11) SAS No.

99 requires that auditors

A) plan audits based on an analysis of fraud risk.
B) detect all material fraud.
C) alert the Securities and Exchange Commission of any fraud detected.
D) take all of the above actions.
Answer: A
Page Ref: 125
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic
12) Which of the following is not a management characteristic that increases pressure to
commit fraudulent financial reporting?
A) Close relationship with the current audit engagement partner and manager
B) Pay for performance incentives based on short-term performance measures
C) High management and employee turnover
D) Highly optimistic earnings projections
Answer: A
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
13) Intentional or reckless conduct that results in materially misleading financial
statements is called
A) financial fraud.
B) misstatement fraud.
C) fraudulent financial reporting.
D) audit failure fraud.
Answer: C
Page Ref: 125
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
14) Researchers have compared the psychological and demographic characteristics of
white-collar criminals, violent criminals, and the general public. They found that
A) few differences exist between white-collar criminals and the general public.
B) white-collar criminals eventually become violent criminals.
C) most white-collar criminals invest their illegal income rather than spend it.
D) most white-collar criminals are older and not technologically proficient.
Answer: A
Page Ref: 126
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

15) Which of the following is an opportunity that could contribute to employee fraud?
A) an employee's spouse loses their job
B) an employee suddenly acquires lots of credit cards
C) an employee is upset that he was passed over for a promotion
D) close association with suppliers or customers
Answer: D
Page Ref: 129
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
16) Which of the following is a financial pressure that could cause an employee to
commit fraud?
A) a feeling of not being appreciated
B) failing to receive a deserved promotion
C) believing that their pay is too low relative to others around them
D) having a spouse injured in a car accident and in the hospital for several weeks
Answer: D
Page Ref: 127
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
17) Opportunity to commit fraud is comprised of three stages. The stage that often takes
most time and effort would include
A) stealing inventory from the warehouse.
B) selling stolen inventory to get cash.
C) lapping accounts receivable.
D) creating false journal entries to overstate revenue.
Answer: C
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
18) In many cases of fraud, the ________ takes more time and effort than the ________.
A) concealment; theft
B) theft; concealment
C) conversion; theft
D) conversion; concealment
Answer: A
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

19) Which of the following is the best way to hide theft of assets?
A) Creating "cash" through the transfer of money between banks
B) Conversion of stolen assets into cash
C) Stealing cash from customer A and then using customer B's balance to pay customer
A's accounts receivable
D) Charging the stolen asset to an expense account
Answer: D
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
20) In a ________ scheme, customer receipts are stolen and then subsequent payments by
other customers are misapplied to cover the theft of the original receipts.
A) kiting
B) laundering
C) bogus expense
D) lapping
Answer: D
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
21) One fraudulent scheme covers up a theft by creating cash through the transfer of
money between banks. This is known as
A) lapping.
B) misappropriation of assets.
C) kiting.
D) concealment.
Answer: C
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
22) Which characteristic of the fraud triangle often stems from a lack of internal controls
within an organization?
A) pressure
B) opportunity
C) rationalization
D) concealment
Answer: B
Page Ref: 129
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic