ACCT 4800 - Final Exam Practice

Which of the following men was the lead investigator who reconstructed Al Capone's income based on his lifestyle?

Frank Wilson

Who is considered the "father of accounting"?

Luca Pacioli

When did audits of financial statements become required in England?

1856 Corporations Act

Not including the Civil War era, in what year was the Federal Income Tax passed in the U.S.?

1913

Accounting predated writing?

True

According to Donald Creesey, the elements of fraud DO NOT include which of the following?

Motivation

Ariail and Crumbley's diagram of fraud does NOT include Creesey's three elements.

False

The description of public accountants as the "public watchdog" was used to describe the public's perception that CPAs are charged with more than just assuring that the financial statements are fairly presented. Which of the following jurists conveyed this view?

Chief Justice Burger

Which certification did Dr. Ariail indicate was a valuable and respected designation that could be earned without earning the CPA and that he recommended students interested in forensic accounting should pursue immediately after completing the Fraud and Forensic Accounting course?

CFE

Premature recognition of revenue is the number one reason that financial statements are restated.

True

Earnings management, which is the purposeful intervention in the external reporting process, is, by its very nature, always a fraudulent activity.

False

Which of the following are considered preventive internal controls?

Securing assets

The fraud model created by Drs. Ariail and Crumbley include which of the following items?

Motivations

Internal controls are supposed to minimize the incidence of fraud. However, management can commit frauds by overriding internal controls. Examples given in SAS 99 of ways that management might override internal controls include all of the following except:

Manipulating the year end count of inventory

As explained in class by Dr. Ariail, frauds concerning lapping often occur with which type of account or activities?

Accounts receivable

Investigative auditing is not generally governed by the materiality concept.

True

PCAOB AS 2401indicates that auditors must assess the risk of the financial statements being materially misstated due to fraud. Which of the following is NOT a recommended response to a serious risk having been found?

Perform inventory counts twice—once in the preliminary field work and again on the last day of the fiscal year.

According to the PCAOB, internal auditors have the primary responsibility for the prevention and detection of fraud.

False

In regard to the detection of material misstatements in the financial statements resulting from fraud, which of the following is (are) Not recommended in the SAS 99 Response to the Public Oversight Board's Panel on Audit Effectiveness?

Increase professional skepticism, asking management and other employees about their knowledge of fraud risks, the use of surprise audit tests and procedures, and performing tests of management overrides of accounting controls (all of the above)

Which of the following is NOT true about the PCAOB.

The Board is funded by taxpayers

In communicating the results of an internal auditor investigation of fraud found at a public company, the IIA suggests the internal auditor all of the following actions except:

Send a written report to the SEC

The audit committee should report to the board of directors, not to the CEO.

True

The PCAOB is in favor of mandating that forensic audits be periodically conducted for all public companies.

False

SAS 99 (PCAOB 2401) requires external auditors to make enquiries of management and other selected employees.

False

Dr. Ariail indicated that manipulating inventory counts can result in a change in reported income. The direction of the manipulation may depend on the motives of the fraudster. If the motive is to decrease taxes, how would the count be falsified?

By fraudulently decreasing the inventory count 

From a forensic standpoint, interviews and interrogations are different.

true

Which of the following is NOT stated in the textbook as being related to sales being inflated?

Closing the books prior to year-end—a few days prematurely—bad cutoff

Manipulating reserve estimates such as the allowance for doubtful accountants or warranty claims is a common method used by fraudsters. If a fraudster wants to artificially increase earnings (NI), how might he or she manipulate a reserve account?

Debit the reserve and credit revenue

Prior to the end of the audit year, the external auditors (PwC) for Colonial Bank statistically sampled the entire population of the AOT holdings. All of the sampled loans were subsequently paid.

False

While the FDIC allows for confidential settlements, the external auditor for Colonial demanded a public hearing of the case.

False

In which of the following specific area of Colonial Bank were 99% interests in bundled mortgage backed securities (MBS) purchased?

AOT

Which of the following methods was NOT indicated as part of the Colonial Bank fraud and cover up?

Theft of assets

Which of the following statements is NOT true about Ponzi and his scheme?

Ponzi guaranteed to double the investors money in 45 days and triple it in three months

According to the paper by Ariail and Crumbley, the ethical lapses by PwC included which of the following?

A lack of due care, a lack of competence, a lack of sensitive professional judgment, and a lack of required planning (all of the above)

Which of the economic or world situation(s) aided Ponzi in his fraud.

World War One had devastated Europe, the dollar was string after the war, and the International Postal Congress agreed to issue reply coupons throughout the world (all of the above)

What was the name of Ponzi's company?

The Securities Exchange Company

Which was NOT a promotion method used by Ponzi to market postal coupons?

