Assignment
Question 1. The "personal piggy bank" kind of leadership described in Chapter 1 of our text can best be described as corporate executives who lack integrity and are greedy and arrogant.
a company that has poor or weak board of directors oversight.
a company that does not have an adequately independent external auditor.
a company whose board of directors view the company's profits as their own.
2. The Mail Fraud Statute
A. is the nation's oldest and premier fraud-fighting statute enacted in 1872 after an epidemic of consumer mail-order frauds.
B. was enacted in 2004 to address the Bernie Madoff scam when he cashed checks that were mailed to his investment firm for his own personal use.
C. covers any scheme or artifice to defraud so long as the mails are used in some way to further the crime.
A and C
Question 3. When he was convicted, Bernard Ebbers tried to use the Chutzpah Defense when he claimed he had no expert knowledge of accounting and no idea fraud was being committed. The prosecutor called it the
"I was too dumb to know" defense.
"Aw Shucks" defense.
"head in the sand" defense.
"I am in over my head" defense.
Question 4. In Chapter 3 we covered 41 risk factors associated with fraudulent financial reporting and misappropriation of assets. They include
management's desire to keep the company's stock price high.
a lack of controls monitoring.
high turnover in management.
All of the above
Question 5. When Arthur Levitt, former chairman of the Securities and Exchange Commission, gave his speech in 1998 called the Numbers Game, he was addressing which problematic issue?
Excessive gambling by stock traders and portfolio managers
Companies knowingly filing false financial statements
A general erosion and cutting corners in the quality of reports of earnings and other financial statements
Too many individual investors were entering the stock market
Question 6. We covered 41 risk factors generally associated with fraudulent financial reporting and misappropriation of assets. They include
the need for credit or financing.
strained relations between management and employees.
significant related-party transactions.
All of the above
Question 7. The Sarbanes-Oxley Act permits external auditors to perform certain tax services for an audit client if
the total amount of services charged, per year, is less than $500,000.
a different team of auditors is used from those that provide the tax services.
those services are not a material part of the auditor's engagement fees or are not directly related to the audit review engagement.
the company does not actually or expect to receive significant tax refunds.
Question 8. Corporate governance is best described as
a very strong senior management that consistently micromanages employees to ensure they do the right thing.
a strong and effective board of directors.
a well-written set of compliance policies and procedures.
a system of checks and balances between management and all other connected parties with the aim of producing effective, efficient, and law-abiding corporations.
Question 9. _____ includes a requirement to document the discussions among the personnel involved of the susceptibility of the company's financial statements to material misstatements, which could result in fraud.
SAS 99
FASB 154
Sarbanes-Oxley
PCAOB Rule 126
Question 10. The story of MicroStrategy became MicroTragedy when internal auditors failed to report adverse findings to senior management regarding MicroStrategy's booking of multiyear consulting contract earnings right away rather than over the life of the contracts. This was because of
a failure to understand basic accounting rules.
the auditors' compensation package that rewarded aggressive accounting practices.
the human defense mechanism that can lead to an auditor deciding to "go with the flow."
MicroStrategy's hiring practices to employ unqualified auditors.
Question 11. Fraud risk assessment is best described as
a compliance review and audit.
a review of corporate governance controls.
a process of identifying risks of fraud based on the organization's particular characteristics.
catching fraudsters, punishing them, and seeking restitution.
Question 12. When a company establishes a hotline, a number of basic rules apply, including which of the following?
The hotline number must be readily accessible.
It must be available in every country where the company operates.
It must be available 24 hours a day, 7 days a week from any telephone that the employee may want to call from.
All of the above
Question 13. The Fraud Diamond is a variation of the Fraud Triangle and includes the fourth element of
capability.
greed.
accomplices.
avarice.
Question 14. The requirement that external auditors are significantly involved in order to develop a reasonable assurance that a company's financial statements are free of material misstatements is promulgated by
Sarbanes-Oxley.
The Securities and Exchange Commission.
The Association of Certified Fraud Examiners' ACFE Fraud Checklist.
American Institute of Certified Public Accountants' Statement on Accounting Standards 99.
Question 15. The use of professional skepticism is a key tenet that auditors must adhere to and is required of
SAS 99.
Sarbanes-Oxley.
