Brody Chapter 12 Multiple Choice


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1. The most common account(s) manipulated when perpetrating financial statement fraud are: Revenues
2. Why might a company want to understate net income? To pay less taxes
3. Reported revenue and sales account balances that appear too high are examples of: Analytical symptoms
4. Horizontal analysis is a method that: Examines percent changes in account balances from period to period.
5. Adding fictitious receivables will usually result in a(n): Increase in the number of days in receivables.
6. Comparing recorded amounts in the financial statements with the real-world assets they are supposed to represent would be most effective in detecting: Cash and inventory fraud.
7. Lifestyle symptoms are most effective with: Employee frauds
8. Which of the following is not an inventory-related documentary symptom? All of the above are inventory-related documentary symptoms. (Duplicate purchase orders, Missing inventory during inventory counts, Unsupported inventory sales transactions)
9. When looking for inventory fraud, an important question to ask is: All are important questions to ask. (What is the nature of inventory?, What is the age of inventory?, What is ht salability of inventory?)
10. Which of the following ratios would not generally be used to look for inventory- and cost of goods sold- related frauds? Accounts payable turnover
11. In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except: The auditor should consider all of the above. (The types of accounts that should be included in the financial statements., The types of fraud to which the company is susceptible., The nature of the company’s business and industry.)
12. Last-minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of: Documentary symptoms
13. Accounts that can be manipulated in revenue fraud include all of the following except: Inventory
14. Which financial ratio is not useful in detecting revenue-related fraud? All of the above are useful revenue-related fraud detection ratios (Gross profit margin ratio, Account receivable turnover ratio, Asset turnover ratio)
15. The asset turnover ratio measures: d. Assets that are purchased with each dollar of sales
16. The most common way to overstate revenues is to: Create fictitious revenues
17. Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers? Write off uncollectible receivables in a later period
18. All of the following ratios are useful in detecting large revenue frauds except: Current ratio.
19. Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except: Don’t write off uncollectible receivables—Sales Returns, Sales Discounts.
20. Identify which ratio is correctly linked to the information it could reveal about the company’s potential for revenue fraud. Gross profit margin—this ratio will increase if management overstates inventory
21. Which of the following is a common way to perform financial-statement analysis while searching for revenue-related analytical symptoms? d. Both a and b are common ways to perform within-statement analysis while searching for revenue-related analytical symptoms. a. Look for unusual changes in revenue-related account balances from period to period (trends) b. Look for unusual changes in revenue-related relationships from period to period
22. Primarily occurring at the end of the year in an attempt to inflate sales, the practice of shipping more items to distributors than they can sell in a reasonable time period is known as: Channel stuffing