CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE ONE
INTRODUCTION TO FORENSIC ACCOUNTING AND AUDIT
MONDAY: 5 December 2022. 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 of the following is CORRECT about forensic accounting?
A. A forensic accountant must be an accountant
B. Forensic accounting is an in-depth audit
C. Forensic accounting is only conducted for court purposes
D. None of the above
2. Which of the following is TRUE about forensic fraud?
A. The objective of a forensic audit is to collect evidence to prove or disapprove an allegation
B. Forensic audit is a methodology of resolving fraud issues from inception to disposition
C. Forensic audit is an in-depth audit
D. All the above
3. 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 recommendations on actions to be taken based on evidence collected
D. None of the above
4. Which of the following is NOT true about Forensic auditors?
A. A well-trained and experienced accountant/auditor can also conduct effective forensic audits
B. Forensic auditor should be knowledgeable in fraud Identification and detection
C. Basic knowledge in financial reporting standards in both the private and public sector
D. All the above
5. Which of the following is NOT true in regard to International Financial Reporting Standards (IFRS’s)?
A. Disclosures in financial statements is one of the IFRS
B. IFRS’s do not leave room for interpretation
C. IFRS’s leave room for interpretation
D. IFRS’s require lengthy disclosures on financial statement
6. Which of the following is NOT true in regard to International Financial Reporting Standards (IFRS’s) 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 fair representation of the financial position of an organisation
D. None of the above E.
7. 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. Capital expenditure
C. Expenditure
D. Cost of revenue
8. Which of the following is an item shown in the statement of owners’ equity?
A. Capital expenditure
B. Expenditure
C. Retained earnings
D. None of the above
9. Which of the following is NOT an item shown in the company’s statement of financial position?
A. Current liabilities
B. Current assets
C. Non-current assets
D. None of the above
10. Which of the following statements is NOT true in regard to the statement of financial position?
A. Current assets are generally recorded in order of liquidity on the statement of financial position
B. Non-current assets are recorded in the statement of financial position
C. Capital expenditure is recorded in the statement of financial position
D. None of the above
11. Which of the following is NOT true about the current ratio?
A. Non-current assets are not used to calculate the current ratio
B. A current ratio that is too favorable is a red flag of misrepresentation of current assets and liabilities
C. A current ratio can be fraudulently affected overstatement of non-current assets
D. All the above
12. Which of the following statement is CORRECT in regard to recording of expenses?
A. Payment of expenses not incurred is a current asset and not an expenditure
B. Recording of payment of expenses not incurred as expenditure will overstate profit
C. Recording of payment of expenses not incurred as expenditure will understate expenditure
D. None of the above
13. Asset misappropriation of cash can be concealed fraudulently balancing the equation. Which of the following actions might NOT balance the accounting equation?
A. Increasing an asset
B. Increasing an expense
C. Decreasing a liability
D. Reducing an expense
14. Which of the following actions would aid a fraudster to conceal an asset misappropriation?
A. Increasing liability
B. Reducing an asset
C. Reducing liability
D. None of the above
15. Which of the entries made in the following accounts will conceal an asset misappropriation?
A. Increasing payables
B. Reducing an asset
C. Increasing revenue
D. None of the above
16. Wisdom Wambua runs a construction company. Wisdom received a contract to be performed over a period of five years and signed a contract for the full contract amount with the client. By the end of Year 2 the company had
performed and delivered only a quarter of the contract. Wisdom recorded the whole contract revenue amount in December of Year 2. Which one of the following is NOT true in regard to the above transaction.?
A. The revenue was not recorded in accordance with the IFRS 15 guidance for recognising revenue.
B. The transaction understated the revenue earned during that financial year
C. The transaction is a type of financial statement fraud scheme referred to as timing differences
D. All of the above
17. ABC company recorded substantial profit in the statement of profit and loss. The statement of cash flow recorded negative balances from the operating activities. Which of the following would have happened under the circumstances, where the company made profits according to the statement of profit and loss and negative cash balances from the operating activities?
