INTRODUCTION TO FORENSIC ACCOUNTING AND AUDIT AUGUST 2023 PAST PAPER

MONDAY: 21 August 2023. Morning Paper. Time Allowed: 3 hours.

Answer ALL questions by indicating the letter (A, B, C or D) that represents the correct answer. This paper is made up of one hundred (100) Multiple Choice Questions. Each question is allocated one (1) mark.

1. Which of the following statements is NOT accurate in regard to forensic audit?

A. Forensic audit should be prompted by sufficient predication
B. The objective of a forensic audit is to collect evidence to prove an allegation
C. Forensic audit is a methodology of resolving allegations of fraud from inception to disposition
D. None of the above (1 mark)

2. In addition to auditing skills, a forensic auditor must know the difference between which of the following EXCEPT?

A. An audit report and forensic audit report
B. Audit evidence and factual evidence
C. Information and evidence
D. None of the above (1 mark)

3. Forensic auditors do not necessarily have to be accountants; however, they must be knowledgeable in which of the following EXCEPT?

A. Identification of red flags and risks of fraud
B. Identification and detection of fraud and corruption schemes
C. Basic Knowledge in financial reporting standards in both the private and public sector
D. None of the above (1 mark)

4. Which of the following is NOT an item shown in the company’s statement of profit or loss and other comprehensive income?

A. Earned revenue
B. Customers’ deposits
C. Cost of revenue
D. None of the above (1 mark)

5. Which of the following is NOT an item shown in the company’s statement of profit or loss and other comprehensive income?

A. Prepaid revenue
B. Earned revenue
C. Incurred expenses
D. None of the above (1 mark)

6. Which of the following statements is NOT accurate in regard to the statement of financial position?

A. Current assets are generally presented first in order of liquidity on the statement of financial position
B. Liabilities are recorded in the statement of financial position in order of maturity
C. The statement of owner’s equity is recorded in the statement of financial position
D. Current assets are generally presented first in order of maturity on the statement of financial position
(1 mark)

7. Which of the following statements is NOT accurate in regard to forensic audit?

A. The assumption of a forensic audit is that it might end up in litigation
B. The forensic audit should be conducted only on sufficient predication
C. The scope of a forensic audit should be wide enough to uncover as much information as possible
D. None of the above (1 mark)

8. Which of the following is NOT a characteristic of a good fraud examiner?

A. Patience
B. Compassionate
C. Formal
D. None of the above (1 mark)

9. Which of the following is NOT correct in regard to forensic audit and audit reports?

A. The conclusion of an audit report is an opinion
B. The conclusion of a forensic audit report is a summary of the findings
C. The conclusion of a forensic audit report is recommendation on how to resolve fraud issues
D. None of the above (1 mark)

10. Which of the following is ACCURATE about Forensic audit?

A. An accountant/auditor has the necessary skills and knowledge to conduct forensic audit
B. Forensic audit is basically an investigation
C. Forensic audit is a special audit
D. All the above (1 mark)

11. Which of the following is ACCURATE in regard to IFRS?

A. Disclosures in financial statements is one of the IFRS requirements
B. IFRS’s does not leave room for interpretation
C. IFRS’s does not require lengthy disclosures on financial statement
D. None of the above (1 mark)

12. Which of the following is ACCURATE in regard to IFRS and financial reporting?

A. Strict adherence to IFRS would result in fair representation of the financial performance of an organisation
B. Strict adherence to IFRS would result in an understated performance of an organisation
C. Strict adherence to IFRS would result in misrepresentation of the financial position of an organisation
D. None of the above (1 mark)

13. Which of the following is NOT an item shown in the company’s statement of profit or loss and other comprehensive income?

A. Revenue
B. Bad debts
C. Expenditure
D. Liabilities (1 mark)

14. Which of the following statements is ACCURATE in regard to statement of financial position?

A. The statement of financial position shows the financial performance of a company over a financial year
B. The accounts that appear on the balance sheet include revenues and expenses
C. Assets are generally presented on the balance sheet in order of value
D. None of the above (1 mark)

15. Which of the following statement is CORRECT in regard to justification for a departure from International Financial Reporting Standards (IFRS)?

