CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE ONE
INTRODUCTION TO FORENSIC ACCOUNTING AND AUDIT
MONDAY: 22 April 2024. Morning Paper. Time Allowed: 3 hours.
Answer ALL questions 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 one of the following statements is NOT accurate in regard to forensic fraud audit?
A. Forensic audit is basically an investigation assignment
B. The objective of a forensic audit is to collect evidence to prove an allegation
C. Forensic audit is an investigative audit to resolve allegations of fraud from inception to disposition
D. All the above (1 mark)
2. A forensic accountant must know the difference between the following documents, EXCEPT .
A. An audit and forensic audit report
B. Audit and factual evidence
C. Information and evidence
D. Forensic audit and investigation report (1 mark)
3. Forensic auditors must be knowledgeable in the following areas, EXCEPT .
A. Identification of fraudulent accounting transactions
B. Detection of fraud and corruption schemes
C. Ability to conduct investigations in all areas without technical assistance
D. Identification of red flags and fraud risks (1 mark)
4. Failure to apply the respective IFRS in recognising revenue, expenses, improper asset valuation would result in which one of the following consequences?
A. Misrepresentation of the financial position
B. Both misrepresentation of the financial performance and position
C. Misrepresentation of the financial position
D. Overstated current ratio (1 mark)
5. Which one of the following is an item shown in the company’s statement of profit or loss and other comprehensive income?
A. Long term revenue
B. Capital expenditure
C. Revenue
D. Cost of goods (1 mark)
6. Which one of the following statements is ACCURATE in regard to the statement of financial position and statement of financial performance?
A. Current assets are generally presented before the non- current assets in the statement of financial position
B. Non- current assets are recorded in the statement of financial performance
C. The statement of owner’s equity is recorded in the statement of financial performance
D. Current assets are generally presented first in order of maturity (1 mark)
7. Which one of the following statements is ACCURATE in regard to payables, receivables, liabilities, inventory, cash and bank?
A. The above items are recorded in the balance sheet and are used to calculate the quick ratio to measure an organisation’s liquidity
B. A current ratio that is too favorable is a red flag of overstated receivables, inventories or understated current liabilities or both
C. A current ratio can fraudulently be deflated overstated and understated receivables and payables respectively
D. All the above (1 mark)
8. Fraudsters can balance an accounting equation fraudulently debiting any account. Which one of the following actions would NOT balance the accounting equation?
A. Reducing an asset
B. Increasing an expense
C. Decreasing a liability
D. All the above (1 mark)
9. Which one of the following entries would help to conceal misappropriation of funds?
A. Increasing revenue
B. Reducing an expense
C. Reducing payables
D. All the above (1 mark)
10. Making a credit entry in any account would help to conceal an asset misappropriation. Which one of the following entries in the following accounts can help to conceal an asset misappropriation?
A. Increasing a liability
B. Increasing an asset
C. Increasing revenue
D. All the above (1 mark)
11. Peter runs a medium construction company. He got a contract to be performed over a period of five years. Peter 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. Peter recorded the whole contract revenue amount in December of Year 2.
Which one of the following statements is NOT accurate in regard to the recording of the revenue?
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)
12. ABC company recorded substantial profits in the statement of profit and loss. The statement of cash flow recorded negative balances from the operating activities. Which one of the following activities could have taken place?
A. Understated revenue
B. Overstated revenue
C. Overstated payables
D. Overstated non- current assets (1 mark)
13. Which one of the following is NOT accurate in regard to the accounting model?
A. Assets = Liabilities + Owners’ Equity
B. Liabilities = Assets + Owners’ Equity
C. The accounting model is presented in the balance sheet
D. All the above (1 mark)
14. Which one of the following statements is ACCURATE in regard to concealment of cash embezzlement be used to balance the accounting equation to conceal cash misappropriation?
