03 Jun WHICH OF THE FOLLOWING STATEMENTS REGARDING DOCUMENT RETENTION PRACTICES IS TRUE?
The fact that moral standards and generally accepted social behavior remain constant over time greatly assists in the ability to determine ethical rights and wrongs.
A. True
B. False
Which of the following must be acquired by fraud examiners for them to be in compliance with the ACFE Code of Professional Ethics?
A. Sufficient resources to obtain the training needed to become an expert on all facets of fraud examinations
B. An expert level of skill for every circumstance that might be encountered in a fraud examination
C. A team of experts on staff that can handle all fraud examination situations
D. Sufficient skill and knowledge to recognize when additional training or expert guidance is required
During the course of a fraud examination, Stefan, an employee of Acme Inc., approaches Marten, a Certified Fraud Examiner and fellow employee of Acme, and tells Marten that he knows of a major fraud being committed by the CFO. However, Stefan says he can only provide details if Marten promises him absolute confidentiality. How should Marten respond?
A. Tell Stefan that he will try to keep the information as confidential as possible
B. Not agree to the request for confidentiality
C. Agree that the information will be held in confidence, even though Marten knows it will not be
D. Take Stefan’s request straight to Acme Inc.’s management
Which of the following is NOT a recommended topic that should be included in an organization’s anti-fraud training program for employees?
A. How fraud occurrences hurt the organization
B. The exact procedures management uses to detect fraud
C. Examples of what is and is not acceptable behavior
D. The specific methods for reporting fraud
When trying to sell management on fraud prevention, one should downplay the potentially negative effect of fraud on the company’s public image.
A. True
B. False
Relevant experience is regarded as the essential factor that makes a leader’s authority effective.
A. True
B. False
Which of the following is NOT one of the initial recommendations made by the Treadway Commission to reduce the probability of fraud in financial reports?
A. Audit committee oversight of a reporting program
B. Adequate audit committee resources and authority
C. A mandatory independent audit committee
D. A written charter for the audit committee
Professional auditing standards suggest that auditors incorporate an “element of predictability” in the selection of auditing procedures to be performed so that they ensure the same areas are tested in the same manner during each audit.
A. True
B. False
The Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing require that internal auditors apply the care and skill of a(n) _____________.
A. Reasonably prudent and competent internal auditor
B. Expert whose primary responsibility is investigating fraud
C. Unbiased, infallible audit professional
D. Expert whose primary responsibility is detecting fraud
Employees should be kept unaware that management is watching for lifestyle and behavior changes in staff members that might indicate fraud.
A. True
B. False
Gregory, an internal auditor, and Brandon, the company’s purchasing manager, have had several heated disagreements over purchasing procedures and policies. Gregory has just been told that he will be the lead on the company’s fraud risk assessment. During the fraud risk assessment, Gregory should:
A. Automatically designate the purchasing function as a high-risk area.
B. Have someone else perform the fraud risk assessment work related to the purchasing function.
C. Confront Brandon about the disagreements and discuss how they increase the organization’s risk of fraud.
D. Include his disagreements with Brandon as a factor when assessing the risk of fraud in the purchasing function.
Which of the following statements regarding document retention practices is TRUE?
A. When establishing a document retention policy, management should consider any industry-specific rules for documenting and retaining records
B. Document retention policies do not need to include protocols for preserving electronic documents, as most IT systems automatically preserve copies of such data
C. An effective document retention policy permits the organization to continue the destruction of documents when faced with potential litigation
D. All of the above
Fraud risks related to corruption include all of the following EXCEPT:
A. Receipt of kickbacks
B. Espionage by competitors
C. Payment of bribes
D. Aiding and abetting vendor fraud
Which of the following is TRUE regarding the reporting of the fraud risk assessment results?
A. The fraud risk assessment report should contain a comprehensive list of the team’s suggested responses for each risk identified
B. The success of the fraud risk assessment process depends on how effectively the results are reported and what the organization then does with those results
C. A fraud risk assessment report should reflect the assessment team’s subjective opinions that were formed during the assessment engagement
D. All of the above
Which of the following is a detective anti-fraud control?
A. Independent reconciliations
B. Segregation of duties
C. Hiring policies and procedures
D. Fraud awareness training
Which of the following is NOT one of the three general approaches used to control corporate crime?
A. Consumer action to force change
B. Withdrawal of financial institution funding
C. Strong intervention of the government
D. Voluntary changes in corporate attitudes and structure
According to ISO 31000, an organization’s risk management program should focus only on the circumstances management knows for certain and should disregard areas where there is uncertainty.
A. True
B. False
Which of the following is NOT considered a conflict of interest that is prohibited under the ACFE Code of Professional Ethics?
A. Undertaking an engagement that decreases the fraud examiner’s ability to perform his duties for his full-time employer
B. Accepting an assignment to secretly infiltrate the fraud examiner’s employing organization and transmit inside information to another party
C. Accepting an assignment to evaluate the anti-fraud controls at an organization in which the fraud examiner is a shareholder, provided the fraud examiner’s ownership interest is disclosed
D. Undertaking engagements for both companies in a case of alleged vendor overbilling
Criminologist Charles McCaghy has stated that regulatory pressure is the single most compelling factor behind deviance by organizations.
A. True
B. False
Juan is evaluating the potential for fraud as part of analyzing threats to XYZ Corporation’s ability to meet its objectives. To which of the five components of COSO’s Internal Control—Integrated Framework does his evaluation pertain?