A. Departing from IFRS would make the company appear more profitable
B. Compliance with IFRS is too costly than using an alternative method
C. The literal application of IFRS would result in misleading financial statements
D. None of the above (1 mark)

16. Which of the following statements is ACCURATE in regard to gross profit?

A. Gross profit is the same as net profit
B. Gross profit is equal to revenues minus operating expenses
C. Gross profit is equal to net sales less cost of goods sold
D. All the above (1 mark)

17. Notes payable, current assets, retained earnings and accumulated depreciation are recorded in which of the following financial statements?

A. Statement of profit and loss
B. Statement of changes in owners’ equity
C. Statement of cash flows
D. None of the above (1 mark)

18. Which of the following types of accounts are increased by debits?

A. Owners’ equity
B. Revenue
C. Liabilities
D. None of the above (1 mark)

19. The statement of changes in owners’ equity acts as the connecting link between which two financial statements?

A. Statement of financial position and statement of retained earnings
B. Statement of profit and loss and statement of financial position
C. Income statement and statement of cash flows
D. Statement of cash flows and balance sheet (1 mark)

20. Julie runs a printing company and has a printing press that she uses in her business. She purchased the press from a friend for Sh.700,000. The current market price for the same type of press is Sh.900,000. The press was valued at Sh. 800,000. Which of the following is the correct amount that should be recorded in the books of asset account?

A. Sh.700,00
B. Sh.900,000
C. Sh.800,000
D. None of the above (1 mark)

21. Which of the following could be used to balance the accounting equation to conceal cash stolen?

A. Increasing another asset
B. Increasing a liability
C. Increasing revenue
D. All of the above (1 mark)

22. Carey runs a food service company. He uses the accrual basis of accounting. In December of Year 1, a customer placed an order with him to cater for wedding party that would take place in February of Year 2. The contract was signed and the balance was paid in full when the order was placed in December. When should Carey recognise the revenue from this party and the associated expenses?

A. Both the revenue and expenses should be recorded in December
B. It does not matter because it is up to Carey to decide whether he reports the revenue and expenses in
December or February
C. The revenue should be recorded in December when Carey received the cash, and the expenses should be recorded in February after the party takes place
D. Both the revenue and expenses should be recorded in February (1 mark)

23. Which of the following term BEST describe gross profit less operating expenses?

A. Gross revenues
B. Net sales
C. Cost of goods sold
D. None of the above (1 mark)

24. Which of the following is the CORRECT accounting model?

A. Assets = Liabilities – Owners’ Equity
B. Assets = Liabilities + Capital
C. Assets + Liabilities = Owners’ Equity
D. None of the above (1 mark)

25. Which accounting principle requires corresponding expenses and revenue to be recorded in the same accounting period?

A. Consistency
B. Comparability
C. Faithful representation
D. None of the above (1 mark)

26. If a fraudster wants to conceal the misappropriation of cash, which of the following entries will NOT result in a balanced accounting equation?

A. Creating an expense
B. Decreasing an expense
C. Decreasing a liability
D. Reducing owners’ equity (1 mark)

27. Which of the following does NOT appears on the statement of profit or loss?

A. Expenses
B. Revenues
C. Non -current assets
D. None of the above (1 mark)

28. Which of the following types of accounts are increased by credits?

A. Expenses
B. Assets
C. Owners’ equity
D. All of the above (1 mark)

29. Which of the following is NOT accurate regarding cash-basis accounting?

A. Expenses are recorded in the accounting system when they are paid
B. Cash-basis accounting is easier to use than accrual-basis accounting
C. Revenues are recorded in the accounting system when the company receives cash
D. None of the above (1 mark)

30. Bravo Osoro, a Certified Fraud Examiner (CFE), was hired to serve as an expert accounting witness in a case of alleged financial statement fraud. As part of his expert testimony, Bravo explained that, under International Financial Reporting Standards (IFRS), management must ensure that the company’s financial statements are complete, neutral, and free from error. Which of the following BEST describe this concept?