A. Reducing revenue can conceal cash embezzlement
B. Increasing a liability can conceal cash embezzlement
C. Reducing an expense can conceal cash embezzlement
D. All the above can conceal cash embezzlement (1 mark)
15. The statement of cash flows from operations activity often used together with the statement of profit or loss 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 performance
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 liquidity
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)
16. Which one of the following financial elements is recorded on the statement of financial position of an organisation?
A. Revenue
B. Expenses
C. Gross profit
D. Current liabilities (1 mark)
17. Which one of the following fraudulent financial transaction would affect the statement of financial position?
A. Fictitious revenue
B. Overstated cost of goods
C. Accrual of expenses
D. All the above (1 mark)
18. If a company is a victim of fraud. Which one of the following exercises should it conduct to respond to the fraud to prove or disapprove allegations?
A. An in-depth audit
B. Forensic audit
C. Fraud audit
D. Special audit (1 mark)
19. Which one of the following statements is NOT true regarding the 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. It shows the entity’s financial position and performance (1 mark)
20. Direct expenses for generating revenue should be recorded the same financial period. Failure to record accordingly would result into which of the following?
A. Inflated gross profit
B. Overstated revenue
C. Understated net profit
D. None of the above (1 mark)
21. 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. Valuation value
B. Cost less accumulated depreciation
C. Current market value less accumulated depreciation
D. All the above (1 mark)
22. Which one of the following statements is NOT accurate with regard to net profit?
A. Net profit is recorded in the statement of profit and loss
B. Net profit is equal to gross profit less operating expenses
C. Net profit is equal to revenue less cost of revenue
D. All the above (1 mark)
23. A fraudster wanted to conceal the removal of a liability from the books. Which one of the following actions would
NOT balance the accounting equation?
A. Increasing owners’ equity
B. Decreasing an expense
C. Decreasing an asset
D. Decreasing a liability (1 mark)
24. The ability of an organisation to continue at least in next financial year is reflected in the international accounting standards (IAS) accounting concept of .
A. Consistency
B. Comparability
C. Going concern
D. All the above (1 mark)
25. Which one of the following activities is NOT a category of the statement of cash flow item?
A. Operating activities
B. Investment activities
C. Strategic activities
D. Financing activities (1 mark)
26. Expenses and revenue are required to be recorded in the same financial period. Which one of the following terms refers to this concept?
A. Comparability
B. Going concern
C. Materiality
D. Matching principles (1 mark)
27. Recognising revenue for work that will be performed in the next financial year would affect which of the following financial items?
A. Revenue will be understated
B. Receivables will be overstated
C. Current ratio will be understated
D. All the above (1 mark)
28. Which one of the following statements is CORRECT in regard to IFRS in regard to financial statements?
A. IFRS enhance transparency, comparability and trust in the global financial sector
B. IFRS helps to increase the net worth and cash flows in the statement of financial position
C. IFRS financial reporting standards are mandatory for financial reporting in all jurisdictions
D. None of the above (1 mark)
29. Which one of the following statements is NOT accurate in regard to the 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 true financial performance
B. The statement of cash flows reports a company’s assets and uses of cash during the accounting period
C. There are three types of cash flows activities; cash flows from operating activities, investments activities and financing activities
D. All the above (1 mark)
30. 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.
Which one of the following phrases explains failure to disclose the information indicated above?
A. Limited disclosure
B. Inadequate disclosure
C. Accounting fraud
D. Related party transactions (1 mark)
31. Financial ratios can be used to detect improper recognition of revenue. Which one of the following ratios can be used to detect the misrepresentation?
A. Asset turnover ratio
B. Non-current ratio
C. Receivables turnover ratio
D. Inventory turnover ratio (1 mark)
32. The accounting standards require that government institution to include progress on auditor’s recommendations, pending bills note and analysis and IFMIS generated reports among others. Which one of the following statements is NOT correct in regard to failure to include the above reports?
A. There is evidence of financial statement fraud
B. There is a high risk of financial statement fraud
C. There is a high risk of asset misappropriation
D. All the above (1 mark)
33. It is now a requirement under IPSAS to 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 one of the following statements is NOT accurate in regard to a scenario where the note and analysis on pending bills in the financial statement and the pending bills listing do not tally?