A. Management of ABC company understated revenue
B. Management of ABC company overstated expenses
C. Management of ABC company concealed expenses
D. All the above
18. Which of the following is CORRECT in regard to the accounting equation?
A. Assets = Liabilities + Owners’ Equity
B. Liabilities = Assets + Owners’ Equity
C. Assets = Liabilities – Owners’ Equity
D. Assets = Current Liabilities + Owners’ Equity
19. Which of the following transaction CANNOT be used to balance the accounting equation to conceal cash misappropriation?
A. Reducing revenue
B. Reducing a liability
C. Reducing an expense
D. All of the above
20. 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
21. Which of the following appears on the statement of financial position of an organisation?
A. Bad debts
B. Expenses
C. Gross profit
D. None of the above
22. Donald Mreefu, a Certified Forensic Fraud Examiner, was hired to conduct an investigation on alleged fraudulent financial reporting. He was also retained to serve as an expert witness in a court of law, to give an expert testimony. In his expert testimony he explained that the financial statements were materially misrepresented because a substantial amount of expenditure was omitted in the financial statements. Which of the following BEST describes how the omission fraudulently affected the financial statements?
A. The liabilities were overstated
B. The liabilities were understated
C. Net profit was understated
D. All the above
23. Right Ltd. 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. He confirmed the allegation to be reliable and that there was sufficient predication that fraud had occurred. 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 conduct?
A. Forensic accounting
B. Forensic audit
C. Fraud audit
D. Any of the above
24. Big Ltd. is in negotiations with Small Ltd. to buy Small Ltd’s shares. Big Ltd. has received Small Ltdd’s end of year qualified financial statements. Which of the following statements is CORRECT in regard to establishing the exact financial performance and position of Small Ltd.?
A. Big Ltd. can rely on Small Ltd. audited financial statements since the financial statements were unqualified
B. Big Ltd. could rely on Small Ltd. audited financial statements if the financial statements were qualified
C. Big Ltd. needs to conduct a forensic accounting on the financial statements before acquiring Small Ltd.
D. Big Ltd. needs to conduct a forensic audit on the financial statements before acquiring Small Ltd.
25. Kamueya Oluoch Certified Public Accountants audit firm, conducted an annual audit of Britex Company. Britex Company is listed in the Securities Exchange. Based on the audit evidence, the auditor concluded that there was a high risk of material misrepresentation of receivables and current liabilities. Which of the following is a suitable opinion to be expressed the auditor?
A. Qualified opinion on the receivables and current liabilities
B. Unqualified opinion on the receivables and current liabilities
C. A disclaimer opinion
D. An adverse report
26. Which of the following statements is 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 a link between the statement of financial performance and the statement of profit or loss and other comprehensive income.
D. It shows the entity’s financial position and performance
27. Cost of goods sold or other direct expenses for generating revenue should be recorded the same accounting period. Failure to do so would result to which of the following?
A. Overstated profit
B. Overstated revenue
C. Understated net profit
D. All the above
28. Under the International Financial Reporting Standards (IFRS), which of the following is NOT a proper basis for recording a piece of equipment in the company’s books?
A. Revaluation value
B. Cost value
C. Current market value
D. All the above
29. Which of the following is CORRECT in regard to double entry theory in relation to concealment of asset misappropriation?
A. A fraudster can conceal an asset misappropriation crediting the asset account and debiting another asset account
B. A fraudster can conceal an asset misappropriation crediting the asset account and reducing an expenditure account
C. A fraudster can conceal asset misappropriation debiting the asset account and debiting a liability account
D. A fraudster can conceal asset misappropriation crediting the asset account and increasing a payables account
30. Which of the following statements is TRUE in 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 expenses
C. Net profit is equal to revenue less operating expenses
D. None of the above
31. A fraudster wanted to conceal the removal of a liability from the books, which of the following actions would
NOT conceal the removal of the liability?
A. Increasing revenue
B. Decreasing an expense
C. Decreasing an asset
D. None of the above
32. The assumption that a business will continue at least in next financial year is reflected in
accounting concept.