A. Faithful representation
B. Going concern
C. Comparability
D. None of the above (1 mark)

31. Which of the following statements is ACCURATE in regard to the statement of cash flows?

A. The statement of cash flows is often used in tandem with the income statement to determine a company’s true financial position
B. The statement of cash flows is not always necessary because most companies operate under cash-basis
accounting rather than accrual-basis accounting
C. There are four types of cash flows: cash flows from operating activities, from investing activities, from
financing activities and from expenditure activities
D. None of the above (1 mark)

32. Which of the following term BEST describe the concept that a business will continue at least in the next financial year?

A. Matching principle
B. Net worth
C. Relevance
D. None of the above (1 mark)

33. Which of the following statements is NOT correct regarding the statement of cash flows?

A. The statement of cash flows is often used in tandem with the income statement to determine a company’s true financial performance
B. The statement of cash flows reports a company’s sources and uses of cash during the accounting period
C. There are three types of cash flows: cash flows from operating activities, from investing activities and from financing activities
D. The statement of cash flows shows a company’s financial position at a specific point in time (1 mark)

34. Which of the following item is presented first on the statement of profit or loss?

A. Sales
B. Net profit
C. Operating expenses
D. Net sales (1 mark)

35. The details of how much profit a company earned over a particular period of time is shown in which of the following statements?

A. Balance sheet
B. Statement of changes in owners’ equity
C. Statement of cash flows
D. None of the above (1 mark)

36. Which of the following is the proper basis for initially recording a piece of equipment on a company’s books?

A. Selling value
B. Current market value
C. Valuation Value
D. None of the above (1 mark)

37. Which of the following statements is NOT accurate in regard to current ratio?

A. A current ratio that is too favourable is a sign of good financial performance
B. A current ratio that is too favourable is a red flag of either overstated receivables, inventories or understated current liabilities or both
C. A current ratio can fraudulently be affected by overstated and understated receivables and payables
respectively
D. None of the above (1 mark)

38. Asset misappropriation of cash can be concealed by fraudulently balancing the equation. Which of the following entries would balance the accounting equation?

A. Reducing an expense
B. Increasing a liability
C. Reducing an asset
D. None of the above (1 mark)

39. If a fraudster wanted to conceal misappropriation of cash, which of the following actions would help to conceal an asset misappropriation?

A. Increasing revenue
B. Reducing an expense
C. Increasing an asset
D. None of the above (1 mark)

40. Rashid runs a construction company. He got a contract to be performed over a period of three years. Rashid signed a contract for the full contract amount with the client. By the end of Year 2 the company had performed and delivered only one third of the contract. Rashid recorded the whole contract revenue amount in December of Year 2. Which one of the following is NOT accurate in regard to recording of that financial transaction?

A. The revenue was recorded in accordance with the IFRS standard for recognising revenue
B. The transaction overstated the revenue earned during that financial year
C. The transaction is an example of a financial statement fraud scheme related to revenue timing differences
D. All of the above (1 mark)

41. Tembo Ltd. recorded substantial profits in the statement of profit or loss. The statement of cash flow recorded negative balances from the operating activities. Which of the following fraud scheme could have been perpetrated?

A. Theft of cash
B. Fictitious revenue scheme
C. Overstated expenses
D. All the above (1 mark)

42. The statement of cash flows is often used in tandem with the statement of profit or loss and other comprehensive income to determine which of the following?

A. The statement of cash flows is often used in tandem with the statement of profit or loss and other
comprehensive income to determine a company’s true financial position
B. The statement of cash flows is often used in tandem with the statement of profit or loss and other
comprehensive income to determine a company’s financial performance
C. The statement of cash flows is often used in tandem with the statement of profit or loss and other
comprehensive income to determine a company’s net worth
D. None of the above (1 mark)

43. Which of the following appears on the statement of financial position of an organisation?

A. Liabilities
B. Expenses
C. Gross profit
D. None of the above (1 mark)

44. Able, a Certified Forensic Fraud Examiner, was hired to serve as an accounting expert witness in a trial of alleged financial statement fraud. As part of his expert testimony, Able explained the requirements under International Financial Reporting Standards related to receivables. Those standards require that the receivables be recognised at a fair value. During the investigation, Able found that some of the overdue receivable accounts with substantial amounts were created from fictitious revenue and were still held in the receivables accounts and therefore were part of the end of year balance sheet items. Which of the following financial reporting would be fraudulently affected by the above scenario?