A. There is a red flag of overstated pending bills
B. There is a red flag of concealment of actuals versus budget
C. There is red flag of cash misappropriation
D. All the above (1 mark)
34. When planning an audit of an entity’s financial statements under IPSAS, which one of the following statements is
NOT a major concern 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. That the entity’s finance team are all certified accountants
C. The entity has arrangements in place to produce reliable financial statements, along with adequate supporting working papers, to an acceptable timetable
D. The entity’s finance team has sufficient knowledge and understanding of IPSAS and their applicability to the entity’s Financial Statements (1 mark)
35. Forensic accountants and auditors are expected to observe the following code of ethics, EXCEPT .
A. Confidentiality, commitment, diligence and lawfulness
B. Integrity, independence and objectivity
C. Responsibility to the profession
D. Lack of professional development (1 mark)
36. Which one of the following statements is CORRECT in regard to internal controls environment in regard to accounting?
A. Internal controls do not protect company assets
B. There is an accounting standard for internal controls
C. Internal controls help in managing fraud risks
D. All the above (1 mark)
37. Audits are now required to be risk-based audit. Which one of the following statements BEST describes risk based audit?
A. The auditor should prioritise the audit according to the level of the risk, that is, high to medium approach
B. The auditor should have advanced knowledge in risk management.
C. To detect fraud in high-risk areas, the auditor uses tests and procedures that are used in routine audits
D. The auditor should be knowledgeable in fraud risk identification, assessment and investigations of fraud risks (1 mark)
38. Which one of the following terms can be used interchangeably with fraud examinations?
A. Forensic fraud audit
B. Proactive forensic audit
C. Fraud audit
D. All the above (1 mark)
39. Forensic investors 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. Basic accounting concepts (1 mark)
40. 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 consequences, EXCEPT .
A. Misrepresentation of the statement of financial position
B. Faithful presentation of the financial performance
C. Allegations of fraudulent financial reporting
D. All the above (1 mark)
41. Which one of the following is the BEST description of what is shown on a company’s statement of profit or loss and other comprehensive income?
A. The company’s financial position at the end of the financial year
B. The changes in the total owners’ equity amount listed on the statement of financial position
C. The company’s profit (or loss) during the financial year
D. The company’s sources and uses of cash during a particular period of time (1 mark)
42. Which one of the following statements is ACCURATE in regard to the statement of financial position?
A. Non-current assets are generally presented on the statement of financial position in order of maturity
B. Statements of financial position is usually manipulated overstating assets and understating liabilities
C. Revenues and expenses accounts are recorded in statement of cash flow
D. All the above (1 mark)
43. Expenses, revenue, retained earnings and tax payments are recorded in which of the following financial statement?
A. Statement of changes in owners’ equity
B. Statement of profit and loss
C. Statement of cash flows
D. Statement of profit or loss and other comprehensive income (1 mark)
44. If a fraudster wanted to conceal the misappropriation of cash. Which one of the following actions would NOT
result in a balanced accounting equation?
A. Reducing owners’ equity
B. Creating an expense
C. Decreasing a liability
D. Reducing an expense (1 mark)
45. If a fraudster wanted to conceal the misappropriation of cash, which one of the following actions would help to conceal an asset misappropriation?
A. Decreasing an asset
B. Decreasing an expense
C. Decreasing a liability
D. All the above (1 mark)
46. Making a debit entry in any account would help to conceal an asset misappropriation. Which one of the following entries in the following accounts CANNOT help to conceal an asset misappropriation?
A. Increasing payables
B. Increasing an asset
C. Increasing an expense
D. None of the above (1 mark)
47. Jones runs an IT company. He uses accrual basis of accounting. In December of Year 1, Jonathan 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. Jonathan recorded the contract revenue in December of Year 1.
Which one of the following is NOT accurate about the recording of that financial transaction?
A. The revenue should be recorded in December when Jones received the cash
B. Both the revenue and expenses should be recorded in the next financial year
C. This transaction will misrepresent the revenue earned during that financial year
D. All the above (1 mark)
48. XYX company recorded substantial profits. The statement of cash flows recorded negative balances from the operating activities.
Which one of the following actions is NOT a red flag of financial statement fraud?
