C254 ACCT 6000 Fraud & Forensic Accounting Objective Assessment Guid e Q & A 2024 1. Multiple Choice: Which of the following is considered a red flag for financial statement fraud? A) Consistent financial performance B) Unexplained inventory shortages C) Decrease in creditor turnover D) All of the above Answer : B) Unexplained inventory shortages Rationale: Inventory shortages that cannot be explaine d can indicate pilferage or misappropriation of assets, which are common signs of financial statement fraud. 2. True/False: Benford's Law is useful in detecting fraud because natural datasets often exhibit a certain distribution of first digits. Answer : True Rationale: Benford's Law states that in many naturally occurring collections of numbers, the leading digit is likely to be small. This law can be used to detect anomalies in data sets that may suggest fraudulent activity. 3. Fill -in-the-Blank: T he __________ is a method used in forensic accounting to analyze the likelihood of fraudulent activity by identifying relationships and patterns within financial data. Answer : Horizontal Analysis Rationale: Horizontal analysis compares financial data over a series of reporting periods to identify any significant changes that could indicate fraudulent activities. 4. Multiple Choice: In the context of forensic accounting, 'laundering' refers to: A) Cleaning the company's financial statements B) Legitimizing illegally obtained funds through business transactions C) The process of auditing accounts D) Investigating embezzlement cases Answer : B) Legitimizing illegally obtained funds through business transactions Rationale: Laundering is the process of making illegally -gained proceeds appear legal, which is often done through complex layers of business transactions. 5. True/False: A forensic accountant typically does not need to understand the psychology of fra udsters to effectively investigate fraud. Answer : False Rationale: Understanding the psychology of fraudsters can be crucial in forensic accounting as it helps in anticipating potential fraudulent behavior and identifying motives.
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