C254 Fraud and Forensic Accounting
Exam 2026 Questions and Answers
Which action is potentially unethical because it understates COGS?
A. Understating purchases
B. Understating purchase returns
C. Understating ending inventory
D. Understating purchase discounts - Correct answer-A
Why is it unethical for a supervisor to ask an accountant to capitalize the marketing
research program?
A. this action overstates assets
B. this action overstates expenses
C. this action understates liabilities
D. this action understates net income - Correct answer-A
How can financial statement fraud impact stakeholders?
©COPYRIGHT 2025, ALL RIGHTS RESERVE 1
,A. investors may experience lower interest rates
B. fraud can be an embarrassment to the audit profession
C. investors may be more willing to purchase new stock issues
D. fraud can lead to stock options decreasingly being used for executive
compensation - Correct answer-B
How do fraudulent financial statements impact stakeholders and the markets?
A. financial statement fraud leads to embezzlement
B. interest rates rise as a result of financial statement fraud
C. financial statement fraud leads investors to lose confidence
D. CEOs acquire additional company stock following financial statement fraud -
Correct answer-C
What is a consequence of financial statement fraud?
A. the organization shows losses due to embezzlement
B. red flags prove that fraud occurred in the organization
C. suppliers are able to take advantage of the organization
D. the organization appears more profitable than it actually is - Correct answer-D
©COPYRIGHT 2025, ALL RIGHTS RESERVE 2
, What are two potential consequences a company accused of financial statement
fraud can face?
A. the CEO might be indicted and convicted
B. the SEC might relist and refinance the company
C. company stock price might decline when news of fraud reaches the press
D. the company may be required to issue new stock to provide needed funds -
Correct answer-A and C
What is motivation behind committing fraud through backdating of stock options?
A. giving bonuses to employees
B. increasing executive compensation
C. ensuring a successful stock issuance
D. preventing a violation of debt covenants - Correct answer-B
What is a common motivator of financial statement fraud?
A. greed
B. intelligence
C. health issues
©COPYRIGHT 2025, ALL RIGHTS RESERVE 3
Exam 2026 Questions and Answers
Which action is potentially unethical because it understates COGS?
A. Understating purchases
B. Understating purchase returns
C. Understating ending inventory
D. Understating purchase discounts - Correct answer-A
Why is it unethical for a supervisor to ask an accountant to capitalize the marketing
research program?
A. this action overstates assets
B. this action overstates expenses
C. this action understates liabilities
D. this action understates net income - Correct answer-A
How can financial statement fraud impact stakeholders?
©COPYRIGHT 2025, ALL RIGHTS RESERVE 1
,A. investors may experience lower interest rates
B. fraud can be an embarrassment to the audit profession
C. investors may be more willing to purchase new stock issues
D. fraud can lead to stock options decreasingly being used for executive
compensation - Correct answer-B
How do fraudulent financial statements impact stakeholders and the markets?
A. financial statement fraud leads to embezzlement
B. interest rates rise as a result of financial statement fraud
C. financial statement fraud leads investors to lose confidence
D. CEOs acquire additional company stock following financial statement fraud -
Correct answer-C
What is a consequence of financial statement fraud?
A. the organization shows losses due to embezzlement
B. red flags prove that fraud occurred in the organization
C. suppliers are able to take advantage of the organization
D. the organization appears more profitable than it actually is - Correct answer-D
©COPYRIGHT 2025, ALL RIGHTS RESERVE 2
, What are two potential consequences a company accused of financial statement
fraud can face?
A. the CEO might be indicted and convicted
B. the SEC might relist and refinance the company
C. company stock price might decline when news of fraud reaches the press
D. the company may be required to issue new stock to provide needed funds -
Correct answer-A and C
What is motivation behind committing fraud through backdating of stock options?
A. giving bonuses to employees
B. increasing executive compensation
C. ensuring a successful stock issuance
D. preventing a violation of debt covenants - Correct answer-B
What is a common motivator of financial statement fraud?
A. greed
B. intelligence
C. health issues
©COPYRIGHT 2025, ALL RIGHTS RESERVE 3