A. Fictitious revenue scheme
B. Skimming of receivables
C. Overstated payables
D. All the above (1 mark)
49. Which one of the following is the CORRECT accounting model?
A. Assets + Liabilities = Owners’ Equity
B. Assets = Liabilities + Owners’ Equity
C. Assets = Liabilities – Owners’ Equity
D. None of the above (1 mark)
50. Which one of the following choices can help conceal cash misappropriation balancing the accounting equation?
A. Increasing revenue
B. Increasing a liability
C. Reducing an expenditure
D. Creating an asset (1 mark)
51. Which one of the following statements is ACCURATE with regard to the statement of cash flows?
A. The statement of cash flows helps to measure the efficiency of cash management of an organisation
B. The statement of cash flows is necessary for those companies that use cash-basis accounting rather than accrual accounting
C. There are four types of cash flows: cash flows from operating activities, from investing activities, from financing activities and from payment activities
D. The statement of cash flows shows a company’s financial performance and position at the end of a given period (1 mark)
52. Which one of the following items appears on the statement of profit and loss?
A. Receivables
B. Current assets
C. Expenditure
D. Capital expenditure (1 mark)
53. Sue, 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, Sue explained the requirements under the International Financial Reporting Standards. Those standards require that the financial statements should include all material information that would affect the financial performance or position of the organisation, at least in the next financial year.
This requirement is referred to as .
A. Relevance
B. Comparability
C. Adequate disclosures
D. Inadequate disclosures (1 mark)
54. A major company in the fintech 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. An independent audit
B. Forensic accounting
C. Fraud investigation
D. Fraud audit (1 mark)
55. The Benford’s Law can be useful in detecting fraudulent financial transactions. Which one of the following statements is CORRECT in regard to Benford’s Law?
A. Benford’s Law cannot help to identify red flags of fraud
B. Benford’s Law can only work with natural numbers
C. Benford’s Law can work with both natural and unnatural numbers
D. Benford’s Law is function incorporated in most data analysis tools (1 mark)
56. Which one of the following statements is CORRECT in regard to the statement of changes in owners’ equity?
A. Changes in owners’ equity 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 cash flows
C. Owners’ equity acts as a link between the statement of financial position, the statement of profit or loss and other comprehensive income and non-current liabilities
D. It shows the company’s major liabilities over the financial year (1 mark)
57. Revenue and cost of generating revenue should be recorded in the same accounting period. This accounting principle is called .
A. Corresponding principle
B. Double entry principle
C. Comparability principle
D. Matching principle (1 mark)
58. Under the IAS 16, 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 less costs to sell (1 mark)
59. Which one of the following statements is CORRECT with regard to gross margin?
A. Gross margin is the difference between cost of sales and operating costs
B. Gross margin is equal to net sales less cost of goods sold
C. Gross margin is equal to revenue less operating expenses
D. Gross margin is equal to net sales less cost of and operating cost (1 mark)
60. To conceal the removal of a liability from the books, which of the following actions would NOT balance the accounting equation and therefore not conceal the fraud?
A. Increasing owners’ equity
B. Increasing revenue
C. Increasing an asset
D. Increasing a different liability (1 mark)
61. Which one of the following activities is NOT an important a category of the statement of cash flows in measuring a company’s financial performance?
A. Operating activities
B. Investment and financing activities
C. Financing activites
D. All the above (1 mark)
62. Which one of the following statements is NOT accurate in regard to improper disclosures?
A. Disclosures amounts are financial statements items
B. Disclosures amounts are not financial statements items
C. Disclosures should be part of financial reporting
D. Failure to include disclosures would fraudulently affect the financial reporting (1 mark)
63. Which one of the following actions would fraudulently affect the current ratio and therefore misleading decision makers?
A. Ommision of expenses
B. Proper valuation of inventory
C. Adequate provision for bad doubtful debts
D. Accrual of expenses (1 mark)
64. 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. Statement of profit and loss (1 mark)
65. Which one of the following statements 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. All the above (1 mark)
66. International Financial Reporting Standards (IFRS) provides financial reporting standards to prevent misrepresentation of financial statements. Those standards have established guidance on several reporting areas.
Which one of the following is NOT one of those reporting areas?
A. Revenue recognition
B. Asset valuation
C. Disclosures
D. Liabilities recognition (1 mark)
67. When planning an audit of an entity’s financial statements under IPSAS, which one of the following statements is
NOT true about the 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 must have advanced skills and experience in 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. All the above (1 mark)
68. According to the Association of certified Fraud Examiners the code of conduct for fraud examiners is based on several principles.
