the ethical tone set by upper and middle managers. The team members determine that, for this task, they’d like to get candid one-on-one feedback from employees away from their peers. Which of the following techniques would be most helpful for them to use in gathering this information?
A. Interviews
B. Surveys
C. Anonymous feedback mechanisms
D. Focus groups
To show appreciation for a job well done on a project, a manager gives an employee an extra day off of work. This is an example of what type of behavioral response?
A. Punishment
B. Negative reinforcement
C. Positive reinforcement
D. None of the above
The theory of differential association is used frequently to explain white-collar criminality. Which of the following is NOT one of the assertions or principles of differential association?
A. Criminal behavior is explained by an individual’s general needs and values.
B. Criminal behavior is learned using the same mechanisms as other learning.
C. Criminal behavior is acquired through participation with intimate personal groups.
D. Criminal behavior is learned from other people in a process of communication.
The objectives of a fraud risk management program include:
A. Limiting the damage caused by fraud occurrences
B. Rebuilding stakeholder confidence following an occurrence of fraud
C. Assessing the organization’s fraud risks
D. All of the above
As part of his audit of ABC Corp., Raul, a CPA, is identifying the risks of material misstatement due to fraud. To obtain information to help him in this task, he should ask members of management whether they have knowledge of any actual, suspected, or alleged fraud affecting the entity.
A. True
B. False
Jody has been working at ABC Corp. for ten years. He steals funds from the company and tells himself that the company owes it to him for his “unrewarded hard work and loyalty.” This situation best illustrates which leg of the Fraud Triangle?
A. Rationalization
B. Perceived non-shareable financial need
C. Perceived opportunity
D. Lack of personal integrity
During a fraud examination, Sergei, a CFE, becomes aware of a situation that might appear to others as though he has a conflict of interest, even though there is no actual conflict. To address the situation, Sergei should immediately withdraw from the engagement without disclosing the potential conflict to management.
A. True
B. False
In the area of criminological theory, compliance is the theory that tries to prevent crime by providing economic incentives for voluntary conformity to the laws and using administrative efforts to control violations before they occur.
A. True
B. False
Which of the following is NOT one of the components of COSO’s Enterprise Risk Management—Integrated Framework?
A. Monitoring
B. Organizational governance
C. Internal environment
D. Risk response
the context of fraud examination, integrity requires all of the following EXCEPT:
A. Trustworthiness
B. Avoidance of conflicts of interest
C. A well-developed sense of moral philosophy
D. Refusal to admit errors
Open-door management policies are a fraud prevention mechanism that addresses which leg of the Fraud Triangle?
A. Lack of integrity
B. Rationalization
C. Pressure
D. Opportunity
According to Steve Albrecht’s research, ______ is the most common personal characteristic motivating fraudsters, and __________ is the most common organizational-environment factor motivating fraudsters.
A. High personal debt; lack of segregation of duties
B. Desire for recognition; lack of segregation of duties
C. Revenge; too much trust in key employees
D. Living beyond their means; too much trust in key employees
According to the OECD Principles of Corporate Governance:
A. Companies should disclose all financial information to investors, regardless of the cost burden of the disclosure
B. Governments should have in place a corporate governance framework that promotes transparent and fair markets
C. A corporate governance framework should focus on the rights of shareholders but does not need to include the rights of other organizational stakeholders
D. All of the above
According to Silk and Vogel’s research, business leaders rationalize legal violations by asserting that the damage done by the violations is diffused among a large number of parties.
A. True
B. False
Which of the following is NOT a way that an organization’s fraud risk assessment should be incorporated into the audit process?
A. It should be used to deliver reports that incorporate the results of the auditors’ validation and testing of the fraud risk controls.
B. It should be used to design audit procedures in a way that enables auditors to look for fraud in known areas of high risk.
C. It should be used to determine areas where the auditors can reduce their awareness of indicators of fraud.
D. It should be used to map existing internal controls to the moderate-to-high fraud risks identified.
Which of the following represents one of the legs of the Fraud Triangle?