The Securities and Exchange Commission.
The Association of Certified Fraud Examiners.
Question 16. In Chapter 5 the Association of Certified Fraud Examiners (ACFE) stated that which of the following should perform the ACFE Fraud Prevention Check-Up?
Ideally, as a collaboration between objective, independent fraud specialists and people within the organization who have extensive knowledge about its operations
Only people within the organization who have extensive knowledge about its operations
The organization's internal audit department
An independent auditor
Question 17. We discussed enterprise risk management (ERM) in Chapter 5. According to our lecture and the text, a good ERM program will
identify and make transparent the exposure to risks that affect the company's ability to achieve its objectives.
enable the company to determine its appetite for certain risks and whether the current set of controls are effective at keeping the risk within its appetite.
enable the company to appropriately address risk and enact measures to control, transfer, or mitigate risks.
All of the above
Question 18. Companies transfer risk by purchasing insurance. This is an example of
the company's enterprise risk management program identifying risk and taking steps to deal with it.
removing all potential fraud from its operations.
solving future fraud problems and establishing solid corporate governance procedures.
ensuring that the company's compliance program is effective.
Question 19. In his statement on June 10, 2009, Treasury Secretary Timothy Geithner proposed five principles that he intended to better align compensation practices with the interests of shareholders. Two of those included
a. compensation plans that properly measured and rewarded performance.
B. capping executive pay at $1 million per year, including bonuses and deferred compensation.
C. re-examining golden parachutes and supplemental retirement packages to align executives' interests with the shareholders of the company.
A and C
Question 20. A shell company is set up to purchase actual goods at regular prices to resell to the fraudster's company at inflated prices. This is an example of
a pass-through scheme.
dummy accounting.
Ponzi scheme.
a double-entry accounting scheme.
Question 21. Sexual favors, all expenses-paid trips, and expensive gifts that are used to influence business behavior are all considered examples of
a means of effectively competing in today's global marketplace.
an appropriate way to express gratitude for business with your customers.
unethical but legal behavior.
illegal bribes.
Question 22. Which of the following is not considered an asset misappropriation fraud?
Skimming
Overstating inventory
Expense reimbursement fraud
Payroll schemes
Question 23. Which of the following is considered a bribe if given to influence a business decision?
Sexual favors
An expenses-paid trip
An expensive gift
All of the above
Question 24. When Bernard Madoff perpetuated his fraudulent scheme which cost investors between $20 and $65 million in losses through his company Bernard L. Maddoff Investment Services, the scheme was a classic example of a
bust-out scam.
Ponzi scheme.
reshipping scam.
fraudulent credit card number scam.
Question 25. In order for a company to implement a robust and effective fraud prevention program, it must
make sure the program is aligned with the company's internal audit function.
hire the Association of Certified Fraud Examiners.
hire external auditors only from one of the "big four" accounting firms.
comply with every requirement of Sarbanes-Oxley's rules.
Question 26. In Chapter 11 it was recommended that a financial integrity unit be established within a company to
underscore the importance of the financial integrity concept.
let employees know that there is an "enforcement unit" on watch.
comply with Sarbanes-Oxley's Section 404 requirements.
keep a watch on executive and senior management pursuant to the requirements of Sarbanes-Oxley's Section 404 requirements.
Question 27. Aligning a company's internal audit function with the company's fraud prevention program will ensure
a robust and effective fraud prevention program.
the company complies with Sarbanes-Oxley.
a strong corporate governance structure.
that risk is adequately transferred.
Question 28. During a company investigation regarding potential fraudulent activity, which is/are paramount when employees are interviewed or provide a statement?
Their references on their job application
Truthfulness
The employee's position in the company
Their educational background
Question 29. The Society for Human Resource Management concluded research that found that the top reasons why organizations conduct credit background checks are to
ensure a quality candidate is found for the position the company seeks to fill.
determine whether the new employee abuses drugs (whether prescription or illegal) or drinks excessively.
limit theft and embezzlement on the job.
determine whether the potential employee will get along with other employees.
Question 30. According to Chapter 12, civil and criminal repercussions may result in a company that fails to build or implement a _____ as part of the company's overall compliance program:
whistle-blower hotline
good relationship with local police department
strong sense of employee ownership and engagement
AVS or CVS system.