A. The receivables will be understated
B. The current ratio will be understated
C. Current ratio will be inflated
D. All the above (1 mark)

45. XYZ motor company received an anonymous tip alerting the company that there is a lot of fraud and corruption going on in the company, especially in their procurement and finance department. The person receiving the tips is knowledgeable in fraud issues and confirmed the allegation to be reliable. He also analysed available information in relation to the anonymous tip and found that there was sufficient suspicion of fraudulent activity. The company has an anti-fraud policy which requires the company to effectively respond to fraud allegations. Under the circumstances, which of the following assignment should the company NOT conduct?

A. Forensic investigation
B. Forensic audit
C. Forensic accounting
D. Fraud examination (1 mark)

46. Which of the following statements is NOT accurate in regard to statement of changes in owners’ equity?

A. It is similar to the statement of retained earnings
B. It shows how amounts on the statement of profit or loss and other comprehensive income flow through to the statement of financial position
C. It acts as the connecting link between the statement of financial position and the statement of profit or loss and other comprehensive income
D. None of the above (1 mark)

47. Cost of goods sold or other direct expenses for generating revenue should be recorded the same accounting period. Failure to do so would result in which of the following?

A. Overstated expenses
B. Overstated revenue
C. Overstated gross profit
D. None of the above (1 mark)

48. Under the IAS/IFRS, the proper basis for recording a piece of equipment, vehicle, building or land on a company’s books is at ______________________________.

A. Revaluation value
B. Cost value less accumulated depreciation
C. Current market value less accumulated depreciation
D. None of the above (1 mark)

49. Which of the following statements is NOT accurate with regard to net profit?

A. Net profit is recorded in the statement of financial position
B. Net profit is equal to gross profit less operating expense
C. Net profit flows to the statement of financial performance through the owner’s equity statement
D. None of the above (1 mark)

50. A fraudster wanted to conceal the removal of a liability from the books, which of the following actions would balance the accounting equation?

A. Increasing owners’ equity
B. Decreasing an expense
C. Decreasing an asset
D. All the above (1 mark)

51. Which of the following is a component of cash flow activity related to financing activity?

A. Cash in from revenue
B. Cash out from expenses
C. Cash in from a loan
D. None of the above (1 mark)

52. Which of the following is NOT a category of the statement of cash flow?

A. Operating activities
B. Investment activities
C. Revenue activities
D. All the above (1 mark)

53. Which accounting principle requires corresponding expenses and revenue to be recorded in the same accounting period?

A. Comparability
B. Going concern
C. Matching principle
D. None of the above (1 mark)

54. Which of the following statements is ACCURATE in relation to recognising revenue for work that is to be performed in the subsequent financial year?

A. Revenue will be understated
B. Receivables will be understated
C. Current ratio will be inflated
D. None of the above (1 mark)

55. Which of the following statement is CORRRECT in regard to IFRS and financial reporting?

A. IFRS helps to increase the net worth and cash flows in the statement of financial position
B. IFRS are mandatory for financial reporting in all jurisdictions
C. IAS generally replace IFRS
D. None of the above (1 mark)

56. Which of the following statements is CORRECT in regard to statement of cash flows?

A. The statement of cash flows is often used in tandem with the statement of profit or loss and other
comprehensive income to determine a company’s revenue growth
B. The statement of cash flows reports a company’s sources and application of cash during an accounting
period
C. There are three types of cash flows activities; cash flows from operating activities, investing activities and expenditure activities
D. None of the above (1 mark)

57. IFRS require that organisations disclose matters related to doubt about a company’s ability to fulfil its financial obligations at least in the next financial year, and any other important information that the users of the financial statement would need to know. ABC and XYZ companies are controlled by the same directors. The directors of both companies did not disclose the ownership/control relationship between the two companies. Which of the following financial statement fraud was perpetrated by the company’s directors?