A. Consistency
B. Comparability
C. Going concern
D. None of the above
33. Which of the following is NOT a category of the statement of cash flow activities?
A. Operating activities
B. Investment activities
C. Financing activities
D. None of the above
34. Which accounting principle requires corresponding expenses and revenue to be recorded in the same accounting period?
A. Comparability
B. Marching principle
C. Materiality
D. None of the above
35. Under International Financial Reporting Standard (IFRS) 15, recognising revenue for work that is to be performed in the subsequent accounting periods, even though the work has already been paid for in advance is what type of financial statement fraud scheme?
A. Overstatement of liabilities
B. Improper disclosures
C. Timing differences
D. None of the above
36. 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 profit and loss
B. Statement of profit or loss and other comprehensive income and statement of assets
C. Statement of profit or loss and other comprehensive income and statement of cash flows
D. None of the above
37. Which of the following is NOT true about International Financial Reporting (IFRS) in regard to financial reporting?
A. IFRS compromise transparency and trust in the global market
B. IFRS require enhanced disclosures
C. IFRS bring efficiency and accuracy to serve public interest.
D. All the above
38. International Financial Reporting Standard (IFRS) requires that organisations disclose matters related to doubt about a company’s ability to fulfill its financial obligations at least in the next financial year and any other important information that the users of the financial statement would require to know. JKL and RQM companies are controlled the same directors. The directors of both companies did not disclose the business relationship between the two companies Which of the following BEST describes the financial statement fraud scheme that the directors were involved in?
A. Financial statement fraud
B. Inadequate disclosure
C. Accounting fraud
D. Related party transactions
39. Which of the following financial ratios can be used to detect fictitious receivables?
A. Asset turnover ratio
B. Receivable turnover ratio
C. Inventory turnover ratio
D. None of the above
40. Under International Public Sector Accounting Standards (IPSAS), Ministries, departments and agencies (MDAs) financial statements should include, progress on auditor’s recommendations, pending bills note and analysis, and Integrated Financial Management Systems (IFMIS) generated reports among others. Which of the following is NOT correct in regard to failure to include the above reports?
A. Failure to disclose the above reports is a red flag of financial statement fraud
B. Failure to disclose the above reports is a of high risk of financial statement fraud
C. The auditor should recommend for a financial statement fraud audit, where the above reports are not disclosed
D. Failure to disclose the above reports is an indicator that fraud has actually occurred
41. Which of the following is NOT true in regard to financial reporting in Kenya?
A. Kenya has adopted IFRS, IAS and IPSAS standards for financial reporting in the private and public sector respectively
B. SME’s are not required to uses IFRS
C. Nairobi Securities Exchange require companies trading in the securities exchange to apply IFRS in financial reporting
D. All the above
42. International Financial Reporting Standards (IFRS) provides financial reporting standards to prevent misrepresentation of financial statements. Which of the following statement is CORRECT in regard to failure to adhere to International Financial Reporting standards (IFRS)?
A. The effect would be fair value measurement
B. The expenses recognition would not be accurate
C. The assets valuation would be fair
D. None of the above
43. IPSAS require that ministries include a note and analysis on pending bills in the financial statements, the listing should agree with the pending bills note in the financial statements. Which of the following is CORRECT in regard to a variance between pending bills in the financial statements and the pending bills listing?
A. There is a high risk of concealed pending bills
B. There is no red flag of concealment of actuals versus budget
C. There is no red flag of overstated pending bills
D. All the above
44. 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. The entity’s finance team has expertise in all the IPSAS and their applicability to the entity’s financial statements
45. Which of the following is generally NOT a code of ethics for Certified Forensic Fraud Examiners, forensic accountants and accountants?