Investment banks

Which of the following contributed to Ponzi's scheme unraveling?

A negative article Ponzi ran in the Boston Post on July 26, 1920, Ponzi’s public relations man published an article about Ponzi’s organization being insolvent, and a furniture dealer sued Ponzi (1, 2, and 3 only)

Which of the following CPAs or CPA firms aided Madoff's $50-65 billion dollar fraud?

David Friehling

Which of the following was NOT a fraud "red flag" in the Madoff fraud?

A lack of segregation of operating of operational duties that negated third party oversight, an unusually small advisory staff, a climate of secrecy that impeded performance of due diligence, and an usually low level of volatility (all of the above)

Of the following statements, which is NOT true regarding the Madoff fraud?

Madoff's fund had a few down years but trended up over a 17 year period

In the Madoff fraud, which of the following is NOT an audit failure included in Dr. Ariail's summary?

Did not adequately check bank reconciliations

In addition to audit failures, Madoff's CPA violated numerous ethical standards. Which of the following were the two violations of Principles specifically mentioned in Dr. Ariail's summary that worked to erode  confidence in the financial markets?

Integrity and The Public Interest

In Irrational Ratios by Joseph T. Wells presents five Benish ratios or indexes. Which of the following ratio/index did Wells indicate would NOT have alerted auditors to irregularities at ZZZZ Best?

Gross margin index

In Mike Morze's two-part video regarding the ZZZZ Best fraud he indicates a number of audit problems including "red flags." Which of the following is NOT an item included on his list?

The auditors did not check the reconciliations of the bank statements for the Restoration Division

Which of the following was the first "domino that fell" in exposing the ZZZZ Best fraud?

A call to the LA Times from a women who was owed about $600 on a credit card

Of the following statements, which is NOT true about Minkow?

Minkow served his prison sentence and thereafter was a model citizen

In the Fooling the Auditors video, which of the following does Minkow indicate as being true?

Minkow was kiting checks between banks, Minkow steered auditors towards the cleaning business and away from the restoration business, and ZZZ Best faked both customer receivables and subsequent payments (all of the above)

Which bank purchased Nigerian barges from Enron?

Merrill Lynch

What question(s) from a Wall Street analyst/investor prompted an answer from Skilling that caused an uproar?

Why can’t Enron produce a quarterly Balance Sheet? and Why can’t Enron produce a quarterly Cash Flow Statement? (2 and 3 only)

What was (were) the main state(s) in which Enron manipulated energy prices?

California

How did Enron control electricity prices in the targeted state(s)?

By moving electricity in and out of the targeted state, by closing down power plants for maintenance, and by manipulating the power grid (all of the above)

What psychology experiment(s) is used as an example of Enron employees being influenced by an unethical tone-at-the-top?

Milgram’s experiment

After Skilling resigned as CEO, who took his place?

Ken Lay

When looking for kiting, which of the following would be a red flag or flags?

Frequent deposits and checks in the same amount, large deposits on Fridays, and short time lag between deposits and withdrawals (items a, b, and c)

In searching for accounts receivable fraud, which of the following audit step or steps would be MOST appropriate?

Reviewing customer complaints

Lapping would include which of the following scheme or schemes?

Stealing a customer's payment and concealing the theft by applying subsequent payments from other customers to the first customer's account

Fraud schemes involving payroll and employee reimbursements include all of the following except:

Unauthorized borrowing

Most hotline tips come from which of the following groups?

Employees

A direct IRS method for reconstructing taxable income would NOT include which of the following procedures?

Newspaper articles. checking deed records of real estate transactions, discussions with third parties, and checking public records (all of the above)

A procedure that would be the least effective in procurement fraud prevention would be?

Reviewing monthly bank reconciliations

An indirect method of reconstructing income would include all of the following except

Unreported mark-up

Of the following statements, choose the one that is false.

Under the net worth method, nondeductible expenditures are deducted to arrive at adjusted gross income

An example(s) of a reactive approach to fraud detection would incldue which of the following?

Suspicion

Form 8300 is used to report cash transactions over $10,000 received in a trade or business. Which of the following is NOT be reported on Form 8300? 

Wire transfers

According to the textbook and videos, which of the following basic steps in money laundering process comes first?

Placement

Identify which of the following pairs of money laundering activities are essentially the same:

Churning and layering

The term "structuring" in money laundering can refer to the process of

Sequencing a series of cash deposits so that they fall below the $10,000 criteria to trick a financial institution into not reporting the them to the federal authorities

The primary purpose of money laundering is to:

Take illegitimate funds and make them look like they were earned from legitimate business activities

Which statement is false?