A. Financial statement fraud
B. Inadequate disclosure
C. Accounting fraud
D. Related party transactions fraud (1 mark)

58. Which of the following financial ratios CAN be used to detect fictitious revenues and receivables?

A. Asset turnover ratio
B. Non-current ratio
C. Inventory turnover ratio
D. None of the above (1 mark)

59. Under IPSAS, MDAs financial statements should include progress on auditor’s recommendations, pending bills note and analysis and IFMIS generated reports among others. Which of the following is NOT correct in regard to failure to include the above reports?

A. There is red flag of financial statement fraud
B. There is a high risk of financial statement fraud
C. There is a high risk of asset misappropriation
D. None of the above (1 mark)

60. Which of the following is NOT true in regard to financial reporting in Kenya?

A. Kenya has adopted IFRS and IPSAS for financial reporting in the private and public sectors respectively
B. SMEs are required to use IFRS for SMEs even though they do not have public accountability
C. Nairobi Securities Exchange requires companies trading in securities to use IFRS
D. None of the above (1 mark)

61. International Financial Reporting Standards (IFRS) provide financial reporting guidelines to prevent
misrepresentation of financial statements. Which of following areas of reporting is NOT one of them?

A. Fair value measurement
B. Revenue recognition
C. Assets measurement
D. None of the above (1 mark)

62. IPSAS require that ministries include a note and analysis on pending bills in the financial statements and the listing included should agree to the pending bills note in the notes to the financial statements. Which of the following is NOT correct about a scenario where the note and analysis on pending bills in the financial statements and the pending bills listing differ.

A. There is a red flag of concealed pending bills
B. There is a red flag of concealment of actuals versus budget
C. There is red flag of cash misappropriation
D. None of the above (1 mark)

63. When planning an audit of an entity’s financial statements under IPSAS, which of the following is NOT one of the major concerns of the external auditors?

A. Acceptable financial and other information systems are in place, along with arrangements to provide annual assurance on the reliability of such systems
B. The entity has arrangements in place to produce reliable financial statements along with adequate
supporting working papers, to an acceptable timetable
C. The entity’s finance team has sufficient knowledge and understanding of IPSAS and their applicability to the entity’s Financial Statements
D. None of the above (1 mark)

64. Certified Fraud Examiners are guided by code of ethics. In the same way, forensic accountants and auditors are expected to observe. Which of the following is NOT a component code of ethics?

A. Confidentiality, commitment, diligence and lawfulness
B. Integrity, independence and objectivity
C. Responsibility to the profession
D. None the above (1 mark)

65. Which of the following statements is NOT correct about risk-based audit?

A. The auditor should prioritise the audit according to the level of the risk, that is, high to low approach
B. The auditor should be knowledgeable in fraud risk identification, assessment and response to fraud risks
C. To detect fraud in high-risk areas, the auditor uses tests and procedures specifically designed to detect fraud
D. None of the above (1 mark)

66. Which of the following terminologies CANNOT be used interchangeably with fraud investigations?

A. Forensic fraud audit
B. Fraud examination
C. Fraud audit
D. Forensic accounting (1 mark)

67. Fraud examiners do not necessarily have to be accountants; however, they must be knowledgeable in the following areas EXCEPT?

A. Advanced financial reporting
B. Identification of fraudulent financial transactions
C. Financial statement fraud schemes
D. All the above (1 mark)

68. Failure to apply the respective IFRS in recognising revenue, improper deferral of costs and expenses, improper asset valuations and inadequate disclosure could result to the following EXCEPT?

A. Misrepresentation of the statement of financial position
B. Misrepresentation of the financial performance
C. Claims of fraudulent financial reporting
D. None of the above (1 mark)

69. ABC Ltd. has always used the first-in, first-out (FIFO) inventory valuation method when calculating its cost of goods sold. This is industry standard for inventory valuation method for ABC Ltd. If management used another method that will result to reduced cost of goods. Which of the following BEST describes the outcome of this inventory valuation method?

