Fraud Examination: Chapter 2

Studies show that in advanced countries, levels of honesty are:

increasing at a steady rate

Many individuals, when persuaded by a trusted friend to participate in fraud, will rationalize the actions as being justifiable. Which type of power is being employed in such situations?

Referent power

What is the strongest factor in deterring future fraud activity?

Legal prosecution

When management fraud occurs, companies usually:

overstate assets and net income

According to the Sarbanes-Oxley legislation, current changes to, or waivers of codes of ethics should be disclosed on:

Form 8-K

A fraud perpetrator is able to convince a potential victim that he will receive a large bonus if he supports him in a fraud scheme. Which type of power is the fraud perpetrator using?

Reward power

According to Max Weber, ______ is the probability that a person can carry out his or her own will despite resistance.

power

Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?

Perceived opportunity

Wilma participates in a fraud scheme by executing some derivative trades because she believed that a senior analyst knew more about complex derivative transactions than she did. These transactions were fraudulent in nature. Which type of power was employed to deceive Wilma?

expert power

____________ is the ability of the fraud perpetrator to make an individual perceive punishment if he or she does not participate in the fraud.

Coercive power

___________ require(s) every public company to have a code of ethics to help deter wrongdoing.

The Sarbames-Oxley legislation

A fraud perpetrator used the float time between banks to give the impression that he had money in his accounts. Which crime is he committing?

Kiting

Modeling and labeling are subcomponents of which fraud-related element of an organization?

control environment

The theory behind _____ is that if people know their work or activities will be monitored by others, the opportunity to commit and conceal a fraud will be reduced.

independent checks

Some researchers have added a fourth element to the fraud triangle making it a fraud diamond. What is that element?

Capability

A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?

Income statement

Individuals often participate in fraud because they believe that by not participating in the fraud scheme, they may lose their job. Which type of power is at play here?

Coercive power

_____ is the ability of the perpetrator to relate to the potential co-conspirator.

Referent power