A. Confidentiality, commitment, diligence and lawfulness
B. Competition and intelligence gathering
C. Moral principles
D. None of the above
46. Which one of the following is NOT true about internal control environment?
A. Internal control environment defines the organisations attitude towards compliance with internal controls.
B. Internal control environment creates a foundation for all other controls
C. Internal control environment components are types of hard controls
D. All the above
47. Which of the following is NOT true 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. The auditor should prioritise the audit according to the level of the risk, that is, low to high approach
D. All the above
48. Which of the following statements is NOT correct in regard to forensic accounting and forensic audits?
A. Not all forensic accounting are forensic audits
B. Some forensic accounting assignments are similar to forensic audits
C. Some forensic audits are similar to forensic accounting
D. None of the above
49. Which of the following terminologies CANNOT be used interchangeably with forensic audit?
A. Fraud detection audit
B. Fraud examination
C. Fraud investigation
D. All the above
50. Which of the following skills and knowledge is NOT a must for a forensic accountant?
A. Good knowledge of laws related to fraud
B. Good knowledge of rules of evidence
C. Good Interviewing skills
D. None of the above
51. Forensic auditors do not necessarily have to be accountants; however, they must be knowledgeable in various areas. Which of the following is NOT one of those areas?
A. Knowledge in financial statement fraud detection methods
B. Knowledge in conducting routine audits
C. Knowledge of the common financial statement fraud schemes
D. All the above
52. Which of the following is TRUE about Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)?
A. GAAP is principle based while IFRS are rule based
B. IFRS leave room for interpretation
C. IFRS does not require lengthy disclosures on financial statement
D. All the above
53. Failure to adhere to the respective IFRS in recognising revenue, recording of costs and expenses, valuation of current assets could result to:
A. Misrepresentation of the entity’s current liabilities
B. Understatement of receivables
C. Unfavorable current ratio
D. None of the above
54. Toto Ltd. has always used the first-in, first-out (FIFO) inventory valuation method when calculating its cost of goods sold. This is an industry standard for inventory valuation method for Toto Ltd. If management used another method that will result to reduced cost of goods, which of the following is CORRECT in relation to understated cost of inventory
A. The gross profit margin would be understated
B. The net income would be understated
C. The closing stock would be understated
D. None of the above
55. Which of the following is TRUE about what is shown on a company’s statement of profit or loss and other comprehensive income?
A. The company’s financial position at a specific point in time
B. The changes in the total owners’ equity
C. The sources and application of funds
D. None of the above
56. Which of the following statements is NOT true in regard to the statement of financial position of a listed company?
A. Current assets are required to be presented in order of liquidity
B. The statements of financial position are usually manipulated understating assets and overstating liabilities.
C. The statements of financial position are usually manipulated overstating assets and concealing liabilities
D. All the above
57. Which of the following is NOT true in regard to recording of receivables?
A. Management should not write off bad debts, but rather collect the bad debts
B. Failure to write off bad debts would overstate the receivables
C. Management should write off bad debts, as they make efforts to collect
D. Failure to write off bad debts would inflate the current ratio
58. If a fraudster wanted to conceal the misappropriation of cash, which of the following actions would conceal the asset misappropriation?
A. Increasing owners’ equity
B. Reducing an expense
C. Increasing an asset
D. All the above
59. Which of the following actions would aid a fraudster to conceal misappropriation of inventory?
A. Reduce an asset
B. Reduce an expense
C. Increase a liability
D. None of the above
60. Seon runs a chemical company. Seon wants to borrow money from the bank to pay off his operational cost that the company is unable to pay from revenue generated from operations. He is aware that the bank cannot provide financing to cater for operational costs. Therefore, he applies for a loan for expansion. Which of the following statement is NOT correct in regard to financial reporting of the company, for purposes of facilitating financing?
A. The company will increase revenue through fictitious sales and omit expenditures incurred
B. The company will create fictitious expenditures and liabilities
C. The company will capitalise expenditure
D. All the above
61. ABC company recorded substantial profit in the profit and loss account. The statement of cash flow recorded negative balances from the operating activities. This is red a flag of which of the following financial statement fraud?
