21. Which of the following statements regarding fraud is false?
A. Fraud perpetrated by higher-level management is harder to detect than that of lower-level employees.
B. Fraud is often committed unknowingly by employees.
C. The most common type of fraudulent financial reporting involves the overstating of revenues and assets and the understating of liabilities.
D. Adequate internal control systems can usually detect or prevent most types of employee fraud.
22. Which of the following statements is the best description of fraudulent financial reporting?
A. Fraudulent financial reporting involves the misappropriation of assets.
B. Fraudulent financial reporting only involves the intentional misstatement of amounts owed to the Internal Revenue Service.
C. Fraudulent financial reporting is brought about by the misuse of a company’s assets.
D. Fraudulent financial reporting often involves the intentional misstatement of or omission of significant information from a company’s financial statements.
23. The most common types of fraudulent financial reporting involve overstating:
A. liabilities and expenses.
B. direct materials and overhead.
C. revenues and assets.
D. liabilities and revenues.
24. If a company has decided to issue fraudulent financial statements, which type of account is most likely to be understated?
A. Assets
B. Revenues
C. Expenses
D. Owner’s equity
25. Fraud involving upper-level management:
A. is less likely to harm the company than fraud by lower-level employees.
B. usually results in revenues and assets being understated on the financial statements.
C. is much more difficult to detect than fraud by lower-level employees.
D. is more likely to happen when a company has internal control procedures in place.
26. Fraudulent financial reporting involves the active involvement of a company’s:
A. creditors.
B. stockholders.
C. customers.
D. management.
27. Which of the following is not an example of fraudulent financial reporting?
A. Net income on the income statement is intentionally overstated.
B. The company’s annual report omits required disclosures required by generally accepted accounting principles.
C. The company controller allowed herself to receive additional compensation that had not been approved by the Board of Directors.
D. Liabilities on the balance sheet are intentionally understated.
28. Which of the following is more of an example of fraudulent financial reporting rather than misappropriation of assets?
A. Kiting
B. Lapping
C. Overstatement of revenues
D. Embezzlement of funds
29. Which of the following situations is the best example of fraud being committed?
A. During the year, management over-applied manufacturing overhead to products.
B. The manager in charge of purchasing materials did not try to get the best price on those materials from suppliers.
C. A cashier inadvertently gave too much change back to a customer from their purchase.
D. Without proper authorization, an employee uses a company vehicle for personal reasons.
30. Which of the following situations is not an example of fraud?
A. During the year, management estimated total overhead costs of $50,000 for purposes of the overhead application rate, but at the end of the year, total overhead costs were actually computed to be $58,000.
B. Without permission, an employee with access to company materials took home less than $10 worth of company materials.
C. A district manager intentionally reported $50 too much on his expense report for reimbursement of travel expenditures.
D. Management intentionally recorded the sale of a product in 2005 instead of 2006 in order to overstate net income.
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