Which one of the following principles is NOT one of them?
A. Confidentiality
B. Integrity and objectivity
C. Independence
D. Partiality (1 mark)
69. Which one of the following statements is a type of financial statement fraud?
A. Failure to recognise unearned revenue
B. Providing adequate provision for bad and doubtful debts
C. Improper valuation of current assets
D. All the above (1 mark)
70. Which one of the following actions is NOT a type of financial statement fraud?
A. Improper asset valuations
B. Accrual of expenses
C. Capitalisation of expenditure
D. Inadequate disclosures (1 mark)
71. Procurement fraud is a high risk in almost every organisation. Which one of the following exercises should an auditor perform when auditing the procurement function?
A. Forensic audit
B. Fraud audit
C. Value for money audit
D. Fraud investigation (1 mark)
72. Which one of the following assignments would NOT require a forensic accountant?
A. Fraud detection audit
B. Calculation in lawsuits
C. Business valuation
D. Business (1 mark)
73. ABC Limited seeks to invite potential investors into the company. The management inflated the financial performance of the company. Which one of the following types of financial statement fraud scheme did management likely engage in?
A. Improper assets valuation
B. Concealment of expenditure
C. Improper disclosure
D. All the above (1 mark)
74. Which one 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 deflated current ratio
D. Fictitious sales will result in inflated current ratio (1 mark)
75. Which one of the following choices is NOT a root causes of financial statements fraud?
A. Rationalisation
B. Social pressure
C. Low perception of detection
D. Opportunity (1 mark)
76. 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. Corresponding principle
D. Matching principle (1 mark)
77. Which one of the following statements of cash flows activities is a type of cash flows from operating activities?
A. Investment dividends
B. Share capital
C. Cash from sale of an asset
D. Cash from receivables (1 mark)
78. Which one of the following financial ratios can be used to measure an organisation’s ability to meet its immediate daily financial operations?
A. Quick ratio
B. Asset turnover ratio
C. Current liability ratio
D. Cost of sales ratio (1 mark)
79. Which one 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 order of maturity
B. Statements of financial position is usually manipulated understating assets and overstating liabilities
C. The statement of financial position shows the net worth of a company at a given financial reporting date
D. Revenues and goodwill accounts are recorded in statement of financial comprehensive income (1 mark)
80. Which one of the following statements is the most common type of financial statements fraud?
A. Overstated revenue and understated expenditure
B. Overstated liabilities and expenses
C. Understated payables
D. Understated non-current assets (1 mark)
81. Which one of the following statements is NOT correct in regard to recording of payables?
A. Failure to record payables would inflate the current ratio
B. Failure to record payables would inflate the profit
C. Failure to accrual expenses would deflate the current ratio (1 mark)
D. All the above
82. Which one of the following statements is NOT accurate in regard to forensic audit?
A. The assumption is that the forensic audit might end up in court
B. The forensic audit should be conducted only on sufficient suspicion
C. The scope of a forensic audit must cover all misconducts discovered during the investigation
D. The results of a forensic audit can be used for many purposes including recovery of lost resources
(1 mark)
83. Which one of the following characteristics is NOT associated with a good forensic auditor?
A. Fair and firm
B. Partial
C. People’s person
D. Patience (1 mark)
84. Which one of the following statements is NOT accurate in regard to forensic audit reports?
A. The conclusion of a forensic audit report includes a summary of the findings
B. The introduction section of the forensic audit report includes all the terms of reference of the forensic audit
C. The introduction section of the forensic audit report includes, what prompted the investigations and the objective of the forensic audit
D. The conclusion section of the forensic audit report includes a recommendation of the next course of action (1 mark)
85. Which one of the following statements is NOT accurate in regard to forensic auditors?
A. A well trained and experienced accountant/auditor cannot conduct effective forensic audits
B. A well trained and experienced accountant/auditor can also conduct effective forensic audits
C. A forensic auditor must have good knowledge of law related to fraud and rules of evidence
D. All the above (1 mark)
86. Which of the following statements is CORRECT in regard to IFRS and financial reporting?
A. Strict adherence to IFRS would result to unfair 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 fair representation of the financial performance and position of an organisation
D. All the above (1 mark)
87. Which one of the following terms is NOT an item shown in the company’s statement of profit or loss and other comprehensive income?
