(Top QUALITY 2024/2025 EXAM REVIEW) WGU C254 - Fraud and Forensic Accounting Questions and answers, 100% Accurate, Rated A+

WGU C254 - Fraud and Forensic Accounting Questions and answers, 100% Accurate, Rated A+ What are three ratios that are useful for detecting Overstatement of Asset Fraud? - -1. Individual FA account balances/Total FAs 2. Total Def Chgs/Total Assets 3. Def Chg W-offs (amort)/Def Chg Bal What are the three categories of Fixed Assets? - -Property, Plant, and Equipment. (PP&E) What are three common ways to overstate Fixed Assets? - -1. Inflated amounts are recorded in nonarm's-length purchase transactions. 2. Assets are not "written-down" to their appropriate Book, Market, or Residual values. 3. Assets that simply do not exist are fictitiously recorded in the Financial Statement accounts. With regard to deferred charges that are capitalized, the most important question to ask is: - - Whether the costs are being incurred to generate future revenues or whether there is likelihood that sufficient future revenue will be generated against these costs. Which of the following provides the best statement regarding the means by which financial statement fraud gets started - -Financial reporting fraud is like starting down a slippery slope - once started, it is hard to stop, especially if the organization needs profits. Which victims typically suffer the harshest outcomes associated with asset fraud: - -1. Stockholders Easiest statement scheme - -3. Asset overstatement schemes are easier to identify than other types of financial statement fraud because the overstated assets are always included in the numbers on the balance sheet. Which of the following is an Asset Overstatement Symptom? - -Last minute asset adjustments by the entity that significantly improve financial results. Missing documents related to assets. Availability of only photocopied documents to support asset transactions when documents in original form are supposed to exists Typically, analytical fraud symptoms are most helpful in determining asset overstatements related to mergers or restructurings because the auditor is comparing trends and changes. (T/F) - -False. Overstated fixed assets generally get on the financial statements in one of three ways - -1. Inflated amounts are recorded in non-arm's-length purchase transactions. 2. Assets that simply do not exist are fictitiously recorded in financial statement accounts. 3. Assets are not written down to their appropriate book, market, or residual values because insufficient depreciation is recorded, the assets are obsolete, or values of the assets are otherwise impaired. Each account in the Financial Statements is subject to different Fraud Schemes, all of which could be separate and distinct from each other. (T/F) - -True. A Contingent Liability is an actual Liability reported on the Financial Statements (T/F) - -False. A Contingent Liability does not become a full-fledged liability on the Financial Statements until the likelihood of repayment is "reasonably probable." Until then, the Contingent Liability is simply disclosed. Revenue is a Revenue account. What type of account is Unearned Revenue? - -A Liability What type of account does the offsetting entry go to when Payables increases? - -Assets, like Inventory. Section 404 of the Sarbanes-Oxley Act of 2002, provided for increased scrutiny over which area of corporate governance: - -Internal controls design, implementation and effectiveness. Section 404 of SOX is probably the most well-known section of Sarbanes-Oxley that requires management to select an internal control framework and then assess the effectiveness and report annually on both the design and operational effectiveness of that framework. The five COSO framework areas - -The five COSO framework areas are Control Environment, Risk Assessment, Control Activities, Information and Communication and Monitoring. The impact of Sarbanes-Oxley on the accounting and auditing profession was: - -Significant because of the creation of the PCAOB and its responsibilities provided oversight and regulation for the profession. The creation of the PCAOB and its responsibilities by the SOX act provided oversight and regulation for the accounting and auditing profession for the first time in over 100 years. The corporate governance fabric - -The corporate governance fabric is generally thought to include: board of directors, audit committee, senior / executive management, internal audit, external (independent) audit and regulators and governing bodies. What is not believed to improve auditor independence - -Requiring audit firm lead partner rotation every seven years instead of five. SOX requires audit firm lead partner rotation every five years instead of seven. The impetus for the Sarbanes-Oxley Act of 2002 was - -The numerous and costly financial reporting frauds of the early 2000s such as WorldCom, Tyco, Adelphia, Enron and other paved the way for passage of the SOX Act of 2002. Beyond internal controls design, implementation and effectiveness assessments, the Sarbanes Oxley act provided for - -Section 302 of SOX requires that the company's "principal officers" (typically the Chief Executive Officer and Chief Financial Officer) certify and approve the integrity of their company financial reports. Control activities include: - -Adequate segregation of duties, proper procedures for authorization, and adequate documents and records are all considered to be control activities. For more information, see topic 9. Autocratic Management - -occurs when supervisors and managers do not listen to, or have a receptive attitude towards their subordinates' input or suggestions. Fraud Triangle - -Opportunity, Rationalization, Pressure or Opportunity, Attitude, Incentive Control Activities - -The five types of control activities are segregation of duties, system of authorizations, physical controls, independent checks and documents and records. Control Environment - -ex. Good Hiring practices Which organization developed the internal control framework that most organizations use? - -COSO Segregation of Duties - -Segregation of duties means that incompatible or high risk duties are separated between two or more people. Independent checks involves someone checking on someone else's work; a system of authorizations usually implies dollar limits or events that individuals can participate in or authorize and physical safeguards involves safes, locks, key, fences, etc. Which of the following elements is not included in the ad hoc approach to dealing with fraud but is included in the pro-active approach to dealing with fraud incidents? Implementation of controls to remedy or fix the problem Inconsistent resolution Ad hoc investigatio