A. Recognising unearned revenue
B. Overstated expenses
C. Understated revenue
D. All the above
62. Which of the following could be used to balance the accounting equation to conceal cash misappropriation?
A. Increasing equity
B. Increasing a liability
C. Reducing an asset
D. None of the above
63. Which of the following is an item of statement of profit and loss account?
A. Capital expenditure
B. Expenditure
C. Liabilities
D. All the above
64. Davies Juma, 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 his expert testimony, Davies explained the requirements under International Financial Reporting Standards. Which of the following is CORRECT in regard to financial statements that are not complete, neutral, and free from fraud or error.
A. Relevance
B. Comparability
C. Consistency
D. None of the above
65. A foreign investor wants to make a high investment in JR International. It would be advisable that the investor conduct which of the following assignments before making a decision to invest in the company?
A. Forensic audit
B. Special audit
C. Statutory audit
D. Forensic Accounting
66. Which of the following statements is NOT true in regard to the statement of changes in owners’ equity?
A. Changes in owners’ equity and statement of retained earnings are similar but they are not identical
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. Owners’ equity acts as a link between the statement of financial position and the statement of profit or loss and other comprehensive income.
D. All the above
67. Which of the following statements is TRUE in regard to gross margin?
A. Gross margin is the difference between cost of sales and operating costs
B. Gross margin is equal to sales less cost of goods sold
C. Gross margin is equal to revenue less operating expenses
D. None of the above
68. Which of the following is the most important activity of the statement of cash flows that can be used to determine a company’s financial performance?
A. Operating activities
B. Investment activities
C. Financing activities
D. None of the above
69. Which accounting basis requires that expenses be recognised when incurred and revenue when earned regardless of whether the expenses are paid or revenue is received during the financial year.
A. Cash basis of accounting
B. Consistency basis of accounting
C. Accrual basis
D. None of the above
70. Under International Financial Reporting Standards (IFRS) 15, recognising revenue for work that is to be performed in subsequent accounting periods, even though the work has already been contracted would result in:
A. Overstated revenue
B. Overstated current asset
C. Understated cost of sales
D. All the above
71. 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 or loss and other comprehensive income and statement of financial performance
C. Statement of profit or loss and other comprehensive income and statement of financial position
D. None of the above
72. Which of the following is TRUE about International Financial Reporting Standards (IFRS) in regard to financial reporting?
A. IFRS enhance transparency and integrity of the financial statements
B. IFRS reduce the profits of the reporting organisation
C. IFRS reduce the non- current assets value
D. None of the above
73. Which of the following statements is NOT correct 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 sources and uses of cash during the accounting period.
C. There are three types of cash flows; cash flows from operating activities, from strategic activities and from financing activities.
D. All the above
74. Which of the following statements is CORRECT in regard to improper disclosures?
A. Disclosures amounts are financial statements amounts
B. Disclosures amounts are not financial statements amounts
C. Disclosures must be included in financial reporting
D. Failure to include disclosures would not fraudulently affect the financial reporting
75. Which of the following, would fraudulently affect the current ratio and therefore become misleading for decision makers?
A. Accrual of expenses
B. Proper valuation of inventory
C. Inadequate provision for bad doubtful debts
D. None of the above
76. Under International Public Sector Accounting Standards (IPSAS), Ministries, Departments and Agencies (MDAs) financial statements should include which one of the following disclosures?
A. Progress on auditor’s recommendations
B. Pending bills note and analysis
C. IFMIS generated reports
D. All the above
77. 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. All the above
78. 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 of the following is not one of those reporting areas?
A. Revenue recognition
B. Asset valuation
C. Value for money
D. Expenses
79. When planning an audit of an entity’s financial statements under International Public Sector Accounting Standards (IPSAS), which of the following 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 have advanced 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
80. According to the Association of Certified Fraud Examiners, the code of conduct for fraud examiners is basically based on several principles. Which of the following NOT one of those principles?
A. Confidentiality
B. Integrity, independence, and objectivity
C. Profession skepticism
D. All the above
81. Which one of the following statements is NOT correct in regard to internal control environment in regard to accounting?
