CA CA Forensic Accounting & Fraud Detection 1 — Questions and Answers
Question 1: What is the primary purpose of forensic accounting?
- To prepare corporate tax returns
- To investigate financial fraud and disputes for legal proceedings (Correct answer)
- To audit publicly traded financial statements
- To manage corporate budgets and forecasts
Correct answer: To investigate financial fraud and disputes for legal proceedings
Forensic accounting combines accounting, auditing, and investigative skills to examine financial records for use in legal proceedings.
Question 2: Which fraud scheme involves recording fictitious revenues to inflate a company's financial results?
- Skimming
- Lapping
- Financial statement fraud (Correct answer)
- Expense reimbursement fraud
Correct answer: Financial statement fraud
Financial statement fraud involves deliberately misrepresenting financial results, including recording fictitious revenues to deceive investors or creditors.
Question 3: The 'fraud triangle' consists of pressure, opportunity, and which third element?
- Capability
- Rationalization (Correct answer)
- Intent
- Access
Correct answer: Rationalization
The fraud triangle model identifies three factors that contribute to fraud: pressure (incentive), opportunity, and rationalization (the perpetrator's justification).
Question 4: What is 'skimming' in the context of occupational fraud?
- Taking cash before it is recorded in the accounting system (Correct answer)
- Stealing from petty cash after it has been recorded
- Falsifying employee expense reports
- Creating fictitious vendor invoices
Correct answer: Taking cash before it is recorded in the accounting system
Skimming is an off-books fraud scheme where cash is stolen before it is entered into the accounting records, making it difficult to detect.
Question 5: Which document is most commonly used by forensic accountants to trace the full history of financial transactions?
- Balance sheet
- Bank reconciliation statement
- General ledger (Correct answer)
- Trial balance
Correct answer: General ledger
The general ledger contains a record of every financial transaction and is the primary source document forensic investigators use to trace fraud.
Question 6: What is 'lapping' in the context of accounts receivable fraud?
- Writing off customer balances without authorization
- Stealing a customer payment and covering it with a later payment from another customer (Correct answer)
- Recording payments twice in the ledger
- Overstating accounts receivable balances at period-end
Correct answer: Stealing a customer payment and covering it with a later payment from another customer
Lapping involves stealing a customer's payment and covering the shortage by applying a subsequent customer's payment to the first victim's account.
CA CA Forensic Accounting & Fraud Detection 1
What is the primary purpose of forensic accounting?