A. The gross profit margin would be overstated
B. The gross profit would be understated
C. The closing stock would be understated
D. All the above (1 mark)

70. Which of the following statements is NOT accurate regarding the statement of financial position?

A. Current assets are generally presented on the statement of financial position in order of liquidity.
B. Statements of financial position is usually manipulated by overstating assets and understating liabilities.
C. The statement of financial position shows the financial performance of an organisation in a financial year
D. Revenues and expenses accounts are recorded in statement of financial performance (1 mark)

71. Inventory, receivables, retained earnings and deferred tax are recorded in which of the following financial statement?

A. Statement of changes in owners’ equity
B. Statement of cash flows
C. Statement of profit or loss and other comprehensive income
D. None of the above (1 mark)

72. A debit entry in any account would help to conceal an asset misappropriation. Which of the following accounting entries CANNOT help to conceal an asset misappropriation?

A. Decreasing an asset
B. Increasing an asset
C. Increasing an expense
D. None of the above (1 mark)

73. Elvis runs an IT company. He uses accrual basis of accounting. In December of Year1, Elvis signed a contract with a client. The client paid the full amount of the contract in December of Year 1 though the work was to be performed the following year. Elvis recorded the contract revenue in December of Year1. Which one of the following is ACCURATE in regard to the recording of that financial transaction?

A. The revenue should be recorded in December when Elvis received the cash, and the expenses should be recorded the following year when the work is performed
B. Both the revenue and expenses should be recorded in December
C. This transaction will not misrepresent the revenue earned during that financial year
D. None of the above (1 mark)

74. Jones, a Certified Forensic Fraud Examiner, was hired to serve as an accounting expert witness in a case of alleged financial statement fraud. As part of her expert testimony, Jones explained the requirements under International Financial Reporting Standards. Those standards require that the financial statements should be complete, neutral, and free from fraud or error. This concept is related to which of the following?

A. Comparability
B. Transparency
C. Consistency
D. None of the above (1 mark)

75. A major company in the Information technology industry wants to purchase another company. It would be advisable that the acquiring company conduct which of the following assignments before the acquisition to establish the real financial performance and position of the organisation?

A. Special audit
B. Forensic audit
C. Fraud investigation
D. None of the above (1 mark)

76. The Benford’s Law can be useful in detecting fraudulent financial transactions. Which of the following statements is NOT true in regard to Benford’s Law?

A. Benford’s Law can be help to identify patterns that indicative of fraud
B. Benford’s Law can only work with natural numbers
C. Benford’s Law cannot work with unnatural numbers
D. None of the above (1 mark)

77. Under the IFRS the proper basis for recording a piece of equipment, vehicle or building on a company’s books is at _______________________.

A. Historical cost or revaluation amount less accumulated depreciation
B. Sales value less accumulated depreciation
C. Current market value less accumulated depreciation
D. Revaluation value (1 mark)

78. The assumption that a business will continue at least in the next financial year is reflected in the accounting concept of ______________________.

A. Profitability
B. Comparability
C. Liquidity
D. Going concern (1 mark)

79. Which of the following category of the statement of cash flows activities is useful in measuring a company’s financial performance?

A. Revenue activities
B. Investment activities
C. Financing activities
D. None of the above (1 mark)

80. Which of the following statements is CORRECT in regard to improper disclosures?

A. Disclosures amounts are financial statements items
B. Disclosures should not be part of financial reporting
C. Failure to include disclosures would not fraudulently affect the financial reporting
D. None of the above (1 mark)

81. Which of the following, would NOT fraudulently affect the current ratio and therefore misleading decision makers?

A. Overstated revenue
B. Improper valuation of inventory
C. Inadequate allowance for bad doubtful debts
D. None of the above (1 mark)

82. Under IPSAS, MDAs financial statements should NOT include which one of the following disclosures?

A. Progress on auditor’s recommendations
B. Pending bills note and analysis
C. IFMIS generated reports
D. List of vendors and contractors (1 mark)

83. Which of the following is NOT true in regard to financial reporting in Kenya?

A. Kenya has adopted IFRS for financial reporting
B. Kenya has adopted IPSAS for financial reporting for MDAs
C. IPSAS financial reporting require that MDAs uses the accrual basis of accounting
D. None of the above (1 mark)

84. When planning an audit of an entity’s financial statements under IPSAS, which of the following is NOT correct in regard to external auditors ‘initial concern”?

