Financial Statement Fraud Flashcards
7 cards from real ACFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Statement Fraud flashcards as text
Which liability omission scheme most directly understates a company's reported obligations?
Answer: Failing to accrue warranty liabilities
Failing to accrue known warranty obligations keeps liabilities artificially low and overstates net income by avoiding the related expense.
In a bill-and-hold arrangement used fraudulently, the seller records revenue even though:
Answer: The goods have not been shipped and the buyer has no risk of ownership
Fraudulent bill-and-hold schemes book revenue while goods remain with the seller and the buyer bears no real risk, violating revenue recognition criteria.
Which document is most useful for detecting fictitious vendor disbursements in a financial statement fraud scheme?
Answer: Vendor master file
The vendor master file reveals whether payees are legitimate, registered businesses with proper addresses, tax IDs, and contact information.
A company discloses a contingent liability only in footnotes without accruing it, despite evidence the loss is probable and estimable. This violates:
Answer: ASC 450 contingency standards
ASC 450 (formerly SFAS 5) requires accrual of a loss contingency when it is probable that a liability has been incurred and the amount is reasonably estimable.
Which ratio trend is most consistent with understated inventory write-downs used to inflate earnings?
Answer: Declining inventory turnover paired with rising gross margin
Keeping obsolete inventory on the books at inflated values artificially raises the gross margin while slowing inventory turns as stale goods linger.
Which technique do fraudsters use to conceal improper related-party transactions in financial statements?
Answer: Omitting disclosure and structuring them to appear arm's-length
Fraudsters hide related-party dealings by omitting required disclosures and pricing transactions as if conducted between unrelated parties.
During a financial statement fraud investigation, which source best corroborates reported revenue figures?
Answer: Third-party bank statements and customer confirmations
Bank statements and direct customer confirmations are independent of management and provide the strongest corroboration that cash was actually received for claimed sales.