A. Control activities
B. Control environment
C. Monitoring
D. Risk assessment
According to the 2016 Report to the Nations, more frauds are uncovered by external audit than by any other form of detection.
A. True
B. False
In developing a corporate governance framework for an organization, directors and management must give consideration to which of the following?
A. The organization’s cultural environment
B. The organization’s legal and regulatory environment
C. The organization’s ethical environment
D. All of the above
According to the differential reinforcement theory, behavior is reinforced when positive rewards are gained or punishment is avoided.
A. True
B. False
Components necessary to develop, implement, and manage a comprehensive ethics program include:
A. Rewards for ethical behavior
B. An ethics task force or committee
C. An ethics communication strategy
D. All of the above
Personnel at all levels of the organization have responsibility for dealing with fraud risk.
A. True
B. False
Which of the following is FALSE regarding the discussion about the financial statements’ susceptibility to fraud that auditors are required to have under ISA 240?
A. The audit team should consider the potential for both material and immaterial misstatements due to fraud.
B. The audit team should discuss how management could conceal fraudulent financial reporting.
C. The audit team should consider whether the organizational culture might enable the rationalization of fraud.
D. The audit team should discuss how the company’s assets could be misappropriated.
Vivian, a CFE, accepted an assignment to conduct a fraud examination within a manufacturing company. Because she was in a hurry to complete the job, she overlooked key items of evidence and failed to uncover a major fraud. Vivian might have violated the ACFE Code of Professional Ethics.
A. True
B. False
Which of the following is FALSE regarding the fraud risk assessment team?
A. The team members should have experience in gathering and eliciting information.
B. The team should consist of individuals with diverse knowledge, skills, and perspectives.
C. The team size should be limited to a maximum of three individuals.
D. The team members might include both internal and external resources.
To ensure the effectiveness of the organization’s fraud risk management activities, staff-level employees should not be involved in the design or implementation of fraud control activities.
A. True
B. False
Smith, a retail sales manager, wants to decrease the level of cash register over-and-short discrepancies among his sales team. According to behaviorist theories, which of the following options would be the most effective way for Smith to encourage his team members to keep their cash drawers in balance?
A. Take away an hour of paid time off for each time the drawer is over or short.
B. Offer a bonus to anyone whose drawer reconciles perfectly for 60 days.
C. Demote employees who continue to have reconciliation discrepancies.
D. Publicly call out and criticize employees whose cash drawers are over or short.
Flowcharts displaying organizational and departmental hierarchies can be a helpful tool in preventing fraud.
A. True
B. False
The deployment of policies that establish what is expected and procedures that put policies into action is a principle related to which component of COSO’s Internal Control—Integrated Framework?
A. Risk assessment
B. Control activities
C. Monitoring
D. Control environment
According to Diane Vaughan, which of the following factors increases an organization’s inherent inclination toward committing crime?
A. Management encourages employee loyalty through social functions
B. Rewards are given to employees who challenge the status quo
C. Management separates employee performance goals from company performance goals
D. All of the above
According to COSO’s Internal Control—Integrated Framework, there are five interrelated components of a company’s internal control. Which of the following is NOT among these five components?
A. Ethical culture
B. Monitoring
C. Risk assessment
D. Control activities
The geographical regions in which an organization operates influence the types of fraud risks it faces.
A. True
B. False
Which of the following is TRUE regarding corporate governance?
A. Effective corporate governance practices are most necessary in an organization in which the owners are also the individuals responsible for setting the corporate strategy.
B. An entity’s corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization.
C. Corporate governance’s primary purpose is to ensure the accuracy of the organization’s financial reports.
D. Fraud risk management is considered to be the foundation of effective corporate governance.
The objective of anti-fraud controls is to:
A. Reduce the inherent fraud risk to a level that is significantly smaller than the residual fraud risk.
B. Completely eliminate inherent fraud risk.
C. Reduce the residual fraud risk to a level that is significantly smaller than the inherent fraud risk.
D. Completely eliminate residual fraud risk.
Consistently punishing perpetrators is an important part of a fraud prevention program.
A. True
B. False
Which of the following is NOT a purpose served by a professional organization’s code of conduct?
A. It serves as a reference and benchmark for ethical guidance.
B. It facilitates practical enforcement and profession-wide internal discipline.
C. It provides more direct solutions to professional ethical dilemmas than might exist under general ethical principles.
D. It provides clear answers to all ethical dilemmas the organization’s members might face.
Management at ABC Corp. is assessing the company’s ethical tone and how it affects the organization’s fraud risk. To most effectively reinforce an anti-fraud culture, management should:
A. Create an environment in which employees are dissuaded from challenging management’s decisions
B. Use a checklist of initiatives to make sure all the elements of a strong tone at the top are in place
C. Visibly adhere to the same set of ethics policies that are required of all employees
D. All of the above
Which of the following is among the board of directors’ responsibilities related to fraud risk management?
A. Designing the fraud risk management program
B. Overseeing the organization’s fraud risk management activities
C. Implementing the fraud risk management program
D. Punishing fraud perpetrators discovered through fraud risk management activities
Which of the following is FALSE regarding the process of defining the objective of the fraud risk management program?
A. Management must balance the investment in anti-fraud controls with the benefit of those controls and the amount of risk it is willing to accept.
B. Management should examine previous fraud occurrences to determine how the ideal fraud risk management program would have prevented them.
C. Management must assign a quantitative measure to its risk appetite so that it can accurately measure the fraud risk management program’s effectiveness.
D. Management should tailor the detailed objectives of the fraud risk management program to the organization’s specific needs and goals.
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