A. Perceived opportunity
B. Immediate financial resources
C. Lack of personal integrity
D. Perceived acquiescence
According to the results of behavioral studies such as those conducted by B. F. Skinner, application of punishment to undesired behavior typically results in which of the following?
A. Temporary suppression of the undesired behavior
B. No effect on the occurrence of the undesired behavior
C. Permanent suppression of the undesired behavior
D. Increase in the occurrence of the undesired behavior
As part of their responsibilities under the ACFE Code of Professional Ethics, fraud examiners must obtain and document evidence in a manner that ensures that the chain of custody is preserved.
A. True
B. False
Which of the following is NOT an effective way to help prevent fraud through the organization’s performance measurement and management programs?
A. Evaluating employee performance based solely on productivity and profit
B. Tying employee compensation to reasonable organizational performance goals
C. Providing regular training to ensure that all employees are sufficiently prepared to perform their tasks
D. Establishing well-defined job descriptions to facilitate performance evaluations
Which of the following best describes the purpose of the Treadway Commission?
A. Determining the specific provisions of the Principles of Corporate Compliance
B. Designing a model fraud risk management program
C. Defining the responsibility of the auditor in preventing and detecting fraud
D. Identifying the appropriate range of punitive actions for corporations found guilty of fraudulent conduct
Which of the following statements is TRUE?
A. Educating employees about hotlines and reporting programs has a very limited effect on preventing fraud.
B. Controls do little good in preventing theft and fraud if those at risk do not know of the presence of possible detection.
C. Most experts agree that it is harder to prevent frauds than to detect them.
D. Conducting covert audits is among the most effective fraud prevention method
Government securities regulators play a critical role in enhancing the reliability of financial information by attesting as to whether a public company’s financial statements fairly present the financial position and performance in compliance with accepted accounting standards.
A. True
B. False
Having specialized departments within a company often increases the overall risk of fraud by the organization.
A. True
B. False
Which of the following is FALSE regarding a fraud risk assessment?
A. The assessment should be used to improve employee fraud awareness.
B. The assessment team should consider how employees behave as part of its assessment.
C. The objective of the assessment is to provide an estimate of the organization’s fraud losses.
D. The designation of an area as being high risk does not conclusively mean that fraud is occurring there.
Which of the following is NOT considered a white-collar crime?
A. An employee steals his coworker’s briefcase while the coworker is in a meeting.
B. An accounting clerk sets up a fake vendor and submits invoices from the vendor in order to generate and collect payments.
C. A software developer steals trade secrets from his employer and sells them to a competitor.
D. A city official solicits and accepts bribes from contractors in exchange for awarding them contracts.
The Public Interest Oversight Board is the global body responsible for overseeing the establishment of international auditing standards.
A. True
B. False
To be most effective, an organization’s ethics policy should be made available to:
A. Existing employees
B. Vendors and other outside parties
C. New employees
D. All of the above
In response to a risk identified during a fraud risk assessment, management decides to implement additional internal control measures. This response is known as:
A. Avoiding the risk
B. Assuming the risk
C. Transferring the risk
D. Mitigating the risk
Which of the following is NOT a responsibility of the organization’s board of directors?
A. Directing employees to carry out business activities
B. Serving as the middlemen between shareholders and management
C. Assessing the strategy and underlying purpose of management’s decisions and actions
D. Acting as guardians of the organization’s resources and assets
Which of the following is an example of organizational crime?
A. An HR employee adding a ghost employee to the payroll and misappropriating the paychecks
B. A sales manager using his corporate credit card for personal expenses
C. An insurance claims agent conspiring with customers to file false insurance claims and share the proceeds
D. Management of several pharmaceutical companies engaging in a price fixing scheme
Blue, a CFE, had an ethical dilemma regarding the contract governing one of his professional engagements. Which of the following sources of guidance would be considered the lowest level of reference to help Blue in determining the most ethical course of action?
A. Moral philosophical principles
B. The handling of similar situations by individuals he respects
C. Contract law
D. The ACFE code of professional ethics
The audit committee’s responsibilities for fraud risk management include performing and maintaining the organization’s fraud risk assessment.
A. True
B. False