Normally a non-expert witness can give an opinion

Which statement is false?

The average person retains as much as 32 percent of information given orally

Which of the following is a way to challenge an expert?

Frye challenge

A witness who may be able to provide background information is a ____________ witness.

Peripheral

Evidence that directly proves a fact at issue, without the need for any influence or presumption, is what kind of evidence?

Direct

Cynthia Cooper's advice to accountants who believe themselves to be involved in or have found what appears to be a fraud included all the following except:

Go to the authorities/regulators

What accounting principle did the CFO try to use in his White Paper to justify the capitalization of lease payments?

(none of the above) materiality, historical cost, and going concern

Which was NOT an environmental pressure(s) that drove the WorldCom fraud?

Dot Com bubble burst, telecom bubble burst, there was a belief that the internet would continue to grow exponentially, and the decrease in the market price of WorldCom's stock (all of the above)

The WorldCom fraud included all of the following accounting manipulations EXCEPT which of the following?

Expensing of fiber optic lines and off balance sheet financing (b and d only)

In the WorldCom fraud, which of the following acquisition strategies was used mainly by Bernie Ebbers?

Buying only companies that would increase WorldCom's EPS

At the time the SEC inquiry into Enron was opened, the SEC contended that
Arthur Andersen (AA) obstructed justice due to having information that was
potentially damaging to the firm. Which of the following was NOT one of the items included in the SEC complaint?

David Duncan, the CPA in charge of the Enron audit, was not "in fact" independent of Enron

Which of the following is NOT true regarding Arthur Andersen's supposed
obstruction of justice?

Computers and other electronic devises were physically destroyed

The jury found AA guilty of obstruction of justice based on which of the
following?

Nancy Temple's email asking Duncan to alter a memo

Which of the following statement regarding Arthur Andersen's conviction are true?

AA had to pay a $500,000 fine, AA was given 5-year's probation, no one went to jail due to AA's conviction, AA's criminal conviction was overturned by the US Supreme Court, and prior to the original verdict, AA had already lost some 650 audit clients (all of the above)

Which of the following is NOT true about David Duncan?

Duncan appears to have been objective and independent of the client in both fact and appearance

In the Going South video, at the height of the HealthSouth fraud, about how many fraudulent entries were being made each quarter?

126,000

In the Going South video, the HealthSouth fraud included all of the following except.

Creating fictious suppliers

In the interview with the Dean video, who was indicated as the whistle-blower in the HealthSouth fraud?

Weston Smith

In the HealthSouth fraud, how many CFOs pleaded guilty?

5

Scrushy used all but which one of the following tactics to win at his trial—which tactic did he not use?

Bribed witnesses

The deferred prosecution agreement given to KPMG included all of the following except which of the following?

KPMG being prohibited from all tax practice for five years

Which of the following is (are) true regarding the 2014 Cohan case against KPMG?

(none of the above are true) The plaintiff settled for the $100 million he had lost in taxes, the plaintiff settled for the $450 million he had lost in the estimated value of his business—the value it would have had had he not been sold, Cohan's counsel was very pleased with the settlement amount, which was made public, and the plaintiff paid his attorney, Butler, Wooten & Park, half of the amount recovered in the suit

According to the DOJ's August 29, 2005 Release, KPMG defendants were accused of producing fradulent documents. Which of the following was (were) NOT included in these documents?

Engagement letters, tax returns, transactional documents, and opinion letters (all of the above)

Which of the following is NOT true about tax avoidance?

It is illegal

Which of the following is NOT true regarding the Isle of Man tax evasion scheme?

In KPMG's tax scheme clients in substance (in fact) gifted money to shell corporations  located in the Isle of Man

According to the 60 Minute video, which of the following are true about BFA?

BFA was audited by Arthur Andersen, over 50,000 investors lost their life savings, BFA was at that time the largest bankruptcy of a non-profit entity, and at the time of the Bankruptcy, about $570 million was invested (all of the above)

According to the 60 Minute video and/or the paper by Mohrweis, which of the following is NOT true about warnings given to the external auditors?

One of the controlled corporations had sold at a profit real estate sold to it by BFA

In the BFA fraud, which of the following were NOT audit red flags?

The high lifestyles being led by Crotts and Grabinski

Which of the following components did the BFA fraud include?

BFA moved off the books real estate that had decreased in value, real estate sales were made to the insider-controlled entities at book value, it was an affinity crime, and over 90 insider-controlled entities were established (all of the above)

To revitalize the accounting profession Mohrweis did not suggest which of the following?  

Forensic audits should be required at least every three years

CPAs should pursue excellence in all of their work and services: "The quest for excellence is the essence of ________." Which ET includes this specific requirement?

Due Care, ET 0.300.060