A. Payables
B. Bad debts
C. Expenditure
D. Depreciation (1 mark)
88. Which one of the following terms is NOT an item shown in the statement of owners’ equity?
A. Expenditure
B. Net income
C. None of the above
D. Retained earnings (1 mark)
89. Which one of the following essential skills is NOT necessary for a forensic accountant?
A. Investigative skills
B. Accounting skills
C. Good report writing skills
D. Technical skills in all areas (1 mark)
90. XYZ Limited seeks to invite potential investors into the company. The management inflated the financial position of the company. Which one of the following types of financial statement fraud scheme did management likely engage in?
A. Concealment of liabilities
B. Overstatement of expenditure
C. Improper disclosure
D. All the above (1 mark)
91. In which of the following scenarios would one hire a forensic accountant?
A. Business valuation
B. To prove and determine guilt or innocence of a suspect through investigation report and evidence
C. Assist in conducting an interview of a suspect
D. All of the above (1 mark)
92. Which one of the following statements is CORRECT in regard to statement of financial position?
A. It shows profit before tax but after expenses
B. Loans payable are presented as current and non-current liabilities
C. Revaluation surplus is shown in current assets
D. Statement of changes in equity excludes share premium (1 mark)
93. Which one of the following statements is CORRECT in regards to Journal entries?
A. Journal entries include both adjusting and re-classifying entries
B. increase inventory, liabilities and revenue accounts
C. Journal entries can be used to adjust errors but not estimates in ledger accounts
D. Journal entries are part of complete set of financial statements (1 mark)
94. Jameni is a forensic accountant investigating financial statement fraud involving revenues. He noted that one of the vehicles brand on promotion was sold with a one-year free service after date of service. If a customer does not turn up for the service, within the year, the free service is forfeited. The promotion was running from August 2023 to October 2023. In his investigation, he discovered that the invoiced values of the cars were booked as revenues for the year 2023 since all were raised within the same year. The company financial reporting year end is 31st December 2023.
Which one of the following statements is CORRECT in regards to accounting for revenue in accordance to IFRS 15?
A. The invoiced amounts should be allocated to performance obligations before recognising revenue
B. Revenue should be prorated over the one-year period on equal
C. Instalments
D. Revenue should be recognised after the end of the free service (1 mark)
95. Which one of the following is a complete set of financial statements?
A. Statement of cash flows, statement of changes in revenues, statement of finance position, statement of retained earnings, statement of expenses
B. Statement of cash flows, statement of changes in equity, statement of financial position, notes and statement of income
C. Statement of cash flows, statement of changes in equity, statement of financial position, notes and statement of expenses
D. Statement of cash flows, statement of changes in liabilities, statement of finance position, notes and statement of income (1 mark)
96. Which one of the following statements can be used together with the statement of profit or loss to evaluate a company’s true financial performance in regards to profitability and liquidity?
A. Statement of cash flows
B. The statement of financial position
C. Statement of retained earnings
D. Profit or loss statement (1 mark)
97. Which one of the following statements is CORRECT with regard to the statement of cash flows?
A. If a company shows large profits in its income statement but generate positive cash flows from operations and negative investing activities is not a red flag of management fraud
B. A statement of cash flows is not part of financial statements
C. Cash flows used in loan repayments are not part of financing activities
D. All the above (1 mark)
98. The statement of changes in equity acts as a summary of which one of the following?
A. Statement of owners balances as at the end of the reporting year
B. Statement of financial position and statement of cash flows
C. Statement of cash flows and the statement of retained earnings
D. Statement of cash flows, the statement of financial position and statement of operating activities (1 mark)
99. The statement of cash flows in its cash flows from operating activities would include .
A. Changes in trade receivables, depreciation adjustment and changes in inventory
B. Cash flows from tax expense
C. Receipts from sale of non-current assets
D. Loans repayment (1 mark)
100. If an accountant detects manipulation of the bank statement, where two presented Cheques of shillings one hundred thousand and two hundred thousand respectively are listed as unpresented cheques, which one of the following terms explain this scenario?
A. Risk of fraud
B. Fair presentation
C. Materiality
D. Comparability and consistency (1 mark)
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