A. Acceptable financial and other information systems are in place, along with arrangements to provide annual assurance on the reliability of such systems
B. The entity’s finance team have knowledge and understanding of IPSAS and their applicability to the
entity’s financial statements
C. The entity has arrangements in place to produce reliable financial statements, along with adequate
supporting working papers, to an acceptable timetable
D. None of the above (1 mark)

85. Which of the following is a type of financial statement fraud?

A. Omission of unearned revenue
B. Adequate allowance for bad and doubtful debts
C. Writing off obsolete inventory
D. None of the above (1 mark)

86. Which of the following is NOT a type of financial statement fraud?

A. Failure to write off bad debts
B. Concealed expenditure
C. Capitalisation of expenditure
D. None of the above (1 mark)

87. Procurement fraud is rampant in both public and private sector. Which of the following exercise should auditors perform when auditing procurement for purposes of evaluating economy, efficiency and effectiveness?

A. Forensic audit
B. Fraud audit
C. Procurement fraud audit
D. None of the above (1 mark)

88. Which of the following scenarios would NOT require a forensic accountant?

A. Calculation in lawsuits
B. Business valuation
C. Business combination
D. Value for money audit (1 mark)

89. ABC Limited is planning to issue sale of public shares. Management deliberately failed to write off a substantial amount of bad debts and obsolete inventory. Which of the following BEST describe the type of financial statement fraud that was perpetrated by management?

A. Improper assets valuation
B. Overstated assets
C. Understated debts
D. None of the above (1 mark)

90. Which of the following statements is NOT correct in regard to recording of fictitious sales?

A. Fictitious sales will result in overstated receivables
B. Fictitious sales will result in inflated profits
C. Fictitious sales will result in overstated current ratio
D. None of the above (1 mark)

91. Which of the following is NOT a root causes of financial statements fraud?

A. Rationalisation
B. Situational pressure
C. Opportunity
D. None of the above (1 mark)

92. Cost of goods sold and corresponding sales should be recorded in the same accounting period. This accounting principle is called?

A. Measuring concept
B. Double entry principle
C. Materiality principle
D. None of the above (1 mark

93. Which of the following statement of cash flows activities is NOT a type of cash flows from investing activities?

A. Cash in from sale of an asset
B. Cash out for payment of an asset
C. Cash in from dividends
D. None of the above (1 mark)

94. Which of the following financial ratios can be used to measure an organisation’s ability to meet its immediate daily financial operations?

A. Asset turnover ratio
B. Current ratio
C. Quick ratio
D. None of the above (1 mark)

95. Which of the following statements is NOT accurate regarding the statement of financial position?

A. Liabilities are generally presented on the statement of financial position in the order of their maturity.
B. The statement of financial position shows the net worth of an entity as at the end of a given financial
reporting period
C. Revenue and goodwill are recorded in the statement of financial position.
D. The statement of financial position provides a snapshot of the financial condition of an entity as at the
reporting date (1 mark)

96. Which of the following financial items increase owner’s equity?

A. Retained earnings
B. Revenue
C. Understated expenses
D. None of the above (1 mark)

97. Which of the following is the most common type of fraudulent financial reporting scheme?

A. Overstated revenue and understated expenditure
B. Overstated liabilities and understated revenue
C. Understated capital
D. Understated non – current assets (1 mark)

98. Which of the following is ACCURATE in regard to recording of current liabilities?

A. Failure to record payables would inflate the current ratio
B. Failure to record payables would understate the profit
C. Failure to accrual expenses would understate the current ratio
D. None of the above (1 mark)

99. Which of the following is an item shown in the company’s statement of financial position?

A. Revenue
B. Prepaid expenses
C. Cost of revenue
D. None of the above (1 mark)

100. Which of the following is ACCURATE in regard to recording of receivables?

A. Failure to record receivables would inflate the current ratio
B. Failure to record receivables would understate the profit
C. Failure to write off bad debts would understate the current ratio
D. None of the above (1 mark)

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