A. Internal controls are the mechanisms, rules and procedures designed and implemented the internal audit functions
B. Internal controls ensure the integrity of financial and accounting information
C. Internal controls environment enforces all other controls
D. All the above
82. Which of the following is a type of financial statement fraud?
A. Omission of unearned revenue
B. Adequate provision for bad and doubtful debts
C. Failure to write off obsolete inventory
D. All the above
83. Which of the following is NOT a type of financial statement fraud?
A. Writing off bad debts
B. Concealed expenditure
C. Capitalisation of expenditure
D. None of the above
84. Procurement fraud is a high risk in the public sector. Which of the following exercise should auditors perform when auditing procurement for purposes of detecting procurement fraud?
A. Forensic audit
B. Fraud audit
C. Value for money audit
D. None of the above
85. In which of the following scenarios would one hire a forensic accountant?
A. Bankruptcy, Insolvency and reorganisation
B. Calculation in lawsuits
C. Business valuation
D. All of the above
86. Under the IAS/IFRS, the proper basis for recording a piece of equipment, vehicle, building or land on a company’s books at initial recognition is at .
A. Revaluation value less cost to sell
B. Sales value less accumulated depreciation
C. Cost value plus accumulated depreciation
D. Historical cost
87. Haki Limited seeks to invite potential investors into the company. The managing director instructed the accountant to artificially increase the value of non-current assets so as to increase the company’s net worth. What type of financial statement fraud was management perpetrating?
A. Improper assets valuation
B. Improper assets impairment
C. Improper asset revaluation
D. Improper assets net adjustment
88. Which of the following statements is NOT correct in regard to recording of fictitious sales?
A. Fictitious sales will result in fictitious receivables
B. Fictitious sales will result in inflated profits
C. Fictitious sales will result in understated current ratio
D. Fictitious sales will result in overstated current ratio
89. Which of the following is the root causes of financial statements fraud?
A. Pressure, motivation or rationalisation
B. Pressure, opportunity and rationalisation
C. Pressure, coercion or rationalisation
D. Pressure, motivation or coercion
90. 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
91. Which of the following statement of cash flows activities is NOT a type of cash flows in from operating activities?
A. Investment dividends.
B. Share capital
C. Cash from sale of an asset
D. All of the above.
92. 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 liability ratio
C. Cost of sales ratio
D. Quick ratio
93. Which of the following is NOT true in regard to financial reporting in Kenya?
A. Kenya has adopted IFRS and IPSAS standards for financial reporting in the private and mining sector respectively
B. SMEs are not allowed to use IFRS standard for SME’S if they have public accountability.
C. Nairobi Securities Exchange requires companies trading in the Securities exchange with public accountability to use IFRS standard for SMEs
D. All the above
94. Which of the following statements is TRUE regarding the statement of financial position of listed companies?
A. Non-current liabilities are generally presented on the statement of financial position in order of materiality.
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
95. Owners’ equity can be affected which of the following:
A. Shareholders’ funds, dividends and liabilities
B. Shareholders’ funds, net income and loans
C. Net income, working capital and loans
D. Additional share premium, net income
96. Financial statements fraud will mostly take the form of
A. Overstated assets less revenue
B. Overstated liabilities and expenses
C. Understated working capital
D. Understated revenue and overstated gross profit margin
97. Which of the following is NOT true in regard to recording of current liabilities?
A. Deferral of expenses will not have any effect on the current liabilities
B. Failure to record payables would inflate the current ratio
C. Failure to record payables would inflate the profit
D. Failure to record payables would understate the current assets
98. Which of the following statements is NOT true in regard to forensic audit?
A. The assumption of a forensic audit is that it might end up in court
B. The forensic audit should be conducted only on sufficient predication
C. The scope of a forensic audit should be wide enough to uncover most of the fraudulent activities
D. The scope of a forensic audit should be specific to the facts in issue
99. Which of the following is NOT true in regard to the characteristics of a good forensic auditor?
A. A good listener
B. Patient
C. People’s person
D. Partial
100. Which of the following is NOT true in regard to the characteristics of a good Forensic audit?
A. The scope is specific to the facts in issue
B. Is commissioned the right person
C. The forensic audit team has diverse knowledge and skills for the audit
D. The scope is general in nature
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